Class 4 & 5 Flashcards
Resources Examples
Tangible
- Financial (Cash, securities, borrowing capacity)
- Physical (plant, equipment, mineral reserves)
Intangible
- Technology (patents, copyrights, trade secrets)
- Reputation (brands, relationships)
- Culture
Human
- Skills/know-how
- Capacity for communication and collaboration
- Motivation
Resources and Capabilities Diagram
This diagram illustrates how an organization’s strategy is influenced by both its resources and industry key success factors, leading to competitive advantage. Resources are categorized into tangible (e.g., financial assets, physical infrastructure), intangible (e.g., technology, reputation, culture), and human (e.g., skills, motivation). These resources, when aligned with organizational capabilities, enable the firm to develop a strategy that drives competitive advantage in the industry.
Porters Value Chain
Porter’s Value Chain breaks down an organization’s activities into two main categories: primary activities and support activities, which together create value and a competitive advantage.
Primary activities include:
- Inbound logistics: receiving and handling of raw materials.
- Operations: converting raw materials into finished goods.
- Outbound logistics: delivering the finished product to customers.
- Marketing and sales: promoting and selling the product.
- Service: after-sales services like customer support.
Support activities help the primary activities function more efficiently:
- Firm infrastructure: organizational structure, management.
- Human resources management: recruiting, hiring, and training.
- Technology development: innovation and tech advancements.
- Procurement: acquiring inputs like raw materials.
The ultimate goal is to create margins (profit) by enhancing efficiency and effectiveness across all these activities.
VRIO / VRIN Framework
The VRIO Framework is a tool used to analyze a firm’s resources and capabilities to determine if they provide a sustainable competitive advantage. It focuses on four key criteria:
- Valuable (V): A resource or capability is valuable if it helps the firm exploit opportunities or neutralize threats in the environment, improving efficiency or effectiveness.
- Rare (R): A resource is rare if it is not possessed by many current or potential competitors. If everyone has it, it can’t be a source of competitive advantage.
- Inimitable (I): A resource is inimitable if competitors cannot easily replicate it. This could be due to unique historical conditions, causal ambiguity (it’s not clear how to replicate it), or social complexity (like a company’s culture or reputation).
- Organized to capture value (O): Even if a firm has valuable, rare, and inimitable resources, it must also be organized in a way that allows it to capture the value these resources generate (e.g., through effective leadership, processes, or systems).
The VRIO analysis can provide insights into whether a firm’s resources provide:
- Temporary competitive advantage If a resource is valuable and rare, but not inimitable or the firm is not organized to capture value.
- Sustained competitive advantage: If a resource is valuable, rare, inimitable, and the firm is organized to capture its value.
In the VRIN variation, the “Non-substitutable (N)” criterion is sometimes added, which means the resource cannot be replaced by another that provides the same function.
The goal of the framework is to evaluate which resources or capabilities can sustain a firm’s competitive edge in the long run.
4 x Yes –> sustainable competetive advantage
3x Yes –> unused competetive advantage
2x Yes –> temporary competetive advantage
1x Yes –> competetive parity
0x Yes –> competetive disadvantage
Positioning Statement
Positioning relative to customer, market and competition
* FOR (target customer)
* WHO (statement of opportunity or need)
* THE (product / service / company)
* IS A (product category)
* THAT (statement of key benefit)
* UNLIKE (primary competitors)
* OUR PRODUCT (statement of primary differentiation)
Porters Generic Strategies
Porter’s Generic Strategies outline how a firm can achieve a competitive advantage based on two key dimensions: competitive scope (broad vs. narrow target market) and type of competitive advantage (low cost vs. differentiation).
Sources of competetive advantage
A. Cost Advantage: similar product at lower cost
B. Differentiation Advantage: price premium from unique product
Porters Generic Strategies - Cost Leadership (Broad Scope, Low Cost)
This strategy involves becoming the lowest-cost producer in an industry, serving a broad market. Firms achieve this by optimizing operations and reducing costs, often at the expense of differentiation. Examples include large-scale retailers like Walmart.
Striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals (Walmart)
Porters Generic Strategies - Differentiation (Broad Scope, High Willingness to Pay - WTP)
In this approach, firms focus on offering unique products or services that are valued by a broad market, allowing them to charge a premium. Apple’s innovative products are a good example of this strategy.
Seeking to differentiate the firm’s product or service from rivals’ in ways that will appeal to a broad spectrum of buyers (Mercedes, BMW)
Porters Generic Strategies - Focused Low-Cost Strategy (Narrow Scope, Low Cost)
Firms target a specific, narrow market segment and aim to be the lowest-cost producer within that niche. Examples include companies providing no-frills services to a particular customer group.
Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price (Southwest Airline)
Porters Generic Strategies - Focused Differentiation Strategy (Narrow Scope, High WTP)
Here, firms target a specific market segment and offer highly differentiated products or services. Examples include luxury brands like Rolex, which serve a niche, high-end market.
Concentrating on a narrow buyer segment and outcompeting rivals by offering customized attributes that meet segment’s tastes and requirements better than rivals’ products (Alienware, Tesla)
Porters Generic Strategies - Best-Cost Provider Strategy (Middle):
This combines elements of cost leadership and differentiation. The firm offers products that provide value at a lower cost than competitors while maintaining reasonable quality. Companies like Toyota often adopt this strategy by offering high-quality cars at a reasonable price.
Giving customers more value for the money by satisfying buyers’ expectations on key quality/features/performance/service attributes while beating their price expectations
Porters Generic Strategies - Risks
Cost leadership
* Technological changes that nulifies past investments
* Not see market changes due to the focus on cost
* Low-cost learning by competitors
Differentiation
* Buyers’ need for the differentiating factor falls * * Imitation narrows perceived differences
Focus
* Limited demand
* The broad-competitors products become more and more similar to the focuser, either in terms of costs or differentiation.
Low cost strategies
The basis for competitive advantage is lower overall costs than competitors. Success in achieving a low-cost edge over rivals comes from eliminating and/or curbing “nonessential” activities and/or outmanaging rivals in performing essential activities.
Sources of Cost advantage
ECONOMIES OF SCALE
Technical input-output relationships
Indivisibilities
Specialization
ECONOMIES OF LEARNING
Increased individual skills
Improved organizational routines
PRODUCTION TECHNIQUES
Process innovation
Re-engineering of business processes
PRODUCT DESIGN
Standardization of designs and components
Design for manufacture
INPUT COSTS
Location advantages
Ownership of low-cost inputs
Non-union labor
Bargaining power
CAPACITY UTILIZATION
Ratio of fixed to variable costs
Fast and flexible capacity adjustment
RESIDUAL EFFICIENCY
Organizational slack/X-inefficiency
Motivation and organizational culture
Managerial effectiveness
