Reply to Resources and Capabilities Discussion 2
Q – Please read the discussion below and prepare a Reply to this discussion with comments that further and advance the discussion topic.
 
The formulation of strategy within an organization can pivot around two main axes: the external market orientation and the internal resources and capabilities. While the external market perspective emphasizes adapting to and aligning with market demands, competitive forces, and customer needs, the internal resources and capabilities perspective focuses on leveraging a firm’s unique assets, skills, and competencies to gain competitive advantage. This debate is central to strategic management literature, particularly between the Market-Based View (MBV) and the Resource-Based View (RBV) of the firm.
The Resource-Based View, introduced by Wernerfelt (1984) and further elaborated by Barney (1991), posits that the foundation of a firm’s strategy should be its internal resources and capabilities. These are considered the primary sources of profitability and competitive advantage, especially when they are valuable, rare, inimitable, and non-substitutable (VRIN). According to RBV, firms should first look inward to understand their unique strengths and then seek markets where these strengths can be deployed most effectively.
An illustrative example of a company in the Kingdom of Saudi Arabia (KSA) that has successfully based its strategy on developing a set of capabilities and then applying them to different product markets is Saudi Aramco. Known primarily as an oil extraction and refining company, Saudi Aramco has leveraged its capabilities in engineering, project management, and operational excellence to expand into chemicals, renewable energy, and digital transformation.
Two Key Resources of Saudi Aramco:
Vast Reserves of Oil and Natural Gas: Saudi Aramco has access to some of the world’s largest proven crude oil reserves and has developed advanced technologies for their extraction and processing.
Financial Resources: As one of the most profitable companies globally, Aramco has significant financial resources, enabling it to invest in research, development, and diversification strategies.
Two Key Capabilities of Saudi Aramco:
Operational Excellence: Aramco has developed world-class capabilities in efficiently managing large-scale extraction and refining operations.
Innovation in Energy Technologies: The company has focused on innovation in energy efficiency, carbon capture technologies, and the development of non-oil energy sources.
Advantages of This Approach:
Sustainable Competitive Advantage: By focusing on unique internal resources and capabilities, companies like Saudi Aramco can develop a competitive advantage that is difficult for competitors to imitate.
Flexibility and Diversification: Leveraging internal strengths allows firms to enter and create value in diverse markets, enhancing resilience against market volatility.
Disadvantages of This Approach:
Market Myopia: A strict focus on internal capabilities may lead to neglect of external market changes and opportunities, potentially resulting in missed growth avenues.
Resource Immobility: Over-reliance on specific resources or capabilities may limit a company’s agility in adapting to technological or market shifts.
In conclusion, while both external market conditions and internal resources and capabilities are important, the latter offers a solid foundation for sustainable competitive advantage. Firms like Saudi Aramco exemplify how a resource-based strategy, when effectively implemented, can enable diversification and growth across different markets. However, for comprehensive strategic success, it is imperative that firms balance this inward focus with an outward orientation towards market dynamics and opportunities.