Characteristics of resources and capabilities creating sustainable competitive advantage of the firm

The “Resource-based approaches to the theory of competitive advantage point towards four characteristics of resources and capabilities creating sustainable competitive advantage for the firm, including: durability, transparency, transferability, and replicability” (Grant, 1991, p. 124), that are complement to the VRIN model of Barney (1991) (in which the resources that create sustainable competitive advantage for the firm must be valuable, rare, inimitable and nonsubstitutable).

1. Durability

The durability means that how long until a resource becomes obsolete or depreciate. “In the absence of competition, the longevity of a firm’s competitive advantage depends upon the rate at which the underlying resources and capabilities depreciate or become obsolete. The durability of resources varies considerably: the increasing pace of technological change is shortening the useful life-spans of most capital equipment and technological resources. On the other hand, reputation (both brand and corporate) appears to depreciate relatively slowly, and these assets can normally be maintained by modest rates of replacement investment” (Grant, 1991, p. 124).

“Firm capabilities have the potential to be more durable than the resources upon which they are based because of the firm’s ability to maintain capabilities through replacing individual resources (including people) as they wear out or move on” (Grant, 1991, p. 124). And, “one of the most important roles that organizational culture plays in sustaining competitive advantage may be through its maintenance support for capabilities through the socialization of new employees” (Grant, 1991, p. 125).

2. Transparency

“The firm’s ability to sustain its competitive advantage over time depends upon the speed with which other firms can imitate its strategy”. “If a firm wishes to imitate the strategy of a rival, it must first establish the capabilities which underlie the rival’s competitive advantage, and then it must determine what resources are required to replicate these capabilities. I refer to this as the “transparency” of competitive advantage” (Grant, 1991, p. 125).

“With regard to the first transparency problem, a competitive advantage which is the consequence of superior capability in relation to a single performance variable is more easy to identify and comprehend than a competitive advantage that involves multiple capabilities conferring superior performance across several variables” (Grant, 1991, p. 125).

“With regard to the second transparency problem, a capability which requires a complex pattern of coordination between large numbers of diverse resources is more difficult to comprehend than a capability which rests upon the exploitation of a single dominant resource” (Grant, 1991, p. 125). “Imperfect transparency is the basis […] of “uncertain imitability”: the greater the uncertainty within a market over how successful companies “do it,” the more inhibited are potential entrants, and the higher the level of profit that established firms can maintain within that market” (Grant, 1991, p. 125).

3. Transferability

Firm can proceed resources and capacities necessary for a competitive challenge in the markets for these inputs. However, “most resources and capabilities are not freely transferable between firms” (Grant, 1991, p. 126). Imperfections in transferability arise from several sources as follows:

  • Geographical immobility: “The costs of relocating large items of capital equipment and highly specialized employees” (Grant, 1991, p. 126).
  • Imperfect information: “Assessing the value of a resource is made difficult by the heterogeneity of resources (particularly human resources) and by imperfect knowledge of the potential productivity of individual resources” (Grant, 1991, p. 126).
  • Firm-specific resources: For example: reputation; “an employee’s productivity is influenced by situational and motivational factors, then it is unreasonable to expect that a highly successful employee in one company can replicate his/her performance when hired away by another company” (Grant, 1991, p. 126).
  • The immobility of capabilities: “Capabilities, because they require interactive teams of resources, are far more immobile than individual resources-they require the transfer of the whole team” (Grant, 1991, p. 126).

4. Replicability

“The second route, [with by market], by which a firm can acquire a resource or capability is by internal investment” (Grant, 1991, p. 127). However, “much less easily replicable are capabilities based upon highly complex organizational routines” (Grant, 1991, p. 127). “Even where replication is possible, the dynamics of stock- flow relationships may still offer an advantage to incumbent firms. Competitive advantage depends upon the stock of resources and capabilities that a firm possesses. In practice, “firms which possess the initial stocks of the resources required for competitive advantage may be able to sustain their advantages over time.” Among the stock-flow relationships they identify as sustaining advantage are: “asset mass efficiencies” – the initial amount of the resource which the firm possesses influences the pace at which the resource can be accumulated; and “time compression diseconomies” – firms which rapidly accumulate a resource incur disproportionate costs” (Grant, 1991, p. 127).

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