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Executive Overview
Resource-based theory enhances our understanding of how some organizations achieve a sustained competitive advantage in their industries. These principles are used to analyze the British Royal Navy's historic triumph at the Battle of Trafalgar, a battle that the British had won even before the first shot was fired because they possessed certain key resources that gave them a sustained competitive advantage over the enemy fleet. Lessons for today's business managers are derived from the analysis of this battle.
In a few hours on October 21, 1805, the British Royal Navy decisively defeated a larger combined fleet of French and Spanish ships at the Battle of Trafalgar. This triumph insured that Napoleon could never threaten an invasion of England, allowed British armies, including the renowned legions later led by the Duke of Wellington, to traverse the globe without fear of enemy sea forces, and gave the British undisputed supremacy of the world's seas for the next century.
Victory at Trafalgar was hardly assured for the Royal Navy. The British warships were not only outnumbered 33 to 27, but British sailors generally considered the enemy vessels to be superior in construction. However, the outcome of the Battle of Trafalgar was determined even before it was fought. The British navy enjoyed a sustained competitive advantage over its rivals because it possessed certain key resources that neither the French nor the Spanish navies held.
A theory in strategic management sheds considerable light on the British victory at Trafalgar and helps us understand why some organizations today are able to achieve a sustained competitive advantage and earn above-average profits. This powerful paradigm, known as Resource-based Theory (RBT),2 offers unique insights into competitive situations that go beyond such traditional approaches as SWOT analysis (i.e., strengths, weaknesses, opportunities, and threats) and the industry forces model attributed to Michael Porter.3
What is Resource-based Theory?
RBT emphasizes how a firm's unique resources may allow the organization to develop a sustained competitive advantage.4 Resources are any assetstangible or intangible-that help a firm implement strategies to improve its efficiency and effectiveness. They may be classified into the three categories shown in Table 1: physical, human, and organizational resources. Some theorists use only two classifications: property-based resources, which roughly correspond to the physical...