The Resource Based View of the Firm
The concept of the resource based view of the firm is based on three important issues; the asset specificity of the resources which enable a particular activity, the organization’s specificity and the organization’s endowment with the resources (Zott & Amit, 2006, p. 1). The resource based perspective concerns the activities which could be outsourced in contrary to those which can be undertaken within the organization (Barney & Hesterly, 2008). For instance in an organization which is well endowed with resources with low assets specificity, such an organization needs to embrace a hierarchical structure of governance (Zott & Amit, 2006, p.
1). The concept of asset specificity refers to the degree to which the assets made use of in particular activity loses value in another activity as well as with a trading partner (Klein et al 1978, pp. 297-326). What this implies is that an organization which is well endowed with resources such as Wal-Mart Stores, Inc can afford to employ a hierarchical organization structure (Barney & Hesterly, 2008). This is because with its vast endowment of resources, it can comfortably purchase Lianhua Supermarket Holdings Co. Ltd. , China’s #1 grocery retailer.
In other words, asset specificity implies the specialization of resources with regard to an exchange partner while firm specificity implies the specialization of resources within the context of a specific organization (Zott & Amit, 2006, p. 2). On the other hand, in a case where the organization is not endowed with resources which can support its activities and with high asset specificity and low firm specificity, the form of governance which would be appropriate would be the market form of governance (Zott & Amit, 2006, p.
2). This would more so be in a situation where there is high opportunity cost of the resources (Barney & Hesterly, 2008). Organizational managers are usually concerned with the governance of a particular activity which emphasizes the need to analyze organizational level attributes (Zott & Amit, 2006, p. 2). An analysis of the attributes of Wal-Mart indicates that the company is strongly competitive and has the potential of purchasing Lianhua Supermarket Holdings Co. Ltd. , China’s #1 grocery retailer.