Corporate Strategy Session 7: VRIO PDF

Corporate Strategy Session 7: VRIO 13:30-15:00 1 Agenda MMG: Internship VRIO 2 MMG Internship Slides are on your classes website 3 Recap More abstract: How to make an argument (claim, explanation, supporting...

Corporate Strategy Session 7: VRIO 13:30-15:00 1 Agenda MMG: Internship VRIO 2 MMG Internship Slides are on your classes website 3 Recap More abstract: How to make an argument (claim, explanation, supporting evidence), more of an art than a science Specifically: Does X (=logo, high quality beans etc) contribute to Starbuck’s success) 4 Recap More abstract: How to make an argument (claim, explanation, supporting evidence), more of an art than a science Specifically: Does X (=logo, high quality beans etc) contribute to Starbucks’ success) 5 How does the logo may affect Starbucks’ success? Several ways (=explanations): Merchandise with logo.. Supporting evidence (“others sales”) Brand recognition: Food traffic (we tried to estimate how much random pedestrians/unfamiliar situations) Premium positioning → Charging higher prices High brand recognition: lowering marketing costs ….. 6 What is a good assignment? Multiple explanations (merchandise, brand recognition etc) Causal chain is closed and “ends with” increase sales, lowers costs, higher profit margins Whenever possible, claims are supported by evidence (numbers, guesstimates, logic) No logical flaws: Whataboutism BUT: It is not an exact science 7 Today Two necessary conditions for anything to be the reason of success Change in language 8 We want to explain differences in success How is it possible, Magdalena Vintage Coffee Shop and Starbucks are in the same business, but one is struggling while the other is extremely successful? ⇒ There must be differences between these two companies (or do things differently). 9 We have to answer for any potential explanation: Is this different? Is this different or does everybody do it/have it? If there are differences, it MAY explain differences in outcomes (=success) If no differences, it cannot explain differences in outcomes (=success) ⇒ Is this rare? 10 Rare: Espresso Based Drinks… Espresso based drinks almost not available in the US prior to 1985 ⇒ it was rare! Today: At every corner, other firms imitated Starbucks ⇒ no longer rare The fact that Starbucks offers “espresso based” drinks cannot be one reason for its success (but may have been one early on) 11 Rare: High Quality Beans “One reason for Starbucks success is the high quality beans it uses” Is it rare? Is it difficult to find a coffee shop that uses high quality beans? There are many shops that use high quality beans but also many (e.g., Dunkin Donout) that use low quality beans ⇒ Not ubiquitous but also not really rare 12 Brings us to a second question we have to answer: If it is (more or less rare), would it be easy or difficult for companies to do the same (=use high quality beans)? Can Dunkin Donut easily switch from low quality to high quality beans? IMPORTANT: The question is not, whether this is a economically a good idea, the question is simply: How difficult is to eliminate this difference between Starbucks and Dunkin Donut Is it difficult to imitate? 13 One SUSTAINABLE reason for success? Your explanation must meet these two requirements: ○ It is must be rare (=not everybody is doing it/has it) ○ It must be difficult to imitate if you are not yet doing it If both yes → it can be a sustainable source of competitive advantage and thus explain, by there are these massive differences in outcomes If not → may offer some temporal advantages 14 Is it rare? Rare=not all/majority of competitors are doing it (=judgement call) If everybody is doing it, it cannot explain why Starbucks is doing so much better, i.e, why Starbucks has a sustained competitive advantage Differences in outcomes (=success) require differents in inputs 15 If others do not (yet) have this resource, would it be easy or difficult to acquire this resource? For example: Coffee at Swiss gas stations is terrible because of terrible beans. Would it be easy or difficult for them to acquire high quality beans? 16 This is basically the VRIO framework (textbook) 17 Something(“X”) can be the reason why we observe differences in outcomes if… 1. Valuable: Customers appreciate X, they “value it” 2. Rare: Not all firms possess X. 3. Difficult to Imitate: Difficult to get X 4. Appropriability: The company found a way to use X to increase sales, increase the profit margin or lower costs. 18 Something(“X”) can be the reason why we observe differences in outcomes if… 1. Valuable: Customers appreciate X, they “value it” 2. Rare: Not all firms possess X. 3. Difficult to Imitate: Difficult to get X 4. Appropriability: The company found a way to use X to increase sales, increase the profit margin or lower costs. ⇒ We did answer these two questions in the previous sessions. 19 Q1 Valuable: Customers appreciate X, they “value it” How does X help the customers ? Do they value and appreciate it (=different from, WTP/are they paying for it)? Examples: High quality beans: Customers like/appreciate/value coffee brewed with high quality beans (rather than low quality beans) Logo: People find the logo on merchandise appealing 20 Q4 Appropriability: The company found a way to use X to increase sales, increase the profit margin or lower costs. 1:1 what you already did 21 VRIO model, Book: Change in Language… 22 “X”=Resources! Def: “Resources include all assets, capabilities, organizational processes, firm attributes, products, information knowledge, etc.” (our textbook) 23 VRIO analysis: V Do customers value/appreciate the Yes/No All yes: sustained resource? competitive advantage R Is the resource rare? Yes/No In answering these I For those who do not have the resource yet, is it difficult to acquire it? Yes/No questions, you have to O Does this resource allow the company to Yes/No provide explanations & charge higher prices, increase sales, lowers supporting evidence the costs? 24 High Quality Beans=Are they a resource that lead to a sustained competitive advantage? V Do customers value/appreciate the Yes/No All yes: sustained resource? competitive advantage R Is the resource rare? Yes/No In answering these I For those who do not have the resource yet, is it difficult to acquire it? Yes/No questions, you have to O Does this resource allow the company to Yes/No provide explanations & charge higher prices, increase sales, lowers supporting evidence the costs? 25 VRIO analysis: High Quality Coffee Beans (summary) V Customers appreciate good coffee and good Yes Competitive advantage coffee requires high quality beans but not sustainable R Not all coffee places use high quality beans No (Gas stations etc) I It is not difficult to imitate, theoretically, No even gas stations could use high quality beans O Some companies (Starbucks) manage to Yes charge higher prices (--> more profits) for coffee using high quality beans 26 Starbucks Logo=Is it a resource that leads to a sustained competitive advantage? V Do customers value/appreciate the Yes/No All yes: sustained resource? competitive advantage R Is the resource rare? Yes/No In answering these I For those who do not have the resource yet, is it difficult to acquire it? Yes/No questions, you have to O Does this resource allow the company to Yes/No provide explanations & charge higher prices, increase sales, lowers supporting evidence the costs? 27 VRIO analysis: Mermaid Logo (summary) V Customers like the look, signals quality, some Yes are evening buying Merch because of it. Sustained competitive R Most coffee shops have a logo, but not all of Yes advantage but not them and not all of them are as well designed etc sustainable I Competitors cannot simply use Starbucks Yes Logo. Designing a similar appealing Logo is not easy O Logo is part of the brand and Starbucks Yes successful positioned itself as premium (more sales, higher margins, logo is only a one time 28 costs) Place to hang around/3rd place=Is it a resource that leads to a sustained competitive advantage? V Do customers value/appreciate the Yes/No All yes: sustained resource? competitive advantage R Is the resource rare? Yes/No I For those who do not have the resource yet, Yes/No is it difficult to acquire it? O Does this resource allow the company to Yes/No charge higher prices, increase sales, lowers the costs? 29 This is always true: Whenever you have to answer ANY question, your has three components Claim: It is clear whether you agree, disagree, yes or no Explanation: Why did you arrive at agree, disagree, yes, or no. Supporting evidence: Logical argument, data, guesstimates (what we did with customers in unfamiliar situations) 30