Resource Based View Of The Firm - McDonalds
Posted by Matthew Harvey on Mar-18-2020
1. The resource-based view of the firm
The resource-based view [RBV] is a strategic management tool and framework that is used by companies and organizations to identify and exploit the resources available strategically so as to create a sustainable competitive advantage for the organization in the long run. The RBV framework is based on assessing and identifying resources that will prove to add competitiveness to an organization, and aligning them strategically.
According to the RBV, all organizations and firms have access to and possess and control resources which allows them to build a comparative advantage. A subset of these resources, in turn, allows superior long term performance as well. From these resources further, possession and control of valuable resources may lead to long term, sustainable competitive advantage.
Figure 1 Resource-Based View of the Firm
The RBV categorizes resources available to the firm broadly as being tangible or intangible in nature.
2. Tangible resources
Tangible resources include those resources that are physical in nature and can be easily identified by the organization and competitors. Moreover, these resources can easily be brought from the market, or developed in the long run. Based on this fact, where competitors may acquire identical, or similar resources In the future, they provide little to negligible competitive advantage to the company.
Tangible resources available at McDonalds include, for example:
The land is a tangible resource for McDonalds which includes all spaces owned and rented by the company for purposes of hosting production units as well as for warehousing purposes. Additionally, all units owned or rented by the company for purposes of packaging are also included to be tangible resources under the land.
For McDonalds, equipment is also a tangible resource that includes all the equipment owned by the company for purposes of production and packaging, as well as other operational purposes. In this manner, all technological advancements, and technological integration for improving processes and operations may also be seen as an extension of equipment thatthe company employs to enhance its product line, and incorporate economies of scale.
Materials include all the raw materials and other packaging materials that McDonalds uses for the successful production and packaging of its products. The materials are tangible in nature, and may also easily be accessed by the competitor players for their own production processes and other purposes.
McDonalds, supplies is also a tangible resource and include all materials and products that are used and needed for supporting the packaging and production functions of the company. Supplies also include all products and supporting materials that are needed by other functions in the McDonalds for the successful attainment of business goals and targets.
Facilities are also a tangible resource that is visibly identifiable by competing players with respect to McDonalds. The facilities include all the production units, warehouses, offices and supporting buildings and functions for the company which help it in streamlining its processes and operations, and also lead to successful performance. Facilities also include the interior design and interiors of buildings at McDonalds – designed for optimizing performance and maintaining brand image.
This includes all the land and facilities in terms of technology, buildings, office materials and maintenance, and allocation of power resources such as electricity to its plants by McDonalds. The infrastructural buildup is an important resource for the company for ensuring high performance, and ease of operations for the company. However, like other tangible resources, it may be accessed easily by competing players – who may develop similar resources for their own products and functions in the future.
3. Intangible resources
Intangible resources refer to those resources that have no physical value but are still owned and possessed by organizations such as McDonalds. Competing players are more than often unable to purchase, or acquire the intangible resources available to McDonalds because of associated factors and aspects of historical uniqueness, causal ambiguity, and social complexity. Intangible resources are largely inimitable and likely to stay within the organization over the long run as well, and thus form the basis of competitive advantage for McDonalds. The intangible resources for McDonalds are also seen to be a 9source of the firm’s success because they are not easily replicated in factor markets by competing players. For McDonalds, some intangible resources include, for example:
3.1. Brand reputation
Brand reputation for McDonalds is built over historical uniqueness where the brand has worked hard to provide high-quality products and earn consumer trust over decades. The company’s brand reputation – based on its organizational culture and unique relation with customers –can not be imitated by the competitors, and may become a source of competitive advantage.
3.2. Intellectual property
McDonalds’s production processes and its product uniqueness is safeguarded by intellectual property rights which prevent other competing players from copying or having access to its unique product blend, and product ingredients and inputs. This ensures novelty to McDonalds and makes its products inimitable for competing players.
3.3. Patents and Copyright
McDonalds enjoys patents and copyrights not only for its production processes and product composition but also for research and development activities that it undertakes for product improvement and enhancement. These patents and copyrights protect McDonalds against potential encroachments or imitation.
The goodwill for McDonalds is again developed through historical uniqueness where the brand’s reputation and customer experience have allowed the development of long-standing goodwill for the company. This, In turn, has enhanced the overall brand equity for McDonalds. The goodwill for the company has developed over a long period of time through continuous hard work by the McDonalds brand, and cannot be copied by the competing players.
3.5. Trade names
The trade name is also an intangible resource for the company as other players cannot adopt or imitate this name. The trade name is recognizable by the customers, and provide instant recognition for the company across borders. The trade name also communicates the brand promise and values to customers globally and is a source of competitive advantage for the company.
3.6. Customer experience
McDonalds provides a unique customer experience to its customers through its brand activities, and offerings – as well as marketing activities. Though marketing activities may be copied by competing players, the strategic direction and intent with which the customer experience and brand activities are planned is inimitable and prides a unique source of competitive advantage to McDonalds.
3.7. Patented technology, computer software, databases and trade secrets
McDonalds is also successful in its operations and businesses and has a large customer following that is loyal and does repetitive purchasing because of its trade secrets – which also comprises of having a secret recipe for product competition. McDonalds also regularly develops and incorporates advanced technology that is developed internally and is thus patented. This includes hardware and software for improving the company’s operational [processes, and as such, provide an edge to the business in factor markets.
3.8. Video and audiovisual material (e.g. Motion pictures, television programs)
All marketing content, and video and audio-video material designed, developed, launched, and released by McDonalds is also an intangible resource. Though this marketing content has little physical value, it contributes towards brand building for McDonalds and works towards increasing brand awareness, brand recognition, and overall brand equity. Since this material is guided by a broader arching business and marketing strategy, the marketing content developed by McDonalds is inimitable by players in factor markets.
3.9. Customer lists
McDonalds has a variety of different product lines and product offerings for different target groups and target consumer markets. Moreover, the company operates internationally and has consumer markets in over 100 countries. Based on this, it is safe to state that McDonalds has developed unique customer markets – that share similar characteristics – in different countries. Moreover, this customer market comprises of different consumer groups and categories. As such, McDonalds has unique customer lists in different countries, and this can’t be imitated largely because of social ambiguity attached.
3.10. Licensing, royalty and standstill agreements
McDonalds has developed unique licensing, royalty and standstill agreements over time in the different consumer markets it operates. These have been developed strategically over time through continuously consistent and successful performance by the company, and because of brand development from functional to emotional to lifestyle in nature. Based on this progress of the brand, and brand characteristics, along with strategic leadership and vision – McDonalds has been able to develop inimitable licensing, royalty, and standstill agreements that allow its competitive positioning in factor markets.
3.11. Import quotas
McDonalds has developed strategic contracts with different countries for import quotas. These quotas include not only the final packaged products but also unique raw materials and its import in different countries for supporting the business processes. As such, the defined import quotas cannot be imitated by other companies since they are based on the unique position of The McDonalds and its strategic direction.
3.12. Franchise agreements
McDonalds has unique franchise agreements with reliable partners in different companies for production as well as for distribution and sale purposes. This has allowed the company access to different markets while safeguarding it culturally and financially against potential risks. The franchising agreements are also intangible in nature and based on unique, trustworthy relationships upheld by McDonalds.
3.13. Customer and supplier relationships (including customer lists)
McDonalds has unique customer and supplier relationships. The customer and supplier relationships have developed over time through consistent behaviour, trust-building, and transparency in operations and intent. The strong customer and supplier relationships help McDonalds informing global networks that are well managed, and smoothly undertaken – and largely inimitable by competitors in the immediate future.
3.14. Marketing rights
The company’s marketing rights in different countries are based on strategic leadership and strategic direction, as well as the company’s legal compliance and history. This cannot be imitated by other players, and cannot be acquired by them as well. This is because McDonalds has developed them over time, and through stringent processes and means – allowing it a unique standing over other players in competing markets.
4. Heterogeneous and immobile characteristics of resources
The RBV for firms holds that all resources possessed, controlled and owned by organizations have two core characteristics – of heterogeneity and immobility.
Under heterogeneity, the RBV assumes that resources based on skills and capabilities – for example in the form of human resource activities, training, and talent, varies from company to company. This variation is important for avoiding the building of characteristics of perfect competition. As such, with heterogeneity, the RBV assumes that each organization has a different amount and mix of resources – which lead to different strategic directions and strategic choices to them – under similar external pressures and conditions.
This means that the strategic decision and choice undertaken by McDonalds will differ substantially from its competition under similar external environmental pressures based on the different mix of resources available to the company. This assumption of heterogeneity under RBV allows McDonalds to complete product and outperform the competition in facto markets, and also achieve competitive advantage through its use of unique resource bundles and mixes.
Under the assumption of immobility, the RBV assumes that resources available to the firm are not mobile, and cannot be transferred from one organization to another – in the short run at the least. Based on this notion of immobility in the short run, the RBV assumes that rival companies are unable to imitate, and replicate resources available to McDonalds, and devise and implement strategies and decisions similar to that of McDonalds. Intangible resources are largely immobile in nature.
All intangible resources available to McDonalds are heterogeneous and immobile in nature at large. The tangible resources are also immobile in nature in the short run for McDonalds and maybe homogeneous to the player in the factor markets depending on the advancement, and strategic developments of competing players.
5. VRIO analysis
The characteristics of heterogeneity and immobility are not sufficient for McDonalds in using resources to develop a competitive advantage. To determine if resources can be used and enhanced to develop a competitive advantage in the long run with sustainability, it is important that resources identified for the company to fulfill the VRIO criteria.
Figure 2VRIO analysis with respect to competitive advantage and RBV
The VRIO framework assesses tools on criteria of being valuable, rare, inimitable, and organization. For McDonalds, the VRIO strategic tool may be applied to the identified resources to determine if the resources allow the building of competitive advantage over the long run. For McDonalds, this is seen as:
|Brand reputation||Y||Y||Y||Y||Competitive advantage|
|Intellectual property||Y||Y||Y||Y||Competitive advantage|
|Patents and copyrights||Y||Y||Y||Y||Competitive advantage|
|Trade names||Y||Y||Y||Y||Competitive advantage|
|Customer experience||Y||Y||Y||Y||Competitive advantage|
|Patented technology, computer software, databases and trade secrets||Y||Y||Y||Y||Competitive advantage|
|Video and audiovisual material||Y||Y||N||Y||Temporary competitive advantage|
|Licensing, royalty and standstill agreements||Y||Y||N||Y||Temporary competitive advantage|
|Customer lists||Y||Y||Y||Y||Competitive advantage|
|Import quotas||Y||Y||N||Y||Temporary competitive advantage|
|Franchise agreements||Y||Y||N||Y||Temporary competitive advantage|
|Customer and supplier relationships||Y||Y||N||Y||Temporary competitive advantage|
|Marketing rights||Y||Y||N||Y||Temporary competitive advantage|
|HRM skills||Y||Y||Y||Y||Competitive advantage|
6. Competitive advantage
Competitive advantage is defined as circumstances or possession and control of resources that put McDonalds in a superior and favorable business position. These resources and circumstances have allowed McDonalds to outperform other players in factor markets in different countries and also allowed it to create a unique customer base with high demand for its unique product offerings and high-quality products. However, competitive advantage develops in the long run, and is generally sustainable since the resources that a company owns, controls or possesses successfully fulfill al VRIO criteria.
When resources available to McDonalds are heterogeneous, and immobile in nature but successfully fulfill only some VRIO criteria, other forms of advantage are formed for the company. This include:
|Competitive disadvantage||The competitive disadvantage for McDonalds would be the possession of resources that are not valuable at all, and may lead to the company performing unfavorably in relation to competition, and may lead the company to underperform.|
|Competitive parity||Resources that lead to the building of competitive parity for McDonalds are those that allow the company to achieve the standard and average results and performance in an industry.|
|Short term competitive advantage||This refers to a superior business edge and benefits enjoyed by McDonalds. However, this is more temporary in nature as the resources may be imitated by competition and players in factor markets in the future. They may similarly, also be acquired by players in the factor markets over time. As such, though they provide McDonalds with a competitive advantage, this is only temporary in nature, and not sustainable.|
|Competitive advantage||A superior edge developed by McDonalds on the basis of its resources is sustainable and lasts over the long run as well. This is generally inimitable by the competition and has developed through historical values attached. McDonalds is able to exploit resources to build a competitive advantage further in a sustainable manner.|
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