Question:
Why exactly is Apple (or any industry leader,
for that matter) so successful?!
One Possible Answer:
Apple is successful because it is located in a highly
profitable industry and/or macro-environment
External Analysis
Porter’s
Firm
Forces
Strategic Gp.
Industrial Pressures
‘PESTEL’
Framework
General /
Societal Pressures
Supplier Power
Check out some of the suppliers
of cell phone components: Link
Buyer Power - Canada
Buyer Power - US
Industry Rivalry
So…
The smartphone industry doesn’t look very profitable!
Powerful suppliers of 5G radio components, high-end LCD
screens, chipsets, etc., who can dictate prices and
quality of components
Powerful buyers (the big telecom firms in North America)
who can demand lower prices for their firms or better
product features at similar prices
Lots of rivals in different parts of the world, some who are
balanced in terms of size and revenue
A couple of substitutes (like small powerful tablets, 2-in-1
laptops, basic cellphones) that might be strategically
equivalent
Few barriers to entry – all it takes to make a smartphone is
a set of capable suppliers!
So…
So the answer to the question “why exactly is Apple
so successful?!” cannot really be answered by
looking at external factors.
One must look at factors internal to the firm that
make it extremely good at value creation.
Internal Analysis
Resource-based (RB)
Model
Premise: Certain types of organizational resources
and capabilities can lead to sustained competitive
advantage
Core Competitive
Resources Capabilities
Competencies Advantage
Firm
Internal Analysis Questions
What are the resources and capabilities that
underlie the firm’s activities?
Which of these resources and capabilities form
core competencies? (VRIO Analysis)
How do we manage these core competencies
to generate or sustain an advantage?
Resources
Definition: All assets, organizational processes,
attributes, information, knowledge, etc.
controlled by a firm that enable the firm to
conceive of and implement strategies that
improve its efficiency and effectiveness (Barney,
1991)
Resources
Tangible
Assets that can be seen, touched and quantified
Examples include equipment, facilities, distribution
centers, formal reporting structures
Intangible
Can’t be seen or touched. Hard to define and
measure
Examples include knowledge, trust, organizational
routines, capabilities, innovation, brand name,
reputation
Capabilities
Capabilities
Purposefully integrated set of resources to perform
a specific organizational task/set of tasks well
E.g., Product innovation capabilities consist of a
variety of resources (e.g., scientists, managers, R&D
labs, patents, compensation systems, HR policies,
etc.)
But…
Not all resources and capabilities are critical to
competitive advantage!
The VRIO Framework
1. Valuable?
A resource or capability is valuable if:
It enables the firm to exploit an opportunity or
offset a threat
It enables a firm to increase its economic value
creation
E.g., consider the case of the LEGO Group
LEGO’s Tangible
Resources
LEGO’s Tangible
Resources
LEGO’s Intangible
Resources
LEGO’s Intangible
Resources
2. Rare?
A resource or capability is rare if only one or a few firms
possess it
Consider LEGO’s R&D capabilities
The Future Lab is LEGO’s secretive and highly ambitious R&D team,
charged with inventing entirely new, technologically enhanced
“play experiences”
The bulk of the group is Danish and American, but employees also
hail from Chile, India, the U.K., Thailand, etc.
Young, slightly nerdy, and in possession of an advanced degree in design,
technology, or business management
The have unlimited budgets, they are encouraged to make mistakes,
and empowered to “pre-launch” their ideas in controlled trials
3. Costly / Difficult to
Imitate?
A resource or capability is costly to imitate if:
Firms that do not possess the resource are unable
to develop or buy the resource at a reasonable
price
Normally, when a company does well, competitors
try to (1) directly imitate or (2) substitute for its
valued resources
Barriers to Imitation
What makes some resources and capabilities
costly to imitate or even inimitable?
Path dependence (i.e., unique historical
conditions)
Causal ambiguity
Social complexity
Intellectual property (IP) protection mechanisms
4. Organized to Capture
Value?
A firm is organized to capture value if:
Top managers recognize the value in critical
resources
It has an effective organizational structure and
coordinating systems to deploy resources and
capture value
Consider the case of Kodak -
Eastman Kodak
1888: “You press the button, we do the rest”
1975: Invented the digital camera
1976: 90% of film and 85% of camera sales in US
Late 1990s: Declining film sales
2012: Declares bankruptcy
Fujifilm
2015: Revenues of $20.77b
© 2012 The Economist
The VRIO Framework
1. The Question of Value:
Does a resource enable a firm to exploit an environmental
opportunity, and/or neutralize an environmental threat?
Does a resource help increase EVC?
2. The Question of Rarity:
Is a resource currently controlled by only a small number of
competing firms?
3. The Question of Imitability:
Do firms without the resource face a cost disadvantage in
obtaining or developing it?
4. The Question of Organization:
Are a firm’s policies and procedures organized to support the
exploitation of its valuable, rare, and costly-to-imitate
resources?
Competitive
Consequences