Innovation and the Resource-Based View
Up to now, most people consider Innovation and the innovation process to be the source for competitive advantage. We have identified the scarcity of resources as an important constraint to the proceeding of ideas through the “development funnel” and their further processing. Regarding innovation as source of competitive advantages, and resources as constraint (limitation) to innovation, makes the availability of resources to a possible source of competitive advantage too. Resource allocation is a main task within strategy making and the development of an innovation project portfolio. The “Resource-Based View” (RBV) argues, that different market success of competing firms in similar sectors derives “from each firm’s unique bundle of resources and capabilities” (Hoopes et al., 2003, p.890; cp. Katila et al., 2005, p. 815). This may imply that “firms do not compete on new products, but rather on a deeper factor – the capacity to develop new products” (Lawson et al., 2001, p. 379). In the following the importance of resources and capabilities for the innovation process will therefore be further examined.
Resources and Capabilities
The Resource-Based View (RBV) is used to explain performance differences amongst relatively close rivals. “It assumes that performance differences across firms are due to differences arising from valuable, rent generating, firm specific resources and capabilities that cannot be easily imitated or substituted” (Lawson et al. 2001, p.379). So a central premise of the resource-based theory is that rival firms compete on the basis of their resources and capabilities (Peteraf et al., 2003, p.1027). According to the perspective of the RBV, “resources are assets or inputs to production that an organization owns or accesses, while capabilities are the ability to use resources to achieve organizational goals” (Katila et al., 2005). Another definition is:
“Resources (…) are tangible and intangible assets that are tied semi-permanently to the firm. They are physical, human, technological or reputational”. And: “Capabilities are features of the firm and managerial skills forming organizational routines, which lead to competitive advantage” (Hadjimanolis, 2000). While numerous definitions exist, I will follow the definition of Helfat et al. (2003, p.999) which is very similar to the last one and according to whom a “resource refers to an asset or input to production (tangible or intangible) that an organization owns, controls or has access to on a semi-permanent basis while an organizational capability refers to the ability of an organization to perform a coordinated set of tasks, utilizing organizational resources, for the purpose of achieving a particular result. Both resources and capabilities may evolve and change over time in important ways.” Therefore they may also become a core rigidity of the organization instead of being a source of competitive advantage (cp. Lawson et al., 2001, p. 380).
To be a source of competitive advantage, resources must fulfill certain criteria (Hoopes et al., 2003; Wiklund et al., 2003; Hadjimanolis, 2000):
1. Valuable. A valuable resource enables a firm to improve its market position relative to competitors. For example, resources acquired at a price below their discounted net present value can generate rents (profits that do not attract entry).
2. Rare. To be of value in sustaining competitive advantage resources must be available in short supply relative to demand.
3. Isolated from imitation or substitution. To be rare, resources need to be immobile, and costly to imitate or to replicate.
Rareness is the least important of these three characteristics, because it is only of economic relevance if it is valuable and cannot be imitated (Hoopes et al., 2003, p.890) In their work “Scanning Dynamic Competitive Landscapes” Peteraf and Bergen (2003) underpin the danger of resource substitution. They argue that resource scarcity should be categorized in terms of functionality and use rather than resource type, because when perfect substitutes are available, neither rareness nor even uniqueness of a resource may provide competitive advantages. While their work is focused on competitive aspects of resources and capabilities, their findings apply well to innovation. The awareness of functionally similar resources and capabilities may not only be used to identify possible competitors (threats), but also to identify possible sources of innovation (opportunities). The distinction between knowledge-based resources and property-based resources adequately demonstrates the difference between certain resources within the innovation process. While some tangible resources can be easily transferred, copied or substituted, (intangible) knowledge-based resources can not and may therefore facilitate sustainable differentiation and competitive advantage. These resources sometimes enable firms to be more innovative than others because they “allow the organization to respond and adapt to challenges” (Hadjimanolis, 2000, p. 264).
A further subdivision of knowledge-based resources is the distinction between discrete and systemic (embodied) knowledge-based resources. While technical skills are discrete knowledge-based resources and can be learned or transformed more easily, while systemic knowledge-based resources like collaborative skills (“soft”-skills) are more likely to be inimitably (Hadjimanolis, 2000). Developing internal knowledge-based resources for fostering the capability of coping with change and exploiting new opportunities has therefore become a main target of innovation management. (see innovation capabilities)