Beats by dre swot analysis

MGO403 Strategic Management

Internal Analysis: VRIO and value chain

Dr. Yong Li

Topics

• Quiz 1 (10 minutes) • Announcements • Internal analysis

• Industry vs. firm effects • Identify a firm’s resources, capabilities and value chain activities • Apply the VRIO framework to assess resources and capabilities as sources of

competitive advantage • Apply a value chain analysis to understand which of the firm’s activities in the

process of transforming inputs into outputs generate differentiation and which drive costs.

Resources, capabilities, activities, and Links to Competitive Advantage and Superior Firm Performance

The VRIO Decision Tree to Determine the Strategic Importance of Resources and Capabilities…

Two Critical Resource Dimensions • Firm Resource Heterogeneity

– A firm can be viewed as a bundle of resources and capabilities – The bundle differs across firms

• Firm Resource Immobility – Resources tend to be “sticky” and do not move easily from firm to firm

A Resource/capability is Valuable If…

• It enables the firm to exploit an opportunity. • It enables the firm to offset a threat. • It enables a firm to increase its economic value creation

(V – C). – There is demand for the resource.

• Example? • Beats Electronics:

• Design and marketing of premium headphones • Production = ~$15 • Retail = $150 - $450

• Coolness factor translates to some cool profit!

A Resource/capability is Rare If…

• Only one or a few firms possess it • A resource that is valuable but not rare can lead

to competitive parity at best.

• Example: Beats Electronics:

– Vast celebrity endorsement – No other brand in the world, not even Apple or Nike,

has such a large number of celebrities from music, movies, and sports using its product in public.

A Resource/capability Is Costly to Imitate/Substitute If…

• Firms that do not possess the resource are unable to develop or buy the resource at a reasonable price.

• Example: Beats Electronics: – Dr. Dre relies on entrepreneurial judgment in making

decisions rather than market research. – The social capital of Dr. Dre and Jimmy Iovine might be

impossible to replicate.

• valuable, rare, and costly to imitate → internal strength (a core competency)

Barriers to imitation

• Unique Historical Conditions Firm developed in an unusual way that supported the development of certain competencies (e.g. Honda’s development of gas engines vs. GM’s EV efforts)

• Causal Ambiguity Cannot detect how a firm uses its competencies as a foundation for competitive advantage. cause and effect unclear.

• Social Complexity Different social and business systems interact

• Intellectual property (IP) protection (e.g., patents) Usually last for 20 years (proprietary vs. generic drugs)

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Related products: ground tillers, marine engines, generators, pumps, chainsaws

Goldwing touring

motor cycle

1975 1980 1985 1990 1995

Acura Car d iv is ion

2006

Indy 500

The Tiffany Setting

• Core competency - Elegant jewelry design and craftsmanship delivered through a superior customer experience.

• Vigorously protects its trademarks, including its Tiffany Blue Box

The firm Is Organized to Capture Value If…

• It has an effective organizational structure.

• It has coordinating systems.

• Example: Xerox Palo Alto Research Center (PARC): – Developed the first Word-processing application Graphical User Interface (GUI),

Ethernet, Mouse, Personal Computer – These innovations did not fit within the Xerox focus. – Management was busy pursuing innovations in the photocopier business --- not

organized to capture the gains!

• Competitive Advantage More Likely from • tangible resources or • intangible resources?

Knowledge and Competitive Advantage