Basics of Strategy, Resource Based View & Theories of "Profit" Flashcards
What is VRIN?
VRIN is a framework based on the resource based view, which is a basis for the competitive advantage of a firm that lies primarily in the application of a bundle of valuable tangible or intangible resources at the firm’s disposal.
Resources in a company can be defined as VRIN:
Valuable
Rare
In-imitable (Non-replicable)
Non-substitutable
How can the Resource Based View be explained?
The resource based view is a basis for the competitive advantage of a firm that lies primarily in the application of a bundle of valuable tangible or intangible resources at the firm’s disposal.
Resources can either be tangible or intangible, and resources are heterogeneous and immobile.
Resources are looked upon as sources of profit, but erode over time.
Resources are VRIN: Valuable Rare In-imitable (Non-replicable) Non-substitutable
Mention the 4 theories of profit/the profit mechanisms and briefly define them.
Competitive Advantage - Design superior organizations
Rivalry Restraint - Preserve industry profit by limiting competition
Information Asymmetry - Leverage knowledge about products, industries, and markets
Commitment Timing - Decide when to commit resources (and when not)
Define competitive advantage, explain the different sources of competitive advantage in addition to mentioning the analysis tools related to competitive advantage and illustrate mechanism using a real-world example.
Define: Abnormal monetary returns by performing value adding activities in the firm, optimizing the value chain.
Sources of competitive advantage.
o Efficiency: Price leadership strategy - Optimize value chain to lower cost per unit.
o Quality: Differentiation strategy - superior performance in firm activity = superior results.
o Innovation: Innovate products, production, monetization. Re-configure value chain. Make technology core in the value chain.
o Evasion: re-contextualize value chain. Take similar value chain and enter new markets.
Tools/Frameworks:
- SWOT
- Resource Analysis (VRIN)
- Cost analysis
Examples:
- TEVA, Aldi (Efficiency).
- Tesla (Quality).
- Rolls-Royce - Jet engines, or Rolls-Royce - using data analytics to rent out engines. Re-inventing/configuring their value chain/business model (Innovation).
- Amazon with the introduction of AWS. (Evasion).
Define rivalry restraint, explain the tell signs for restraints in addition to mentioning the analysis tools related to rivalry restraint and give an example of how to restrain rivalry.
“Restrain competition to preserve profitability of the firms in an industry”. NOT acquisition. Rivalry restraints can be endogenous or exogenous.
Tell signs for restraints:
- exclusive-dealing contracts
- conditional rebates
- competition clauses
- resource immobility (labor, land, capital, etc.)
- lock-ins (customers) / switching costs
- horizontally-differentiated portfolios (incl. bundling, complementarities)
Tools/Frameworks:
- Industry structure Analysis
- Entry analysis
Example: Apple’s Technology Ecosystem. - Horizontal diversification - Lock-in (high switching costs) - Many complementarities (AirPods, Apple hardware, app store, AirPlay, CarPlay, Apple Pay etc). - Few substitutes.
Define information asymmetry, explain the basis for an analysis of information asymmetry and illustrate mechanism using a real-world example.
Define:
“Information asymmetry is the difference in ability to assess the value of either inputs or outputs” (Makadok, 2011)
Having knowledge/competencies competitors don’t have. Monetize on these knowledge/competencies (Data/digital business models, Mergers & Acquisition, Capabilities etc)
Analyse:
Does the company possess knowledge that is limited, asymmetric or complex that gives them an advantage over their buyers or competitors?
Tools/Frameworks:
- 5 forces.
- Transaction analysis.
Example:
Strategies:
1. Remove asymmetry (eg. PayPal, Ebay, Alibaba, Trustpilot etc)
2. Exploit asymmetry (insurance, Uber (pricing of rides dependent on times/demand)).
Define Commitment timing, explain how to analyse commitment timing and illustrate mechanism using a real-world example.
Define:
When to adopt new technology?
Early vs late commitment.
Analyse:
How flexibly can a firm act if it must?
Tool/framework:
- Dynamic Capabilities. (Ability to learn)
- Options analysis
Example:
First mover (Tesla), second mover (Porsche) – Who will win the race?
Friendster was a couple of year too soon. Facebook committed on the right time.
How do we use the 4 theories of profit (profit mechanisms) in an assignment?
- Define mechanism based on theory
- Analyse mechanism using framework/tool
- Illustrate mechanism using a real-world example
Complete the following sentence:
“In Porterian Strategy, the term Competitive Advantage traditionally refers to…”
- the largest market share
- above average returns for a firm
- delivering the highest quality
- selling at the lowest price
above average returns for a firm
True or False:
“Corporate strategy typically addresses the decision of which industry a firm wants to compete in.”
True
Makadok’s four mechansims of profit are part of which body of theories?
- Strategy as Practice
- Resource-Based Theory of the Firm
- Transaction Cost Theory
Resource-Based Theory of the Firm
True or False:
“A firm can have more than one profit mechanism”
True
Which of the following is NOT one of Makadok’s Profit Mechanisms?
- Rivalry Restraint
- Commitment Timing
- Evasive Moves
- Information Asymmetry
Evasive Moves
A strategy is based on internal and external elements, give examples of these elements?
Internal:
- Goals & Values
- Resources & Capabilities
- Structure & Systems
External:
- Competitors
- Customers
- Suppliers
There are different strategies on different levels of the firm: What is the difference between a business and a coperate strategy?
Business Strategy: how a firm competes
Corporate Strategy: where a firm competes
