1. Internal analysis examines a firm's strengths and weaknesses compared to competitors to determine sources of competitive advantage.
2. The resource-based view holds that a firm's unique bundle of resources and capabilities are the primary drivers of competitive advantage.
3. Value chain analysis examines how a firm creates value through its activities and identifies areas that differentiate it from competitors.
1. Internal analysis examines a firm's strengths and weaknesses compared to competitors to determine sources of competitive advantage.
2. The resource-based view holds that a firm's unique bundle of resources and capabilities are the primary drivers of competitive advantage.
3. Value chain analysis examines how a firm creates value through its activities and identifies areas that differentiate it from competitors.
1. Internal analysis examines a firm's strengths and weaknesses compared to competitors to determine sources of competitive advantage.
2. The resource-based view holds that a firm's unique bundle of resources and capabilities are the primary drivers of competitive advantage.
3. Value chain analysis examines how a firm creates value through its activities and identifies areas that differentiate it from competitors.
1. Internal analysis examines a firm's strengths and weaknesses compared to competitors to determine sources of competitive advantage.
2. The resource-based view holds that a firm's unique bundle of resources and capabilities are the primary drivers of competitive advantage.
3. Value chain analysis examines how a firm creates value through its activities and identifies areas that differentiate it from competitors.
• Resource Heterogeneity » different firms may have different resources
• Resource Immobility
» it may be costly for firms without certain
resources to acquire or develop them » some resources may not spread from firm to firm easily Dr. Priyanka Shrivastav The Resource-Based View
Resource Heterogeneity
• Heterogeneity of resources typically occurs as the
result of ‘bundling’ the resources and capabilities of a firm
• Managers of a firm could take resources that seem
homogeneous and ‘bundle’ them to create heterogeneous combinations
• Competitive advantage typically stems fromseveral
resources and capabilities ‘bundled’ together Dr. Priyanka Shrivastav Resource-Based View (RBV) 1. RBV is a method of analyzing and identifying a firm’s strategic advantages based on examining its distinct combination of assets, skills, capabilities, and intangibles
2. The RBV’s underlying premise is that firms differ in
fundamental ways because each firm possesses a unique “bundle” of resources
3. Each firm develops competencies from these
resources, and these become the source of the firm’s competitive advantages Dr. Priyanka Shrivastav Value Chain Analysis (VCA) The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value
Value chain analysis (VCA) attempts to understand
how a business creates customer value by examining the contributions of different activities within the business to thatvalue
VCA takes a process point of view
Dr. Priyanka Shrivastav The Value Chain
Dr. Priyanka Shrivastav
Conducting a VCA 1. Identify activities 2. Allocate costs
VCA proponents hold that the activity-based VCA
approach would provide a more meaningful analysis of the procurement function’s costs and consequent value added than the traditional cost accounting approach
Dr. Priyanka Shrivastav
Traditional Cost Accounting VS Activity Based Cost Accounting
Dr. Priyanka Shrivastav
Value Chain Analysis (VCA) It is important to note that existing financial management and accounting systems in many firms are not set up to easily provide activity-based cost breakdowns
Identify the activities that differentiate thefirm
Examine the value chain
Dr. Priyanka Shrivastav
The Internal Analysis Tool
The VRIO Framework
Four Important Aspects
• Value
• Rarity
• Imitability
• Organization Dr. Priyanka Shrivastav The VRIO Framework
If a firm has resources that are:
• valuable, • rare, and • costly to imitate, and… • the firm is organized to exploit these resources, then the firm can expect to enjoy a sustained competitive advantage.
Dr. Priyanka Shrivastav
The VRIO Framework
Applying the Tool
• A resource or bundle of resources is subjected to
each question to determine the competitive implication of the resource
• Each question is considered in a comparative
sense (competitive environment)
Dr. Priyanka Shrivastav
Applying the VRIO Framework
The Question of Value
• In theory: Does the resource enable the firm
to exploit an external opportunity or neutralize an external threat?
• In practical: Does the resource result in an
increase in revenues, a decrease in costs, or some combination of the two?
Dr. Priyanka Shrivastav
Applying the VRIO Framework
The Question of Rarity
• If a resource is not rare, then perfect competition dynamics are likely to be observed (i.e., no competitive advantage, no above normal profits) • A resource must be rare enough that perfect competition has not set in
• Thus, there may be other firms that possess the
resource, but still few enough that there is scarcity
Dr. Priyanka Shrivastav
Applying the VRIO Framework
Valuable and Rare
If a firm’s resources are: The firm can expect:
Not Valuable Competitive Disadvantage
Valuable, but Not Rare Competitive Parity
Competitive Advantage Valuable and Rare (at least temporarily) Dr. Priyanka Shrivastav Applying the VRIO Framework
The Question of Imitability
• the temporary competitive advantage of valuable
and rare resources can be sustained only if competitors face a cost disadvantage in imitating the resource » intangible resources are usually more costly to imitate than tangible resources
Dr. Priyanka Shrivastav
Applying the VRIO Framework
The Question of Imitability
• If there are high costs of imitation, then the firm
may enjoy a period of sustained competitive advantage » sustained competitive advantage will last only until a duplicate or substituteemerges
If a firm has a competitive advantage,
others will attempt to imitate it
Dr. Priyanka Shrivastav
Applying the VRIO Framework
The Question of Imitability
Costs of Imitation
Social Complexity (WordPerfect)
• the social relationships entailed in
resources may be so complex that managers cannot really manage them or replicate them
Dr. Priyanka Shrivastav
Applying the VRIO Framework
The Question of Imitability
Costs of Imitation
Patents • Patents may be a two-edged sword • Offer a period of protection if the firm is able to defend its patent rights • Required disclosure may actually decrease the cost of imitation, and the timing Dr. Priyanka Shrivastav Applying the VRIO Framework
Value, Rarity, & Imitability
If a firm’s resources are: The firm can expect:
Valuable, Rare, but Temporary
not Costly to Imitate Competitive Advantage
Sustained Valuable, Rare, and Competitive Advantage Costly to Imitate (if Organized appropriately)
Dr. Priyanka Shrivastav
Applying the VRIO Framework
The Question of Organization
• a firm’s structure and control mechanisms must be aligned so as to give people ability and incentive to exploit the firm’s resources • examples: formal and informal reporting structures, management controls, compensation policies, relationships, etc. • these structure and control mechanisms complement other firm resources—taken together, they can help a firm achieve sustained competitive advantage (3M Company) Dr. Priyanka Shrivastav The VRIO Framework Costly to Exploited by Competitive Valuable? Rare? Imitate? Organization? Implications
No No Disadvantage
Yes No Parity
Temporary Yes Yes No Advantage
Sustained Yes Yes Yes Yes Advantage Dr. Priyanka Shrivastav The VRIO Framework Costly to Exploited by Competitive Economic Valuable? Rare? Imitate? Organization? Implications Implications
No No Disadvantage Below Normal
Yes No Parity Normal
Temporary Above Yes Yes No Advantage Normal
Sustained Above Yes Yes Yes Yes Normal Advantage
Dr. Priyanka Shrivastav
Entrepreneurial and International Application of the VRIO Framework The Logic Remains the Same
• small firms and start-ups can apply the VRIO
framework to their resources and capabilities » competitive advantage vis-à-vis larger firms can often be identified recognizing if and why larger firms face high costs of imitation can be critical to small firm success
Dr. Priyanka Shrivastav
Entrepreneurial and International Application of the VRIO Framework The International Context
Two Reasons for International Expansion:
1)to exploit current resource and capability
advantages in a new market
2) to develop new resources and capabilities in
a foreign market
Dr. Priyanka Shrivastav
Entrepreneurial and International Application of the VRIO Framework The International Context
Critical Caveat:
• resources and capabilities that generate
an advantage in one market may or may not generate an advantage in a new market
Firms should re-apply the VRIO framework
when entering new markets!!
Dr. Priyanka Shrivastav
Entrepreneurial and International Application of the VRIO Framework The International Context As a firm enters a new market: • a disciplined learning mentality is imperative for success
» what resources and capabilities meet
the VRIO criteria in the new market?
» what can the firm learn from partners in
the new market? (GM learned from Toyota in the NUMMI alliance) Dr. Priyanka Shrivastav Competitive Dynamics of Resource Imitation
Competitive Dynamics: • the strategic decisions and actions of firms in response to the strategic decisions andactions of other firms Firm B’s Possible Responses
Firm A No Response (strategy decisions Change Tactics lead to competitive advantage) Change Strategy Dr. Priyanka Shrivastav Competitive Dynamics
“No Action” Response (Rolex Casio)
A firm may decide to take no actionbecause:
• the other firm is serving a different market
• a response may hurt its own competitive advantage • it does not have the resources and capabilities to mount an effective response • it wants to reduce or manage rivalry inthe market through tacit Dr. Priyanka collusion Shrivastav Competitive Dynamics
“Change” Responses Tactics (Tide) Strategy • specific actions • a fundamental change » tweaking product in a firm’s theory characteristics • may be necessary if • usually imitated so current strategy quickly that there is becomes obsolete no advantage • a mimetic change may • a ‘leap frog’ move achieve parity, but not may create advantage advantage Dr. Priyanka Shrivastav SWOT Components A strength is a resource or capability controlled by or available to a firm that gives it an advantage relative to its competitors in meeting the needs of the customers it serves
A weakness is a limitation or deficiency in one or more
of a firm’s resources or capabilities relative to its competitors that create a disadvantage in effectively meeting customer needs
An opportunity is a major unfavorable situation ina
firm’s environment
A threat is a major unfavorable situation in a firm’s
