Core Business Strategy Concepts: RBV, Generic & Growth Models
Resource-Based View (RBV)
The Resource-Based View (RBV) is a method for analyzing and identifying a firm’s strategic advantages by examining its distinct combination of assets, skills, capabilities, and intangibles. Key premises include:
- Firms differ fundamentally because each possesses a unique “bundle” of resources.
- Each firm develops competencies from these resources, which become the source of its competitive advantages.
Resource Types:
- Tangible assets: These are the easiest resources to identify and are often found on a firm’s balance sheet.
- Intangible assets: These resources include brand names, company reputation, organizational morale, technical knowledge, patents, trademarks, and accumulated experience.
- Organizational capabilities: These are not specific inputs but rather the skills a company uses to transform inputs into outputs.
Product Development Strategy
Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels.
Retrenchment Strategy Explained
Retrenchment allows corporations to reduce the diversity or the overall size of their operations. This strategy is often used to cut expenses, aiming to become a more financially stable business. Typically, the strategy involves withdrawing from certain markets or discontinuing specific products or services to achieve a beneficial turnaround.
Generic Business Strategies
A long-term or grand strategy must be based on a core idea about how the firm can best compete in the marketplace. This core idea is known as a generic strategy. There are three primary generic strategies:
- Striving for overall low-cost leadership in the industry.
- Striving to create and market unique products for varied customer groups through differentiation.
- Striving to have special appeal to one or more groups of consumers or industrial buyers, focusing on their cost or differentiation concerns.
Other Key Business Strategies
Concentrated Growth
Concentrated growth is the strategy where a firm directs its resources to the profitable growth of a single product, in a single market, with a single dominant technology.
- Concentrated growth strategies often lead to enhanced performance.
- Specific conditions favor concentrated growth.
- The risks and rewards associated with this strategy vary.
Vertical Integration
When a firm’s grand strategy involves acquiring firms that supply it with inputs (like raw materials) or are customers for its outputs (like warehouses for finished products), it is engaged in vertical integration.
- Backward integration (acquiring suppliers) is often driven by the desire to increase the dependability of supply or the quality of raw materials.
Divestiture Strategy
A divestiture strategy involves the sale of a firm or a major component of a firm.
- When retrenchment fails to achieve the desired turnaround, or when a non-integrated business activity achieves an unusually high market value, strategic managers often decide to sell.
- Reasons for divestiture can vary.
Horizontal Integration
When a firm’s long-term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production-marketing chain, its grand strategy is called horizontal integration.
- Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets.
Market Development
Market development commonly ranks second only to concentration as the least costly and least risky of the grand strategies. It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas.
- This is often achieved by adding channels of distribution or by changing the content of advertising or promotion.
- Frequently, changes in media selection, promotional appeals, and distribution methods are used to initiate this approach.