Another point of view is to derive strategy based on the internal characteristics of an organization. While this approach is often seen as a direct alternative to Porter’s Five Forces, it is arguably better viewed as a complementary position.

Resource-Based View of the Firm

Rather than start with the assumption that the external environ­ment dictates organizational strategy, this perspective argues that an organization is a construct of resources and competencies. Because of this, competitive advantage comes from reconfiguring these internal factors in a way to add value or differentiate the organization from other competitors.

While the external environment still has a role to play in dictating what level of differentiation is needed to achieve competitive advantage, strategic planning in this context is more focused on identifying the best allocation of resources, the ideal internal processes, and the most important competencies to develop. Success in the market requires leveraging tangible and intangible resources through core competencies to create distinctive capabilities that lead to sustainable competitive advantage.

One of the most effective ways of creating this sustainable competitive advantage is to focus on acquiring or developing resources that are:

  • Valuable
  • Rare
  • Inimitable
  • Nonsubstitutable

These are sometimes referred to as VRIN resources.

Valuable resources are resources that allow an organization to achieve improvements in efficiency ...

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