Strategic management

Assistant Professor Marlo Raveendran, Ph.D. ANDHL233, [email protected]

MGT235 - Strategic Management How to build a sustainable competitive advantage. 4.2 VRIO & competitive advantage

External Environment: PESTEL

Course Schedule

Value creation Resources & capabilities Strategies for value creation:

Inside the firm

Industry Analysis: Porter’s Five Forces

1

3

5

8

9

10

I. WHERE TO COMPETE II. HOW TO BUILD A SUSTAINABLE COMPETITIVE ADVANTAGE

Cost leadership Differentiation Value Innovation

III. CORPORATE STRATEGY

2

4

6 7

Headquarters

Diversification

Corporate Social Responsibility

Platforms

Learning Objectives week

Strategy basics

Where to compete — Roadmap (week 4) —

Week 4:

1. Resources & Capabilities (r/c): Basic Definitions

2. VRIO & competitive advantage

3. Example: Nintendo & innovation capability

4. Connecting: competitive advantage to external forces

5. Example: Sony & network effects

6. Example: Nintendo’s dynamic capabilities

7. Connecting: r/c to Basic Strategy

4.2 VRIO & competitive advantage — Topics covered in this video —

1. VRIO criteria 2. What is “inimitability” 3. Resource & Capability analysis

3. r/c analysis2. Inimitability 1. VRIO

Quiz Questions on Rees & Eccles article Focus in this video

Strategy competitive advantage

industry success factors

resources & capabilities

Characteristics of r/c

How do resources and capabilities translate into profits?

- The “right” resources and capabilities will do three things: - establish a competitive advantage - maintain that competitive advantage - Capture the value created by that competitive advantage.

To do all three, the resources & capabilities have to be

VRIO

1. VRIO

VRIO resources & capabilities (r/c)

VRIO The resources & capabilities that can be the basis of a sustainable competitive advantage are the ones that… - enable you to do something that the customer values - are rare

VRIO resources & capabilities

VRIO The resources & capabilities that can be the basis of a sustainable competitive advantage are the ones that… - enable you to do something that the customer values - are rare - are inimitable

1. VRIO

VRIO resources & capabilities

VRIO The resources & capabilities that can be the basis of a sustainable competitive advantage are the ones that… - enable you to do something that the customer values - are rare - are inimitable - markets cannot easily price, because they are

organized to be exploited in the context of the firm - structure, culture, systems, contracts (this is possible when the resources are customized to each other)

Source: Barney, 1991 1. VRIO

A closer look at “inimitability”

Resources that are hard to imitate

Resources that accumulate over time, hard to catch up

- legal restrictions - superior access to inputs or customers - market size and scale economies - intangible: causal ambiguity,

dependence on historical circumstances, and/ or social complexity- learning curve

- relationship with buyers - buyer switching costs - network effects - Asset mass

efficiencies. time compression

diseconomies 2. Inimitability 1. VRIO

VRIO resources & capabilities

Valuable? Rare? Inimitable? Organized?

No

Yes No

Yes Yes No

Yes Yes Yes Yes

VRIO = valuable, rare, inimitable, organized; ST = short term; LT = long term

Competitive impact

Performance implications

competitive disadvantage

under industry average

competitive parity

industry average

ST competitive advantage

above industry average

LT competitive advantage

above industry average

3. r/c analysis2. Inimitability 1. VRIO

Resource & Capability analysis

1. What are the key success factors in the industry - what are the firm’s threshold capabilities and resources to address these?

2. Business value chain analysis - do your firm’s r&c’s meet/ exceed the threshold requirements?

3. Assess which of the r/c’s are critical for your sustainable profitability - what are your core competences?

4. How does our firm measure up to its competitors’ r/c’s? - subjective and benchmarking analyses.

5. Identify your key strengths - insights gained from previous steps.

3. r/c analysis2. Inimitability 1. VRIO

Resource & Capability analysis

outsource

build into compet.

adv.

innovate

divest

Strategic importance

Re la

tiv e

st re

ng th

highlow

high

superfluous strengths

zone of irrelevance

key weaknesses

key strengths

3. r/c analysis2. Inimitability 1. VRIO

4.2 VRIO & competitive advantage — Take-Aways —

- The building blocks of firms are resources and capabilities.

- For a resource or capability to give sustainable competitive advantages, they must be VRIO.

- A firm’s value chain helps identify what resources and capabilities (in linking those activities) they use and how the key functions relate to create value.

- A Resource & Capability Analysis helps identifies core strengths and weaknesses.