Gurumurthy Kalyanaram, NYIT, former professor and Dean, presents short reports on Resource Advantage Theory. The following material is directly adapted from research by Seema Gupta et. al.
At the heart of the R-A theory are the concepts of resources, market position and financial performance (see Figure 1). Resources are the tangible and intangible assets available to a firm that enable it to efficiently and/or effectively produce a market offering that has value for certain market segment(s) (Barney, 1991; Wernerfelt, 1984). R-A theory categorizes resources as financial (e.g., cash reserves, access to financial markets), physical (e.g., plant, equipment), legal (e.g., trademarks, licenses), human (e.g., the skills and knowledge of individual employees), organizational (e.g., competencies, controls, policies, culture), informational (e.g., knowledge resulting from consumer and competitor intelligence), and relational (e.g., relationships with suppliers and customers) (Hunt and Morgan, 1995).
A position of competitive advantage is sought by a firm in the marketplace, since it is assumed that it will lead the firm to superior financial performance. Superior implies that a firm seeks a level of performance exceeding some referent (e.g., profits, return on assets, or return on equity), where the specific referent might be the firm’s own performance in a previous time period or that of a set of rival firms, an industry average or a stock market average (Hunt and Moran, 1995).
Since all firms seek superior financial performance, competitors of a firm that has comparative advantage will attempt to neutralize their rival’s advantage by obtaining the same value producing resource. If the resource is mobile, and is readily available in the marketplace, then it will be acquired by competitors, and the comparative advantage is neutralized. If it is immobile, then competitors innovate. According to Barney (1991), the innovating behavior can be either imitating the resource or finding a substitute resource that is strategically equivalent. We extend the R-A theory to evaluate the comparative and competitive advantages of three groups of firms: sponsors, ambushers and others. In this study, we concentrate specifically on exploring the relationships among resources, market position, consumers and financial performance, in the context of societal resource and competition.