1. We Can See That…

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

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

4. 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?

5. 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

6. 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?

7. 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

8. 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

9. 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

10. 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

11. 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.

12. 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

13. 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

14. 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

15. 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,

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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.

24. 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?”

25. 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

26. 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

27. THE END