The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation

Constructs an analytical framework for a resource-based approach to strategy formulation. There are five stages in this framework: analyze resources, appraise capabilities, analyze competitive advantage, select strategy, and identify resource gaps. The concepts of this framework are illustrated by reference to existing U.S. firms such as IBM, Xerox, Harley-Davidson, and 3M. This framework uses resources and capabilities as the foundation for a firm's long-term strategy because they provide direction for firm strategy and serve as the primary source of firm profit. Resources are defined as the inputs into the production process and include items of capital equipment and skills of individual employees. Capabilities are defined as the capacity for a team of resources to perform some task or activity. When analyzing the competitive advantage of a firm, durability, transparency, transferability, and replicability are considered important factors. To be successful, firms must develop strategies which utilize their unique characteristics. (SRD)

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