Apple Inc VRIN Analysis - Essay Example

Strategic Management Contents Resource and Capabilities 3 Characteristics of Resource and Capabilities 3 Apple Inc. VRIN Analysis 4 Industry Five Forces 6 Empirical Analysis 6 Strategy Formulation and Implementation 8 Innovative Strategic Initiative 9 Innovation 11 Types of Innovation 11 Innovation Dynamics Sustaining Competitive Advantage 12 13 Reference List 14 Resource and Capabilities The Resource Based View model was formulated by Wernerfelt in 1984 and further modified by Barney in 1991(Srivastava1, Franklin and Martinette, 2013). The model primarily identified the key elements with the help of which firms could gain competitive advantages in business. The model claims that profit making commercial firms can only succeed with the essence of superior and productive “resources”. Figure 1: Capability and Resource Based view of Firm (Source: Srivastava1, Franklin and Martinette, 2013) Barney claimed that differentiation advantage or true cost can be generated by a concern only with the help of valuable, rare, imperfectly imitable and non sustainable resources. According to him, this is the “VRIN” resource based view of a company. Cohesive leadership, brand equity, brand value, trademarks, patents and copy rights are certain types of VRIN resources of a firm (Srivastava1, Franklin and Martinette, 2013). Characteristics of Resource and Capabilities These resources of the companies should be coupled with proficient “capabilities” for generating the best outcomes from the operational activities of a concern. Through acquisition of rare resources and capabilities, companies can generate significant entry barriers within its industry. The differentiation strategies of the firms can be successful only with the help of extraordinary resources and capabilities. Sustained competitive advantages of giant multinational companies can be attained only through acquisition of unique productive factors.VRIN resources and its internal capabilities are strategically valuable for a company for certain special features. These resources helps an organization create value for its customers and this value exceeds the cost of its operations. The value of the consumers depends on prices of a product or a service of a company (Srivastava1, Franklin and Martinette, 2013). Through VRIN resources a company can lower its product or service prices more than that of its competitors and hence tap a wider base of customers. By achieving greater competitive advantages, a company can earn more profit than its market rivals. The factors causing commercial prosperity of successful multinational companies as Apple, Amazon and Ikea can be effectively analyzed through VRIN analysis model. Apple Inc. VRIN Analysis Valuable The tangible and intangible resources of Apple Inc. are its valuable to its business. The land buildings acquired the company, its capital resources and equipments types of its valuable resources in business. The brand reputation of the concern, its trademarks and patents are also types of insubstantial factors. High social and commercial prosperity can be achieved by Apple Inc. only with the help of such resources (Apple Inc., 2014a). Rare The differentiated labor resource of Apple Inc. is considered to be one of its rare resources. The workforce of the concern is highly educated and trained. Subsequent product, process, marketing and organizational innovation can be achieved by Apple Inc. with the essence of productive human capital. The company has gained high reputation in the market only with the help of its superior technological knowhow. Modern technology used within the product and process system of the company is its rare commercial resources (Apple Inc., 2014a). Imperfectly Imitable The unique products invented by Apple Inc. resemble its imperfectly imitable resources. Certain special products manufactured by the company like i-Mac, iTunes, i-Phone and i-Pad are some of its non imitable resources (Apple, 2014b). These products are manufactured by the company through rare technologies and cannot be legally copied by any of its market rivals. Non Sustainable Customers and employees are the non sustainable resources of Apple Inc. The company gains significant competitive advantages with such resources but might lose them in the long run. The potential buyers of the concern might switch off to the products of its rivals or the company might face high job attrition rate in future. Thus, resource and capabilities are the foundations of a firm’s competitive advantage and helps it earn higher economic value. Economic value is the difference between the perceived reimbursements gained by the consumers and the economic cost of the firm (Talaja, 2012). Industry Five Forces The extent of market competition has significantly increased since emergence of trade liberalization and globalization. The domestic business firms of almost all the economies are exposed to higher market rivalry due to increased foreign participation. The industry five forces model was introduced in 1979 by Michael E. Porter. It helps to analyze the relative competitive position of a company within a particular industry. It also elaborates the impact that can be generated by the external environment on a company’s capability to sustain competitive advantage. These five industry forces that are included in the model are, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, threat of new entrants and threat of potential rivalry. This model is highly useful for business firms as it helps to analyze the required strategies for the company. It determines the magnetism of an industry. Decisions regarding business entry or exist from a particular industry are also framed with the help of this model. It helps a company analyze its external market rivalry and thereby assists it in preparing strategies for gaining competences. It is a dynamic microeconomic analysis model. Empirical Analysis The strategists assess the attractiveness or threats within the industry with the help of Porters five force model. The following part will detail about the five force analysis of the airline industry. Transportation services are provided by different industries. However, among all it is found that the quality of services provided by the companies within the airline industry is more superior to the rest. Bargaining Power of the Buyers (low) The companies within the airline industry face two distinct groups of buyers. The first group is comprised of the direct individuals who purchases air tickets for commercial or non commercial purposes. The second group is composed of the travel agencies and online portals that act as middle agents between the direct buyers and the companies. Since the air line companies operate in a monopolistically competitive market, its aggregate number of buyers are infinite and sellers are finite. The bargaining power of a single buyer is hence very low (Sudarshan, 2000). Bargaining Power of the Suppliers (high) The aircrafts of all the airline companies are manufactured with standardized raw materials. The supplier market is duopolistic in nature with two prominent supplying firms, Boeing and Airbus (Sudarshan, 2000). Hence, the bargaining power of these supplying firms is high. Manufacturing costs of the airline companies are high because of high supplier bargaining power. Threat of New Entrants (low) The threat of new entrant within the industry is low because a new firm needs to make large capital investments for establishing a new airline company. Moreover, the existing potential rivals generate specific entry barriers to the firm (Sudarshan, 2000). Existing Rivalry (high) The companies within the air line industry face cut throat competition with each other. These firms are monopolistic in nature and strictly implements the strategy of differentiation through which they provide qualitatively different services. British airways, Air Asia and Pan America are some these air line companies (Sudarshan, 2000). High expenditure in marketing activities is incurred by most airline companies for inherent market competition within this industry. Threat of Substitutes (low) Travelling means through car, bus, or ship are substitutes of airline services. However, it is true that such services involve greater time and uncertainty. The threats of substitutes faced by the companies are low. Airline companies often charges premium prices for services because they are relatively non substitutable (Sudarshan, 2000). Strategy Formulation and Implementation The role of strategic management is indispensible in the contemporary era. The organizations need to strategically analyze the issues and opportunities lying in the external business environment, before formulating new strategies in business. Analysis of organizations’ current position and goals are components of strategic thinking. Certain changes in the actions of business competitors and external environment generate specific externalities to a company. Thus it is crucial for companies to analyze these outcomes and can only be practiced through strategic implementation and formulation (Sudarshan, 2000). Growth, grand, stability and retrenchment strategies are alternatively implemented by corporations under the regime of strategic management. However after the emergence of trade liberalization and globalization, global strategies are also adopted by the companies. Core competencies can be gained by an organization through resource based approach, innovation and analysis of industry forces. However, only through application of strategic management these core competencies can be utilized by a company. Giant multinational companies make use of corporate, business and global level strategies. Matters relating to joint ventures, disinvestment and acquisition are determined through corporate level strategies. On the other hand, product and process related activities are considered on the basis of business level strategies. Strategy formulation of a company can be exercised through establishments of business goals and objectives. Analysis of external and internal business environment is also crucial for this purpose. The officials of a company should ensure that results of the strategy and business goals are integrated. After formulation of strategies the next step is strategy implementation. Strategy implementation can be practiced through a strategic plan (Sudarshan, 2000). Figure 2: Strategy Formulation and Implementation (Source: Author’s Creation) Innovative Strategic Initiative A mid level manager of a company can provide innovative strategic move while making or convincing business initiatives only through strategy formulation and implementation. The manager can effectively sell the issue (of making an innovative strategic move) to the senior and junior workers through scenario planning. The scenario planning can be done through application of external PESTLE analysis model. This method is considered to be the process of issue selling in business. In 2001, the term was coined by the Academy of Management Journal (Johnson, 2002). It is the process through which an individual in a company tries to formulate new ideas, solutions and commercial opportunities. Such things are formulated by the individual for focusing other’s attention and inviting new actions within the working of the company. PESTLE analysis model is used by the companies for tracking the changes in the external environment and analyzing the reaction of the market before the launch of a new product or a service. The term PESTLE is actually an acronym than explains the political, economical, social, technological and legal aspects of a business environment. The political factors explain the ways through which the legal regulations and laws introduced by the public authorities of a nation can influence the actions of an organization. For instance, a special tax introduced by the government can substantially change the revenue structure of an organization. If the tax direct or progressive income tax rates of a country is increased then it will automatically influence the discretionary spending power of the consumers and hence would make their demand elastic. The company should strategically decide to not substantially change the price level of its products under such circumstances. The economic factors like exchange rate, inflation level or interest rate within a market considerably influences the decision of a company. During inflation, the aggregate supply of money in the economy is high and demand for goods are hence enhanced. The corporate companies should strategically increase its production capacity to tap the emerging market demand under such circumstances. Social factors like taste and preference patterns of the consumers also considerably influence the business activities. The product features of a company should be modified according to the requirements of the consumers. The state of technological knowhow in the market helps to enhance the efficiency of the corporate organizations. The legal aspects of a market also substantially influence the best preferable decisions of the companies. For instance after the enactment of the Free Trade Agreement in 1990, the scope of business internationalization activities had substantially increased in most of the major economies. Environmental aspects also significantly affect the decisions of certain companies. As concepts like global warming have become famous in the contemporary era, the brand value of companies substantially depends on its eco-friendly initiatives. Innovation The degree of market competition faced by most of the corporate companies in the current epoch is high. However, it is true that innovative organizations gain superior higher competitive advantages in business and are able to lead within industries entailing high rivalry. Clear business objectives and goals can be formulated with the help of superior innovation. A company can become a proactive leader in product and process development with the essence of greater innovation. Innovation is entrenched within a corporation’s product, process, services and structure. Types of Innovation Product innovation is the process under the regime of which a company launches a new service or good in the market. The new service or product comprises of more superior features and provides higher utility to the users. It might include certain new technical specifications or materials. The functional characteristics and user friendliness of the new product improves after product innovation. Thus, it is claimed this process helps to enhance the competitive edge of a firm (Chaoren and Thawatthatree, 2011). Implementation of a new delivery method or production means is considered to be the method of process innovation. Significant changes in the usage of software, techniques and equipments are types of process innovation activities of a firm. This type of innovation is utilized by the companies for lowering average costs, increasing equality or for launching new products or services. In the current era, superiority of product and process innovation is not sufficient. Marketing innovation has become more important for companies in the contemporary era. Significant changes made in the product placement, promotion, designing, packaging and pricing are types of marketing innovation activities (Chaoren and Thawatthatree, 2011). Organizational innovation is the method through which an innovative organizational process is practiced by a company. Matters relating to external corporate relations and workplace management are components of organizational innovation. The administrative as well as transaction costs of the companies fall with the essence of organizational innovation. Furthermore, several valuable non tradable assets can also be gained by a corporation through this method of innovation. Lowered supply costs and higher workplace satisfaction can be experienced through increased practice of this method (Chaoren and Thawatthatree, 2011). Innovation Dynamics Sustaining Competitive Advantage In an open economy, a company can survive market threats and grow only with the essence of competitive advantage. However, competition is considered to be a motivating force of development that encourages a company to streamline outdated operates, lower inefficiencies and introduce new technologies as well as products in business. Innovation is considered to be a core renewal procedure of an organization. It is the primary source of contemporary productivity growth of a company. The classical economists have always regarded innovation as a type of exogenous or constant variable. However in the current epoch, the concept of innovation dynamics has become popular across global business world. Innovation is dynamic in nature because it helps to radically modify and improve the product, process and services of a company. Organizational innovations are highly linked up with its inherent goals and are hence substantially valuable. Product innovation helps in constantly improving a company’s relationship with its business stakeholders. Process innovation creates a hazy effect and cannot be directly observed but it is important for lowering the cost of an organizations operations. Effective market segmentation, targeting and positioning of a company can be achieved only with the help of superior marketing innovation. Matters relating to employee development and relation can be efficiently tackled by a firm with the help of effective organizational innovation (Gandotra, 2010). An empirical example of innovation dynamics is the product innovation process of Apple Inc. In 2014, the company has declared to launch its new i-Phone 6 smart phone. It is expected that the new model will contain 5.6 inch screen and comprise more modified display and sound resolutions. The product will be released on September 2014. It will have some additional features as up to 128 GB internal storage capacity (Martin, 2014). The company makes constant product up gradations and process innovation for enhancing its brand value and increasing sales in the long run. The new product launching claims are types of promotional strategies of Apple and helps in enhancing its popularity. Thus, indeed innovation is the cornerstone of sustaining competitive advantage in the contemporary era (Gunday, et al., 2012). Reference List Apple Inc., 2014a. Apple. [online] Available at: [Accessed 22 May 2014]. Apple, 2014b. Supplier responsibility. [online] Available at: [Accessed 22 May 2014]. Chaoren, L. and Thawatthatree, A., 2011. Use value innovation to create competitive advantages in blue ocean. [pdf] Karlstad Business School. Available at: [Accessed 22 May 2014]. Gandotra, N, K., 2010. Innovation culture for sustainable competitive advantage. [pdf] APJRBM. Available at: [Accessed 22 May 2014]. Gunday, A., Ulusoy, G., Kilic, K. and Alpkan, L., 2012. Effects of innovation types on firm performance. [pdf] Sabanciuniv. Available at: [Accessed 22 May 2014]. Johnson, L. K., 2002. Issue selling in the organization. [online] Available at: [Accessed 22 May 2014]. Martin, C., 2014. iPhone 6 release date, price, specs and new features: When is the iPhone 6 coming out?. [online] Available at: [Accessed 22 May 2014]. Srivastava1, M., Franklin, A. and Martinette, L., 2013. Building a sustainable competitive advantage. Journal of Technology Management & Innovation, 8(2), 1-22. Sudarshan, S. R., 2000. Competitive strategy. [pdf] EWMBA. Available at: < http://bcs.solano.edu/workarea/mgarnier/MGMT%2050/Southwest%20Porters%20-%20Brief%202.pdf> [Accessed 22 May 2014]. Talaja, A., 2012. Testing vrin framework: resource value and rareness as sources of competitive advantage and above average performance. Management, 17(2), pp. 51-64. Read More