Competitive Advantage & VRIO Framework PDF

Competitive Advantage & VRIO Framework CBMC-SM 301 Strategic Management Joseph Anthony M. Romero What is Strategy? A strategy is a set of goal-directed actions a firm takes to gain competitive advantage and sustain superior performance relative to competitors. It is a crucial element in the firm’s...

Competitive Advantage & VRIO Framework CBMC-SM 301 Strategic Management Joseph Anthony M. Romero What is Strategy? A strategy is a set of goal-directed actions a firm takes to gain competitive advantage and sustain superior performance relative to competitors. It is a crucial element in the firm’s growth and development. In any competitive situation, a good strategy could enable a firm to maintain a competitive advantage and achieve superior performance. A strategy provides Direction, Efficiency, Proactivity, Durability, and Leadership. What is Strategy? “Strategy is about being different. It requires a company to choose a different set of activities to undertake than its competitors. All companies incur costs as a result of the many activities they undertake in order to be able to design, manufacture, market, and distribute their products or services. It is these activities which form the basis of competitive advantage. Therefore, a company must choose activities in which it can deliver a unique mix of value to the consumer.“ Michael Porter A company can only outperform its rivals when the value it provides to the Professor in Harvard consumer is difficult for them to imitate. This occurs when: 1. the company provides a differentiated product or service which is more highly valued by customers, enabling it to charge a premium price; or 2. the company provides products with the same quality as a competitor offering, but charges a lower price.  Competitive Advantage Competitive Strategy Advantage Competitive advantage is the ability of a company to outperform its competitors in the marketplace. CA is always relative, not absolute. To determine CA, we need to compare firm performance to a benchmark (ex. other firms in the same industry or an industry average) If Apple’s Units Sales and Profits are Significantly Higher than its competitors, then we can claim that Apple has the competitive advantage in the Smartphone Industry. However, if a firm underperforms its rivals or industry averages, the firm is said to be in a competitive disadvantage.  Competitive Advantage 3 Types of Competitive Advantage: 1. Cost Advantage – a firm is able to produce goods or services lower than its competitors through economies of scale, better supply chain management or more efficient production processes, which can lead to lower prices for customers. 2. Differentiation Advantage – a firm is able to offer products or services that are unique in some way, and that customers perceive as being of higher value than those of its competitors (ex. Marco’s unique souvenir designs) 3. Network Advantage – a firm is able to leverage its connections with other companies, customers, stakeholders to gain advantage over its competitors. To achieve Competitive advantage, an organization configures its resources and activities which enable it to meet consumer needs better than its rivals. Its source are derived from the resources and discrete activities that a company performs when it designs, produces, markets, delivers, and supports its product or service. Question: How can a firms resources and activities be a source of “Sustained Competitive Advantage”?  Outside-in VS Inside-out From an Outside-In approach, the ideal organizational The Inside-Out approach is guided by the culture is market- and customer-oriented and the belief that the inner strengths and capabilities targeted customer segments – buyers as well as users of the organization will make the organization – are the source of inspiration and development. prevail. Long-term shareholder value is a consequence of The effective use of company resources and listening and providing value to customers and helping core competencies as the main driver of them get their jobs done better than the competition shareholder value. while providing a seamless customer experience. Inside-Out strategists believe that a company There is also a strong belief that if the customers aren’t achieves greater efficiencies and adapts more satisfied with the solutions offered, the business will quickly to changing circumstances with this suffer and the shareholder value will diminish approach Outside-in VS Inside-out Jay Barney FIRM’S RESOURCES Jay Barney ORGANIZATIONAL CAPABILITIES Whilst the existence of resources is important, resources per se do not confer any benefit on an organization. These assets need to be deployed in a way that allows them to work together effectively. It is an organization’s capability that allows it to deploy these resources towards a desired task. Robert Grant distinguishes Resources and Capabilities: Resources as inputs into the production process (capital equipment, the skills of individual employees, patents, brands, and finance). On their own these resources are not productive. To be productive requires the cooperation and coordination of a team of resources A Capability is the capacity for a team of resources to perform some task or activity. Organizational capabilities - are the various routines and processes that transform inputs (resources) into outputs and outcome that give the firm a sustained competitive advantage. Organizational capabilities require that the knowledge of individuals is integrated with a firm’s resources such as its capital equipment and technology. This is accomplished by organizational routines.  ORGANIZATIONAL CAPABILITIES Therefore, resources are the source of an organization’s capability, but they need to be deployed or integrated in organization routines for it to be a source of competitive advantage. Organizational routines are regular, predictable, and sequential patterns of work activity undertaken by members of an organization. For a firm’s capabilities to operate effectively it must achieve cooperation and coordination between routines. It is these organizational routines which develop over time and are continually used in changing competitive conditions, which allow the organization to get the best out of their ordinary employee. For example, Amazon uses its capability in web development aligned to efficient logistics in warehousing, distribution, and buyer relationships to produce a vast array of consumer goods at low prices. The resulting convenience for the consumer has enabled Amazon to achieve superior growth. FIRM’S RESOURCES & CAPABILITIES VRIN to VRIO  Video Presentation: VRIO Framework https://youtu.be/afrPC91zCkQ?fe ature=shared  Summary of VRIO Framework Valuable Rare Inimitable Organization Are the resources or Are the resources or Are capabilities costly for Is the firm organized to capabilities valuable or capabilities controlled or other organizations to allow it to exploit the adds value, which enable acquired by one, or does acquire or imitate? valuable, rare, and the firm to increase its only few firms have access difficult to imitate revenue or decrease its to it? A resource is difficult to capabilities it possesses? cost? imitate if firms that do Resources or capabilities not possess the Depends largely on the Enables the firm to possessed by only a few resource are unable to firm’s internal exploit an external industry players develop or buy the structure - Organized opportunity or If valuable organizational resource at a to capture value offset/mitigate an capabilities reside within reasonable price. external threat. Firms must have in a large number of Competitors will place an effective Increases a firm’s competitors or potential attempt to negate a organizational economic value competitors then they firm’s resource structure and creation cannot be a source of advantage by either coordinating systems. sustainable competitive direct imitation or advantage substitution. VRIO Framework The firm is in a The firm is The firm is making The firm is making making an an above average an above average loss-making average level of level of profit level of profit situation profit (temporary (temporary) (temporary) Thank you for Listening