COURSE-DIS 605MANAGEMENT INFORMATION SYSTEMS SEMINAR

TOPIC: INFORMATION SYSTEMS THEORIES

GROUP TWOMEMBERSPaul Mak’Abong’o D61/79785/2012Michael Nganga D61/60676/2013Cliff Nderi D61/79194/2012 Alex Kamiru D61/79111/2012Phyllis J Sitienei D61/61469/2013Rose Katunge D61/60033/2013

RESOURCE BASED VIEW OF THE FIRM(IS THEORY)

Acronym RBV, RBT Alternate name Resource-based theory

MAIN INDEPENDENT FACTORS Resources

Capabilities

Assets

MAIN DEPENDENT FACTORS Competitive advantage

Organizational performance

Rents

DIAGRAM OF THEORY

CONCISE DESCRIPTION OF THEORY The resource-based view (RBV) argues that

firms possess resources, a subset of which enable them to achieve competitive advantage, and a subset of those that lead to superior long-term performance. Resources that are valuable and rare can lead to the creation of competitive advantage.

CONCISE DESCRIPTION OF THEORY CONT..That advantage can be sustained over longer

time periods to the extent that the firm is able to protect against resource imitation, transfer, or substitution. In general, empirical studies using the theory have strongly supported the resource-based view.

RESOURCES RBV’s central proposition is that if a firm is to

achieve a state of sustainable competitive advantage (SCA) it must acquire and control valuable, rare, inimitable, and non-substitutable (VRIN) resources and capabilities

That advantage can be sustained over longer time periods to the extent that the firm is able to protect against resource imitation, transfer, or substitution.

FIRMS RESOURCES Firms resources include all assets ,

capabilities , organizational processes ,firms attributes , information and knowledge controlled by a firm that enables the firm to conceive of and implement strategies that improve its efficiency and effectiveness

CONT. Firms resources are strengths that the firms

can use to conceive of and implement their strategies.

CLASSIFICATION OF FIRMS RESOURCES1: Physical Capital Resources2: Human Capital Resources 3: Organizational Capital Resources

PHYSICAL CAPITAL RESOURCES Include all the physical technology used in

the firm, a firms plant and equipment ,its geographical location and its access to raw materials

HUMAN CAPITAL RESOURCES Include the training, experience, judgment,

intelligence , relationships and insight of individual managers and workers in the organization environment

ORGANIZATIONAL CAPITAL RESOURCES Include a firms formal reporting structure, its

formal and informal planning,controlling and coordinating systems as well as informal relations among groups within a firm and between a firm and those in its environment.

RESOURCES AND CAPABILITIES: Makadok (2001) emphasizes the distinction

between capabilities and resources by defining capabilities as “a special type of resource, specifically an organizationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm”.

COMPETITIVE ADVANTAGE A superiority gained by an organization when

it can provide the same value as its competitors but at a lower price, or can charge higher prices by providing greater value through differentiation. Competitive advantage results from matching core competencies to the opportunities.

ORGANISATIONAL PERFORMANCE Comprises the actual output or results of an

organization as measured against its intended outputs (or goals and objectives).

organizational performance encompasses three specific areas of firm outcomes: (a) financial performance (profits, return on assets, return on investment, etc.); (b) product market performance (sales, market share, etc.); and (c) shareholder return (total shareholder return, economic value added)

THE CONCEPT OF ECONOMIC RENT Economic rent is the return on resources

over and above the real costs of the resources – the value earned above the cost of the capital employed in the business. The fundamental objective of the firm from this perspective is to increase economic rent - rather than its profit per se. The value of these rents will degrade and disappear over time due to a process of increased competition

1. IS ARTICLE THAT USES THE THEORY Bharadwaj, A. S. (2000) "A resource-based

perspective on information technology capability and firm performance: an empirical investigation," MIS Quarterly (24) 1, pp. 169-196.

IS ARTICLE CONTINUED…… This article employs the resource-based view

to develop the theoretical links and to empirically examine the relationship between IT capability and business performance. The resource-based theory refers to the assumptions that the resources needed to create, choose, and implement strategies are diversely distributed across organizations and that these organizations differences remain stable over time. IT capability is an ability of an organization to deploy IT-based resources in combination with other resources.

IS ARTICLE CONTINUED…… IT-based resources are classified as the

tangible IT infrastructure, human IT resources (technical IT skills and managerial IT skills), and intangible IT-enabled resources (customer orientation, knowledge assets, and synergy – sharing of resources and capabilities across organizational divisions).

IS ARTICLE CONTINUED……• The literature review yields two hypotheses:

superior IT capability will be associated with significantly higher profit ratios and lower cost ratios. The matched sample comparison group methodology, which compares the levels of variables across treatment (firms with high IT capability) and control (firm size and type) samples, is employed to empirically assess the relationship between IT capability and organization performance. Samples of IT leaders are selected from IT public journals in at least two of the four years from 1991 to 1994.

IS ARTICLE CONTINUED……The control samples are then matched as pairs

from the same industry and size. The t-test confirms the equality between the two groups. To eliminate the bias in selecting IT leaders by their financial performance, the chi-square is measured and represents insignificant p values, indicating that the past financial performance variables do not explain any significant difference between the two groups. Finally, Wilcoxon Rank Sum is used to evaluate the differences in the levels of performance variables for the two groups of organizations.  

CONCLUSION The results of the study conclude that profit

ratios are significantly higher for the IT leaders, while the cost ratios are significantly lower.

SECOND IS ARTICLE THAT USES THE THEORY Clemons, E. K. and M. C. Row (1991)

"Sustaining IT advantage: the role of structural differences," MIS Quarterly (15) 3, pp. 275-292.

SECOND IS ARTICLE CONTINUED……  Information systems are strategic business tools,

frequently essential to a firm and central to its competitive strategy. Their importance is now acknowledged. But information technology-equipment and services-is available to all firms, and most applications can be duplicated. The copying firm often enjoys the advantages of newer and better technology, learns from the experience of the innovator, and thus can offer comparable services at lower costs. When can an information technology-based strategy confer sustainable competitive advantage? The answer may lie with the role of strategic resources in explaining the allocation of economic benefits from an IT innovation. Specifically, information technology can lead to sustainable competitive advantage when it is used to leverage differences in strategic resources.

SECOND IS ARTICLE CONTINUED…… This may be true even in cases where

duplication is relatively easy and there are few dynamic effects, like first-mover advantages, to protect the innovation. An important characteristic of IT is its ability to manage interactions among economic activities; the economic theory can be used to establish a link between this characteristic of IT and shifts in resource values. This allows us to identify and examine some opportunities for deploying IT to leverage structural resource differences among firms, including differences in vertical integration and diversification as well as differences in the quality and organization of key resources.