Question

What is Resource Based theory and provide an analysis using it for the company FedEx

Answer 1

Resource-based theory suggests that resources that are valuable, rare, difficult to imitate, and nonsubstitutable best position a firm for long-term success. These strategic resources can provide the foundation to develop firm capabilities that can lead to superior performance over time.

What Is Resource-Based Theory?

Resource-based theory states that the possession of resources is valuable, difficult to imitate, rare, and cannot be substituted. The resource-based theory suggests that organizations should look inside the company to find the sources of competitive advantage through the use of their resources. Competitive advantage is an advantage that a firm has over its competitors that allows it to generate sales or margins and/or retain more customers than the competition. A firm's competitive advantage evolves from the resources that the organization has.

In the resource-based theory model, resources are given the major role of assisting companies in achieving higher organizational performance and competitive advantage. The theory has been redeveloped and redefined through research and the evidence that supports it. Resource-based theory prescribes that organizations position themselves strategically based on their resources and capabilities rather than their products and services. Within resource-based theory, the key terms include tangible resources, intangible resources, and capabilities.

Resource-based theory contends that the possession of strategic resources provides an organization with a golden opportunity to develop competitive advantages over its rivals.

Types of Resources

A resource is valuable up to which it helps a firm create unique strategies that capitalize on opportunities and diminishes threats. A resource is non-substitutable when alternative ways to gain the benefits the resource provides is impossible to get. A rare resource provides strategic advantages to the company which owns it.

Competitors find it hard to duplicate resources that are difficult to imitate. Some of these are protected by various legal means, including trademarks, patents, and copyrights.

Resource-based theory also focuses on the merit of an old saying “the whole is greater than the sum of its parts”. Strategic resources can be created by various strategies and resources, bundling them together in a way that cannot be copied. Distinguishing strategic resources from other resources is important. Cash is an important resource. Tangible goods, including car and home are also vital resources.

From Resources to Capabilities

The tangibility of a firm’s resource is an important consideration within resource-based theory. Tangible resources are resources that can have a physical presence. A firm’s property, plant, and equipment, as well as cash, are tangible resources.

In contrast, intangible resources are not physically present. The knowledge and skills of employees, a firm’s reputation, and a firm’s culture are intangible resources.

Capabilities are another key concept. Resources refer to what an organization owns, capabilities refer to what the organization can do. Capabilities often arise over time while the firm takes actions that build on its strategic resources.

Some firms develop a dynamic capability, where a company has a unique ability of creating new capabilities to keep pace with changes in its environment.

FedEx: Analyzing using the Resource Based Theory

FedEx primary competency is Logistics however the success of this company is due to the strategic implementation and exploitation of many competencies.

For FedEx, it all started with the vision of Fred Smith. This man is a great leader and embodies institutional leadership qualities. According to Philip Selznick’s book Leadership and Administration, institutional leaders in organizations do more than carry out the classic managerial activities of planning, organizing, leading, and controlling. They create and define an organization’s purpose and mission in which its members can rally. Over the years, Fred Smith has set the tone for the organization and continued to refine the strategy as the company has grown. From the beginning, FedEx’s internal philosophy has been People, Service, Profit. If you value and invest in your people, they will provide great service and that leads to profit for the company. Team members at FedEx know they are valued and they are committed to providing excellent service. Employees rally around “delivering on the Purple Promise”, striving for excellence in every interaction externally and internally.

In the textbook Gaining and Sustaining Competitive Advantage, the resourced-based view of the firm focuses on the costly to copy resources of a firm which can provide a competitive advantage when taken advantage of. This approach looks at two assumptions: resource heterogeneity – the bundles of productive resources that different firms possess and resource immobility – the assumption that some of these resources are very costly to duplicate. The resources include financial, physical, human and organizational capital that enables a firm to implement strategies to improve its efficiency and effectiveness. FedEx has done a great job in employing these resources to give them a competitive advantage in the industry.

• Financial capital: FedEx has an array of financial resources that provide the ability to implement strategies. Looking at the portfolio of services under FedEx’s umbrella, most of these were additions through acquisitions. Most recently, FedEx has added companies that specialize in reverse logistics (GENCO, $1.4B), international shipping solutions (Bongo, $42M), and an enhanced international network (TNT, $4.8B). These companies were acquired during the last two years at with a combined investment of over $6.6 billion.
• Physical capital: This resource includes the physical technology, equipment, geographic locations, etc. FedEx was one of the first on the scene to understand that the information about the package is as important as the package itself. FedEx views it’s technology strategy as being one of the most important aspects of the business and continues to invest in this area. In addition to the technology component, FedEx’s physical assets includes 643 aircraft and over 120,000 motorized vehicles serving over 220 countries globally.
• Human capital: As mentioned above, FedEx values its human resources and looks at People as the first component in the P-S-P philosophy. Worldwide, FedEx employs over 400,000 people.
• Organizational capital: This resource is the collection including the reporting structure, its formal and informal systems, the culture and reputation. Within FedEx, the culture is one of its best assets. Externally, the company is regarded as one of the most reputable in the world.

FedEx is in a market with relatively few competitors. Regardless of this fact, there still exists strengths and weaknesses with in this and every organization. In order for a firm to evolve and grow, it must be aware of its strengths and weaknesses. By identifying its strengths and weaknesses, the firm can work to expand the areas that it excels and work to decrease the weak spots in the organization. One way to discern an organizations strengths and weaknesses is to use the resource based view of the value chain analysis. FedEx operates in the same value-chain as its competitors. What we must do is evaluate the firms resources and capabilities on the micro level. The value chain consists of multiple links which include categories like marketing, service, distribution and firm. Looking at the firm link it is composed of both support activities and primary activities.

FedEx has a superior value chain in comparison to the US Postal Service when looking at the primary activities. I portion of the primary activities in the value chain link includes sales and marketing. I state that FedEx has a superior sales and marketing resources based on the numbers. For years the postal service has operated at a large loss. Almost to the point that it has been contemplated to privatize the whole firm. FedEx on the other hand produces large profits each year and has one of the higher stock process for the delivery industry.

Another way to discern strengths and weaknesses is to use the VRIO framework which is structured in a series of four questions. the first question is value. this question ask does a firm have the resources and capabilities to respond to environmental threats and opportunities. FedEx does have the capabilities to respond to threats and opportunities. The next question is rarity of business activities. Although delivery of packages is not a hard and rare activity, to perform on the scale of FedEx in the international market could be viewed as being a rarity. It is so hard for competitors to perform on the international market in this manner puts them in the rare category. The third question under the VRIO framework is imitability. It is not extremely hard to imitate FedEx’s operation. The problem is dealing with the necessary capital to imitate FedEx. They operate on too large of a scale for almost anyone to imitate their success. The last question is organization. FedEx has a solid organization that has been developed over many years. They are fully capable of taking advantage of all of the firms resources and capabilities.

Taking into consideration all of these factors, FedEx has a superior handle of its strengths and Weaknesses as evaluated under these two assessment methods.