The Resource-Based View And Value To The Customer

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1 The Resource-Based View And Value To The Customer Carol Anne Barry, Swinburne University of Technology Valerie Clulow, Monash University, Business and Economics and Julie Gerstman, Swinburne University of Technology Abstract Much of the conceptual analysis and empirical research within the RBV has focused on the firm s perspective of key resources and the value to the firm of these key resources. Another useful perspective on key resources is to explore the value they provide to the customer. The question of interest here is whether key resources that hold value for the firm also hold value for the customer. A research approach using an interview schedule is proposed here as an appropriate methodology by which to explore the customer perspective of key resources. This conceptual paper suggests that the outcomes of studies based on this research approach will provide insights into the identification of the factors the customer regards as the firm s valuable resources and how this influences their choice of firm. An understanding of the customer perspective has the potential to enhance the firm s ability to develop customer value related capabilities. Introduction A central tenet of the resource-based view (RBV) is the relationship between customer value, competitive advantage and superior performance. The firm can provide value to customers in many ways, such as via superior production systems, lower cost structures and emphasis on customer service. The RBV contends that key resources exhibiting particular characteristics enable the firm to implement strategies which meet the needs of customers, thereby enhancing the firm s ability to secure a sustained competitive advantage. RBV theory, however, says very little about the needs of customers and how customers perceive value in a firm s resources. The RBV highlights the firm as a unique collection of resources, but the theory emphasises that not all of these resources possess the potential to provide the firm with a sustained competitive advantage. Early proponents of the RBV identified characteristics of advantage-creating resources such as, value, rareness, inimitability and non-substitutability (Barney, 1991), inimitability, durability, appropriability, substitutability and competitive superiority (Collis and Montgomery, 1995) and the eight criteria of Amit and Schoemaker (1993), complementarity, scarcity, low tradability, inimitability, limited substitutability, appropriability, durability and overlap with strategic industry factors. More recently, these advantage-creating characteristics have parsimoniously been subsumed into three key criteria of value, barriers to duplication and appropriability (Fahy, 2000). The RBV contends that the possession and identification of key resources embodying these essential features, along with their effective development and deployment, allows the firm to achieve and sustain competitive advantage. Within the RBV literature there has been a predisposition for conceptual analysis and empirical research to focus on the firm s perspective of key resources and the value to the firm of these key resources. ANZMAC 2005 Conference: Services Marketing 1

2 The aim of this conceptual study is to develop a research approach to explore the customer perspective of key resources. This research will enable identification of a range of factors regarded by the customer as the firm s valuable resources and hence guide the firm to a customer value delivery orientation. This paper builds on a previous empirical study of the RBV (Clulow, Gerstman and Barry, 2003) which investigated the firm s perspective on key resources. In that study of a superior performing firm in the financial services industry, a depth interview with a senior manager of the firm posed a series of questions with respect to value, barriers to duplication and the ability of the firm to appropriate the benefits of its key resources. This process identified specific intangible assets and capabilities credited with providing the firm s competitive advantage in the industry. Literature Review The RBV literature has focused on the firm s perspective of key resources and the value of those key resources in terms of conferring a competitive advantage reflected in superior performance for the firm (Barney, 1991; Amit and Shoemaker, 1993; Peteraf, 1993; Fahy and Smithee, 1999). Resources possessing the essential characteristics summarized by Fahy (2000) as value, barriers to duplication and appropriability have been identified in many studies as intangible assets and capabilities (e.g. Hall, 1993; Barney and Wright, 1998; Smart and Wolfe, 2000; Clulow et. al., 2003). The competitive advantage gained by these key intangible assets and capabilities is then reflected in superior performance for the owners of the firm, with superior performance usually measured in financial terms such as higher profits, increased sales or market share (Hunt and Morgan, 1995; Collis and Montgomery, 1995; Fahy, 2002; Wilcox King and Zeithaml, 2001). This approach reflects traditional marketing literature which commonly addresses the question of the value of the customer to the firm (Payne, 2001). In a study of a high performing firm in the financial services industry (Clulow et. al., 2003), tangible assets whilst having value for the firm, were determined not to fit the construct of key resources because they were found to be causally explicit and hence easily duplicated. They did not satisfy all the essential criteria for providing a sustainable competitive advantage. In contrast, intangible assets (client trust, reputation, networks and intellectual property) and capabilities (knowledge, organizational culture, skills and experience) developed over time and were not easily replicated. Their value could be appropriated by the firm because the unique combination of company philosophy, knowledge and skills of employees and other idiosyncratic capabilities were difficult to separate or transfer. Further, the strategic role of management was found to be integral to the identification, development and deployment of key resources and their impact on sustainable competitive advantage and superior performance (see Figure 1). The perspective on how key resources add value to the customer needs further exploration. The question of interest here is whether key resources that hold value for the firm also hold value for the customer, or whether the value attributed by each is necessarily different. ANZMAC 2005 Conference: Services Marketing 2

3 Figure 1: A Resource-based View of Customer Value and its Relationship to Sustainable Competitive Advantage Management s strategic role Key resources identification Key resources development and protection Key resources deployment Value Barriers to duplication Appropriability Key Resources Tangible Assets Intangible Assets Capabilities Value recognised in the Value results from Value is embodied in the balance sheet reputation and client trust culture of the firm and the knowledge and skills of Easy for rivals to identify and duplicate Fully appropriated by the firm Unique and complex resources create inimitability Value remains within the firm due to resource inimitability and success in retaining key personnel employees Tacitness and causal ambiguity create inimitability Ownership structure reinforces inimitability enabling the firm to appropriate value Sustainable competitive advantage Value to client consistently high performance Superior performance Market performance rate of return relative to competitors Source: Adapted from Figure 2 A revised resource-based model of sustainable competitive advantage, Clulow, V., Gerstman, J. and Barry, C. The resource-based view and sustainable competitive advantage: the case of a financial services firm, European Industrial Training, p.230, vol.27, no.5, Knowing which resources customers value would enable the firm to re-orient focus to those assets in order to sustain their competitive advantage, and to develop customer value related capabilities. From a customer s perspective, a firm offers and delivers a range of services generated from its unique resources. As Penrose described over four decades ago, It is the heterogeneity of the productive services available or potentially available from its resources that gives each firm its unique character (Penrose 1959: 75, 77). The heterogeneity, imperfect mobility and inimitability of intangible assets and capabilities provide firms with the ability to create unique character that enables a market offering of value to customers. Or, in the words of Hunt and Derozier (2004: 14)...a resource is valuable when it contributes to a firm s ability to efficiently and/or effectively produce a marketplace offering that has value for some market segment or segments. The value of intangible resources and capabilities from the customer s perspective is thus the aspect of the model to be explored further and is highlighted in Figure 1. The link in the RBV model between the value of key resources and the firm s attainment of a sustained competitive advantage may be explicated by an understanding of how customers make value assessments. ANZMAC 2005 Conference: Services Marketing 3

4 The concept of value and its many different facets has been explored extensively within marketing and management literature. As described by Woodruff (1997), the term value can be used in the contexts of superior customer value, high-value customers and value of an organization, amongst many others. A significant contribution to the discussion of customer value is provided by Payne (2001) in a substantial review of the value literature and the many perspectives of the value concept. Most of these value concepts consider the firm s perspective and this approach is mirrored in much of the value literature (see for example Prahalad and Hamel, 1990; Black and Boal, 1994; Miller and Shamsie, 1996). However, concentrating on how much value (in the form of profits) an organization can extract from its customers, without understanding what customers value from the organization and providing it, is not sustainable in a competitive environment (Payne, Holt and Frow, 2000: 260). Despite the broad range of perspectives in the value literature and the scope for further study of many of these views, the focus of this inquiry is the relevance to the customer of the RBV s explanation of how the firm s key resources create customer value. Our conceptualisation has been derived by applying the firm s view of value, from the RBV, and seeking to evaluate whether it aligns with the customer s perception of what they value. Research Question: How do customers value the resources identified within the RBV as valuable from the firm s perspective? Methodology The aim of this conceptual study is to develop a research approach to explore the customer perspective of the value to them of a firm s key resources and tangible assets. Research which incorporates this approach will enable identification of a range of resources regarded by the customer as the firm s valuable resources. To gain a more complete understanding of value, the customer s perspective of the firm s key resources needs to be explored through a search for evidence of the value placed on these assets and capabilities. By adopting a customer perspective the proposed research design allows us to examine how customers perceive that key resources provide value to them, and then consider the nature of the value attributed by the customer and the importance of this value to their choice of firm. For this purpose an interview schedule has been recommended. The technique proposed to elicit customer information is to select customers whose opinion on value attribution matters to the firm and to conduct in-depth or grand-tour interviews to explore their views. According to Woodruff (1997: 144) this technique uses in-depth personal interviews to get customers to take the interviewer on a tour to understand better what happens during product use. This process has the advantage of providing scope for customers to explain how they assess the key resources of a firm and to inquire if factors other than key resources contribute to a customer s value assessment. Given the unique and idiosyncratic nature of intangible assets and capabilities it is clear...that large sample, multi-industry, single time period samples using secondary sources of data will not help disentangle the key factors that may provide sustainable advantage (Rouse and Daellenbach, 1999). ANZMAC 2005 Conference: Services Marketing 4

5 The semi-structured interview design (Cassell and Symon, 1994; Malhotra et. al., 1996; Yin, 1994) was developed through a number of iterations by the authors and reflects the broad issues generated from the RBV literature. The schedule of questions is designed to elicit the customers views of how key resources and tangible assets create value for them, and the nature and importance of this value. By posing the same broad themes to customers as were put to the firm (Clulow et. al., 2003) the possibility of a comparison of what provides value to each is created. A question to validate the importance of tangible assets from a customer view was also included, even though the firm in the previous study had reduced their importance to less than key resources. To allow valid comparisons with the initial study, the questions proposed are as close to the original questions as possible. Proposed Interview Schedule and Rationale Issue Question Rationale Tangible assets (eg. land, buildings, equipment) Intangible assets (client trust, firm reputation, intellectual property) Capabilities (organisational culture, organizational history, knowledge, managerial skill, and team- embodied skills) The RBV develops concepts and sources of value from the firm s perspective. How do you rate the importance of tangible assets in choosing a service provider? How do you rate the importance of intangible assets in choosing a service provider? How do you rate the importance of capabilities when choosing a service provider? To what extent do you value the role of management in choosing service providers? What other factors do you value and consider important in making your choice of a service provider? Tangible assets are not always considered key resources in the RBV, because they are readily replicated by competitors. This question reviews the relevance of tangible assets in providing value from a customer s perspective. The more specific the intangible assets are to the firm, the more they are regarded as key resources in the RBV. The importance and value placed on intangible assets by the customer is sought. The RBV claims that a firm s culture, organizational history, its managerial skills and team-embodied knowledge provide a firm s capabilities. The customer s value assessment of capabilities is sought. The RBV views the role of management as an integral capability. This question aims to identify the customer s view on the importance of the role of management. This question is to allow customers to identify any further sources of value other than those considered in the RBV. The questions proposed relate to the contributing factors of value as explained in the RBV (figure 1) and focus on key resources (intangible assets and capabilities of a firm) and tangible assets and have been rephrased into a form relevant to customers. Two additional questions are recommended in the schedule. The first relates to capabilities and seeks to affirm if the strategic role of management in the deployment of key resources (identified in the previous study (Clulow et. al., 2003)) adds value for the customer. The second additional question is to enable sufficient opportunity for the customer to introduce further perceived sources of value in the firm that have not previously been identified in the RBV model. ANZMAC 2005 Conference: Services Marketing 5

6 Conclusion It has been suggested (Fahy, 2000) there is a need for empirical study of the constructs that underpin the resource-based view. The proposed study will investigate the value component of the RBV from a customer perspective. It is important to seek out the views of customers on the relevance of the key sources of value in the RBV model that are said to generate a sustained competitive advantage and value to clients. This conceptual paper supports the proposition of Rouse and Daellenbach (1999) that qualitative methodologies will be more appropriate for work undertaken within organisations, since the research methodologies traditionally used in strategy research will not unambiguously uncover these sources of sustainable competitive advantage. An alternative and broader approach not explored here, would be to initially examine the customer value proposition and then to compare and contrast that value with the firm s view. Further explication of the RBV to incorporate and integrate the customer s view could provide a deeper understanding of the inputs to sustainable competitive advantage and superior performance. References Amit, R., Shoemaker, P., Strategic assets and organizational rent. Strategic Management Journal 14, Barney, J., Firm resources and sustained competitive advantage. Journal of Management 17(1), Barney, J., Wright, P.M., On becoming a strategic partner: the role of human resources in gaining competitive advantage. Human Resource Management 37 (1), Black, J.A., Boal, K.B., Strategic resources: Traits, configurations and paths to sustainable competitive advantage. Strategic Management Journal 15, Cassell, C., Symon, G., Qualitative Methods in Organizational Research: Practical Guide, Sage, London. Clulow, V., Gerstman, J., Barry, C., The resource-based view and sustainable competitive advantage: the case of a financial services firm. Journal of European Industrial Training 27(5), Collis, D.J., Montgomery, C.A., Competing on resources: Strategy in the 1990 s. Harvard Business Review 73(4), Dierickx, I., Cool, K., Asset stock accumulation and sustainability of competitive advantage. Management Science 35(12), Fahy, J., The Resource based view of the firm: Some stumbling-blocks on the road to understanding sustainable competitive advantage. Journal of European Industrial Training 24(2), ANZMAC 2005 Conference: Services Marketing 6

7 Fahy, J., A Resource-based analysis of sustainable competitive advantage in a global environment. International Business Review 11, Fahy, J., Smithee, A., Strategic marketing and the resource-based view of the firm. Academy of Marketing Science Review 10, Hall, R A framework linking intangible resources and capabilities to sustainable competitive advantage. Strategic Management Journal 14, Hunt, S.D., Morgan, R.M., The comparative advantage theory of competition. Journal of Marketing 59(2), Hunt, S.D., Derozier, C., The normative imperatives of business and marketing strategy: grounding strategy in resource-advantage theory. Journal of Business and Industrial Marketing 19(1), Malhotra, N., Hall, J., Shaw, M., Crisp, M., Marketing Research: An Applied Orientation, Prentice-Hall, Sydney. Miller, D., Shamsie, J., The Resource based view of the firm in two environments: the Hollywood film studios from 1936 to Academy of Management Journal 39(3), Payne, A., Diagnosing customer value: Integrating the value process and relationship marketing. British Journal of Management 12(2), Payne, A., Holt, S., Frow, P., Integrating employee, customer and shareholder value through an enterprise performance model: an opportunity for financial services. International Journal of Bank Marketing 18(6), Penrose, E., The Theory of the Growth of the Firm, Basil Blackwell and Mott, London. Peteraf, M., The cornerstones of competitive advantage: A resource based view. Strategic Management Journal 14, Prahalad, C.K., Hamel, G., The core competence of the corporation. Harvard Business Review 68, Rouse, M.J., Daellenbach, U.S., Rethinking research methods for the resourcebased perspective: Isolating sources of sustainable competitive advantage. Strategic Management Journal 20, Smart, D.L., Wolfe, R.A., Examining sustainable competitive advantage in intercollegiate athletics: A resource-based view. Journal of Sport Management 14, Wilcox King, A., Zeithaml, C.P., Competencies and firm performance: Examining the causal ambiguity paradox. Strategic Management Journal 22, ANZMAC 2005 Conference: Services Marketing 7

8 Woodruff, R.B., Customer value: the next source for competitive advantage. Academy of Marketing Science 25(2), Yin, R.K., Case Study Research: Design and Methods. 2nd ed., Sage, Thousand Oaks. ANZMAC 2005 Conference: Services Marketing 8