Organizational Uses of VRIO Tool - Assignment Example

Organizational uses of VRIO Tool Slide 2: Topics to be discussed: Introduction to VRIO What is VRIO all about? Resources that can be evaluated using VRIO. Competitive advantages and the VRIO framework. VRIO application in industries. Advantages and disadvantages of VRIO. Limitations of VRIO. Slide 3- Introduction to VRIO Talking points: VRIO analysis involves analyzing the competitive factors of a firm from the perspective of the available resources. Resources are important for every firms production needs. The more differentiated and unique the resources, the more innovative are the final product. Therefore in order to find out whether firms resources can help it to gain competitive advantage against other firms, the VRIO analysis is undertaken. It helps to understand four major aspects of a particular resource; value, rarity, imitability and organization. Associating all these aspects, it is possible to analyze the degree of comparative advantage a firm has over others (Peng, 2010). Slide 4- What is VRIO all about? VRIO is about asking four questions: The question of value. The question of rarity. The question of imitability. The question of organization. Slide 5- The question of value Talking points: Does the resource help in creating value to the organisation? A resource that does not help to add value to the product or service that is manufactured by the firm is something that is rendered useless or is an extra cost to bear. Every material used during the production process must be something that effectively adds value to the firm. The same implies for the services that are used during the production process. For example, at a soft drinks manufacturing company, if the firm establishes a high tech water filter that is used to cleans impurities in water then it is something that adds value to the firm as clean water helps to manufacture better soft drinks. Therefore the purifying plant is as useful resource. In this a firm must see that every resource or service that it uses in the production process adds value to the firm. Does the resource help to use the available opportunities? A product or service is generally manufactured using a combination of resources. Hence a resource must pave way for the utilization of other resources. For instance if a firm is engaged in the manufacturing of automobiles, it must recruit teams of good engineers and automotive experts who can effectively develop designs and production method for manufacturing the automobiles. Without them, the machines and facilities will have no purpose. Is the resource something that adds value to the environment? The world is living in an age of sustainability. Environment consciousness needs to be there in every action we take. If the manufacturing process of firms is causing any negative impact on the environment, then suitable measures must be taken to rectify it. For instance automobile companies must engage themselves in making more clean technology cars that causes less pollution (Witcher and Chau, 2010). Slide 6- The question of rarity Talking points: Are the resources used rarely available in the market? Rare resources prove to be expensive for firms. If the number of producers in the market of a particular resource is low, it proves to be difficult to obtain them at low prices. Producers may take advantage of their rarity and charge high prices. Is it a non renewable resource? Non renewable resources themselves are rare and need to be used sustainably. For this firms must engage in development of alternative resources and reduce wastage. Also non renewable resources may impact the bio diversity. Hence careful measures must be taken to reduce environmental impact. Does the resource help to manufacture final products and services that are rare? Suppose a firm manufactures cereals that are made from organically produced pulses. Although organic pulses might be abundantly available, but not many firms are engaged in manufacturing cereals made out of them. So that makes the cereals a rare product (Kazmi, 2008). Slide 7- The question of Imitating Talking points: Are the firm’s action and procedures difficult for other to imitate? The more unique are the technologies and systems used in the production process, the more difficult it is for others to imitate. For instance there are very few aerospace firms who use the same technologies as NASA uses in its research and development. Does the firm require imitating other firms and if so how easy or difficult is it? If a firm requires to uses similar procedures as other companies, it must make sure that the final product does not turn out to be similar. Also it must analyse whether using the same process is difficult or simple and how much cost implications does it have. For instance if a firm is using a technology that is patented by another company, it must purchase the technology using rights before using it (Sanchez, 2008). Slide 8- The question of organizing Talking points: How well organised are the firms processes? A firm’s production process needs to be well integrated so as to support the ultimate goal of the organization. The systems and procedures must be cost efficient and must help to use the resources in the most optimized manner. Do they help to add value? The functions of the organization need to be arranged and operated in a manner so that it helps to add value to the final product or service. For instance, the supply chain strategy of a firm should be such that it supports the needs of the product (Witcher and Chau, 2010). Slide 9- Resources that can be evaluated using VRIO Talking points: The next part of the presentation is to analyse which assets can be used to analyse based on the VRIO theory (Drouin, Muller and Sankaran, 2013). Tangible asset The tangible assets that can be analysed based on VRIO method can be financial, physical and technological. The financial assets include, the firms borrowed capital and the capital raised through equity. It also includes the firm’s cash and cash equivalent assets. The physical assets include the firm’s plant and machinery, land and building, state of the art facilities and so on. The technological assets include the innovative production processes, supply chain strategies, scientific technologies used in production and so on. Slide 10- Resources that can be evaluated using VRIO Intangible assets Talking point: The intangible assets include human resources, rights, innovation and creativity and reputation. Human resource assets include the skill and abilities of the workforce of the company. Rights include patent rights, copyrights. Intellectual property rights and so on. Innovation and creativity are also important resources of a firm. Reputational factors include goodwill and brand name. Slide 11- Resources that can be evaluated using VRIO Organizational capabilities Talking point The different types of organizational capabilities include factors such as managerial skills, good skills relating to hiring and training of employees, efficient managerial control, high levels of motivation, good customer services, and good relations with suppliers and so on. The more these skills, the better is the organizational output. Slide 12- Competitive advantages and the VRIO framework. Talking point: On the basis of VRIO technique, it is possible to measure a firm’s competitive advantages and disadvantages (Strategic Management insight, 2012). Value and rarity Talking points: 1) Not valuable- when the resource used by a firm has no value it leads to competitive disadvantage. Hence competitors of the firm are like to perform much better. Under such a scenario a firm earns very less revenue. 2) Valuable, but not rare- Under such a scenario the firm is in equal competition with other firms as the resource is used by other firms also in the same manner. 3) Valuable and rare- This gives the firm a highly competitive advantage as other firms do not have similar resources. Hence the firm will be able to produce differentiated products. Slide 13- Competitive advantages and the VRIO framework Value, rarity and imitation Talking points: 1) Valuable, rare and less costly- this will help the firm to gain temporary competitive advantage. As more and more firms imitate using the same resource as it is less expensive, the firm loses the feature of rarity and therefore competition becomes at par. 2) Valuable, rare and costly- costly resources and systems are difficult to get imitated by other firms on a rapid scale. Therefore the firm can maintain the feature of uniqueness and develop products which cannot be easily produces by other firms. Hence the firm enjoys high competitive advantage. It also important to note in this context that Slide 14- Competitive advantages and the VRIO framework Organization Talking points: 1) Not organized- if resources and their uses are not organized well it may lead to situations such as wastage, excess costs, lack of quality of production and loss of time. Hence the firm will suffer from having less competitive advantages as compared to others. 2) Well organized- if the resources are well organized, the firm has the advantages of being able to deliver high efficiency and optimize its production process. Hence it has high competitive advantages. Therefore organizing resources suitably is important for a firm as it helps to generate greater revenue. Slide 15- VRIO applications in industries. Abu Dhabi National Oil Company (ADNOC) Talking points: Value: Increase of production. ADNOC has been able to increase its production of oil as the company has been operating in more number of oil bases. The company, in the year 2013, produced at a rate of 2.8 million barrels per day. The firm can expect it increase its revenues further by increasing the number of refineries. In this way it can be seen that by increasing the resource base a firm can increase revenues Rarity: Oil and natural gas. Oil and natural gas are one of the rarest resources. The firm is successful in producing almost 95% of UAE’s oil and natural gas requirements. This makes it extremely difficult for other firms to acquire new oil wells, as most of them are owned by ADNOC. Also the government policies of UAE act in favour of ADNOC. Imitability: High investment. The highly technical requirements, high investment of capital and scarcity of resources make it difficult for other companies to imitate ADNOC. Hence it enjoys high level of supremacy in oil and natural gas production. Organization: Supportive methods. ADNOC’s production policies are highly organized in respect of exploitation and production of oil and natural gas. The company follows a high level of governance and has integrated its system well. The firm has highly efficient and hard working employees who have further helped to increase the value (Abu Dhabi Company for Onshore Oil Operations, 2014). Slide 16- VRIO applications in industries Dolphin Energy Talking points: Value: State of the art technology. The company has less oil reserves as compared to ADNOC, but the extremely innovative technology has helped the firm to generate high revenues by producing oil and its related products quite efficiently. Rarity: Oil and natural gas. The firm enjoys operating in a sector that is based on one of the most rarely found resource; oil and natural gas. Therefore it gives the firm huge competitive advantage. Imitating: High technology orientation. Since oil and natural gas production requires high investment of technology, other firms cannot easily imitate unless they have huge capital. This makes this sector less prone to new entrants. Organization: highly motivated employees and integrated systems. The company has one of the best policies of functioning in its sector. The firm invests largely on the training and development of its employees. This gives it immense competitive advantage (Dolphin Energy, 2013). Slide 17: Advantages of VRIO Talking points: Competency analysis- VRIO helps a firm to analyse what are its competitive advantages and disadvantages. Hence a comparative analysis gets facilitated with the help of VRIO. Easy to analyse- In comparison with other models of comparative analysis such as PESTEL and porters 5 force model, VRIO is a more simpler method and can be easily be used for the analysis of the business environment and its competitive advantages (Barney and Hesterly, 2005). Slide 18: Disadvantages of VRIO Talking points: Does not cover all aspects- VRIO takes into account only the resource factor and their usage. It does not include the in depth analysis of the business environment which other models such as PESTEL facilitates. Not suitable for all industries- a firm that produces a variety of products and services for which it utilizes a number of resources may find VRIO to be a not so compatible tool for comparative analysis as it covers few aspects only (Barney and Hesterly, 2005). Slide 19: Limitations of VRIO analysis Talking points: Changing dynamics of resource usage- resource availability and their usages change from time to time as industry policies and methods change. Hence it becomes necessary to undertake VRIO analysis each time there are changes in the pattern of resource usage. Collaborating with other models- VRIO analysis when conducted alongside of other analysis tools such as SWOT, helps to analyse industries better. Alone, VRIO does not pose to be quite enough for firm’s competitive analysis (Barney and Hesterly, 2005). Slide 20: Conclusion Talking points: From the analysis of VRIO, it can be said that it is quite an effective tool to study a firm’s competitive advantage on the basis of its available resources. It involves studying the different resources a firm has and the advantages a firm enjoys because of its resources. No firm can function well without the availability of adequate resources. Therefore this analysis helps in understanding what factors that must be considered when a firm plans its resource strategies. Investment in resources also accounts for a large portion of a firm’s finances and therefore needs careful and strategic planning. VRIO facilitates this to some extend (Barney and Hesterly, 2005). Reference list Abu Dhabi Company for Onshore Oil Operations, 2014. About ADNOC. [online] Available at: < http://www.adco.ae/En/ADNOCGroup/Pages/AboutADNOC.aspx> [Accessed 31 Mar. 14]. Barney, J. B, and Hesterly, W. S., 2005. Strategic Management and Competitive Advantage: Concepts. New Jersey: Pearson Education. Dolphin Energy, 2013. Operations. [online] Available at: < http://www.dolphinenergy.com/en/2/operations> [Accessed 31 March 2014]. Drouin, N., Muller, R. and Sankaran, S., 2013. Novel Approaches to Organizational Project Management Research. Copenhagen: Copenhagen Business School Press. Kazmi, A., 2008. Strategic Management and Business Policy. New Delhi: Tata McGraw-Hill. Peng, M., 2010. Global Business. London: Cengage Learning. Sanchez, R., 2008. Research in Competence Based Management. West Yorkshire: Emerald Group Publishing. Strategic Management insight, 2012. VRIO Analysis. [online] Available at: < http://www.strategicmanagementinsight.com/tools/vrio.html> [Accessed 31 Mar. 14]. Witcher, B. J. and Chau, V. S., 2010. Strategic Management: Principles and Practice. London: Cengage Learning. Read More