We Can See That…

Competitive Advantage and Other Things Functional Analysis VRIO analysis Summarized by Yvonne Smith, Ph. D. University of La Verne

Strategic Advantage OK, now we know what it is How do you get it? I get it!

Developing a Business Model DECISION 1: Define the business Mission Who are our customers and why? WHO is our customer? Abelle analysis for a Car Dealership Business Abell Model WHAT needs do we serve? HOW do we serve needs?

Lodge Cast Iron Company home page Developing a Business Model Example: Lodge Cast Iron “Since 1896, the Lodge family has been casting premium iron cookware at our Tennessee foundry….As the sole American manufacturer of cast iron cookware, we are proud to carry on the legacy started by our great grandfather Joseph Lodge. We don’t just make products; we make heirlooms that bring people together for generations.” Lodge Cast Iron Company home page

The mission defines the business The business determines industry WHO is our customer? WHAT needs do we serve? HOW do we serve needs? The mission defines the business The business determines industry The industry determines the competitors (Competitive Advantage = above industry average profitability) Strategic question at the Firm Level: How do we gain & maintain competitive advantage?

Firm/Organization/SBU DECISION 2: Business-level strategy Choices: Low cost, Differentiation, Focus Combinations Determines strategic group (Small set of immediate competitors) Strategic question: How do we gain & maintain competitive advantage? Q: CA is demonstrated at which level? Firm/Organization/SBU R&D Production Marketing & Sales Finance

Firm/Organization/SBU DECISION 2: Business-level strategy Choices: Low cost, Differentiation, Focus Combinations Determines strategic group (Small set of immediate competitors) Strategic question: How do we gain & maintain competitive advantage? Q: CA is created at which level? Firm/Organization/SBU R&D Production Marketing & Sales Finance

Developing a Business Model DECISION 3: Choose internal strategies Based in firm resources & competencies Focused on what creates competitive advantage Value to customers creates Competitive Advantage E.G. The value chain Build core and distinctive competencies in key functions

Company Infra-Structure Technology Development Note: which functions are primary and which are support depends on the firm and the industry. A primary function of all firms is operations/production (what the firm exists to do.) Other than that, the analyst can decide. The Value Chain Support Activities Outputs Customer Service R&D Oper- ations Company Infra-Structure Human Resources Technology Development Information Systems Marketing & Sales Inputs Inbound logistics Primary Activities 23

Functional Analysis Primary Functions R&D Production, Operations Marketing & Sales Customer Service Primary Functions For your boss, analyze all the functions. For me, the requirement is to analyze any four of the primary functions, including the production/operations function. The purpose of the class is to learn the tool (analysis) and make recommendations (decide), not do endless analysis. BUT, for your boss, analyze all the functions. Inbound logistics: receiving and distributing inputs. Material handling, warehousing, scheduling etc Operations/Production: all activities associated with transforming inputs into final product. Outbound logistics: storing and distributing the product. Warehousing finished goods, order processing etc. Marketing and Sales: connecting the product with the customer. Advertising, promotion, sales force, channel relations, Service: the after sale services that enhance the value of the product to the customer – installation, training, product adjustment, available parts.

Functional Analysis Efficiency Quality Innovation Customer Response R&D Production, Operations Marketing & Sales Customer Service Efficiency Quality Innovation Customer Response Down the side: the key competencies that build Competitive Advantage

Build core and distinctive competencies in: Efficiency Quality Innovation Customer Responsiveness Hill and Jones, 2004 Building Blocks of Competitive Advantage Building Blocks of Competitive Advantage

Key areas that build CA _I_ O Efficiency Quality Inputs = factors of production (land, labor, capital, information) Outputs = the product or service Quality Reliable products do the job they were designed for do it well. Hill and Jones, 2004

Key areas that build CA Customer Responsiveness Innovation Something new or novel in the product or the process Customer Responsiveness Giving the customer what they want when they want it Hill and Jones, 2004,

Functional Analysis High Med Low Example: Package Delivery: LOWPS Strengths R&D Production Marketing & Sales Customer Service Efficiency High Med Quality Low Innovation Customer Response

Functional Analysis High Med Low Example: Package Delivery: LOWPS Strengths R&D Production Marketing & Sales Customer Service Efficiency High Med Quality Low Innovation Customer Response

Functional Analysis High Med Low Example: Package Delivery: LOWPS Strengths R&D Production Marketing & Sales Customer Service Efficiency High Med Quality Low Innovation Customer Response

Functional Analysis High Med Low Example: Package Delivery: LOWPS Weaknesses Functional Analysis R&D Production Marketing & Sales Customer Service Efficiency High Med Quality Low Innovation Customer Response

Functional Analysis High Med Low Example: Package Delivery: LOWPS Weaknesses Functional Analysis R&D Production Marketing & Sales Customer Service Efficiency High Med Quality Low Innovation Customer Response

Functional Analysis High Med Low Example: Package Delivery: LOWPS Weaknesses Functional Analysis R&D Production Marketing & Sales Customer Service Efficiency High Med Quality Low Innovation Customer Response

Q: Under what conditions does a distinctive competency in, for example, efficiency, create Competitive Advantage? Basics: How a Resource or Capability becomes a Distinctive Competency This question is based on the Resource Based View (RBV) of the firm (Barney, 1995) Jay Barney on the Resource Based View of the Firm Basics of RBV

Q: Under what conditions does a distinctive competency create Competitive Advantage? V Valuable (to the customer) R Rare (industry) I Difficult to imitate O Organization uses it well VRIO tool Note: The DME textbook teaches the RBV Analysis using the VRIS framework. This change from the VRIO framework was proposed by one of the authors of the textbook. Most people use VRIO. I suggest you do likewise.

VRIO Capabilities Analysis Resource, Competency Is it Valuable? (V) Is it Rare? (R) Is it difficult to Imitate? (I) Does the Organization use it well? (O) List the competencies (strengths) of the firm. The question is, “Does this strength lead to competitive advantage?”

VRIO Capabilities Analysis Example: Package Delivery: LOWPS VRIO Capabilities Analysis Resource, Competency Is it Valuable? (V) Is it Rare? (R) Is it difficult to Imitate? (I) Does the Organization use it well? (O) Creates compelling ads Low cost R&D systems Quick response to customer complaints Look at the functions where the firm has strengths. What are the specific strengths the firm has? List them. VRIO tool

VRIO Capabilities Analysis Example: Package Delivery: LOWPS VRIO Capabilities Analysis Resource, Competency Is it Valuable? (V) Is it Rare? (R) Is it difficult to Imitate? (I) Does the Organization use it well? (O) Creates compelling ads No Yes Low cost R&D systems ? yes Quick response to customer complaints Strength but not distinctive. No CA Possible CA, needs more analysis Strength and possibly distinctive. Can distinctiveness be developed? VRIO tool

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