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

2. Ice-Fili summary
Bargaining power of suppliers: raw (sugar, cream, butter, etc.) and machinery. Low power, but positions in the industry might change this.
Bargaining power of buyers: end consumers with low switching costs and low perceived differentiation. This might change with advertising. For kiosk owners, they have power – willing to purchase lower price/quality from regional producers. The price per kilo has decreased, market share is shrinking.
Threat of new entrants (barriers to entry): government deregulation and lack of trademarks, entry from other industries, newer equipment might be more efficient, kiosk owners/distributors are willing to sell lower priced ice cream. This threat should encourage industry incumbents to erect barriers (marketing and distribution).
Rivalry among existing competitors: 2 classes of competitors – Nestle and other MNCs (café’s are something else), and the regional players. Regional players creating price pressures, Nestle raising entry barriers through branding/advertising. Very big threat!
Threat of substitutes: snacks, drinks, candy are expanding with big advertising budgets. Sold through same distribution channels, so ice cream prices through these channels are anchored to their prices. Ice cream is cyclically consumed – which is problematic. This is a very high threat.

3. Why do these industries differ in profitability?
Average ROIC,

4. Why do these companies differ in profitability?

5. 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)

6. 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

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

8. 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

9. 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?