What is Strategy and VRIO Analysis

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Competing For Advantage

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Presentation transcript:

What is Strategy and VRIO Analysis Nathan Washburn Associate Professor Huntsman School of Business

Why do these industries differ in profitability? Average ROIC, 1992-2006

Why do these companies differ in profitability?

A company can outperform rivals only if it can establish a valuable difference that it can preserve Position – choosing to meet the needs of a customer segment; good positions create tradeoffs Tradeoffs – when doing one activity excludes another; means that competitors engaged in certain activities cannot copy you Fit – how activities work together; makes tradeoffs stronger Positioning, tradeoffs and fit are all based in the activities or capabilities of the firm (what the firm can do)

Positioning is based on different activities Good positioning always requires a tailored set of activities “If the same set of activities were best to produce all varieties, meet all needs, and access all customers…OE would determine performance” Variety-based: produce a subset of the industry’s products or services Needs-based: serve needs of a particular customer group Access-based: serve customers who are accessible in different ways Cost Leadership Differentiation Focused Cost Leadership Focused Differentiation Integrated Cost Leadership/ Differentiation

The Value Chain Porter 1985 Firm Infrastructure Human Resource Management Technology Development Procurement Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Profit Support Activities Primary Activities

Firms are a collection of resources and capabilities (resource-based view) Tangible resources Intangible resources Resources are combined to form capabilities

Not all firm capabilities (activities) are a source of sustainable competitive advantage Four criteria for capabilities (activities) that can create sustainable competitive advantage Valuable: neutralize threats / exploit opportunities Rare: not possessed by others Costly to Imitate: others can’t copy or substitute Organizational Fit: fits with other capabilities of the org Core Competencies Capabilities Resources

VRIO Worksheet Capabilities: What core capabilities are driving the business success/failure? Valuable: How do the capabilities neutralize threats or exploit opportunities? Rare: Do other firms have this capability? Costly to Imitate: Can others copy this capability (tradeoffs)? Fits with other Org resources: How does this capability fit with the other capabilities of the firm?