AN ANALYSIS FRAMEWORK: VRIO• Resource-based analysis of the company determines which resources and capabilities result in which strengths or weaknesses• Strategies that leverage (or build) must be implemented strengths and avoid (or eliminate) weaknesses• What constitutes a strength or weakness is partially a function of the external environment• Framework for analysis: VRIO: resources and capabilities should beo Valuableo Rare Inimitableo L the organization can exploit them effectivelyVALUE of resources and capabilities• A VALUABLE resource or capability (or a combination thereof) must Contribute to satisfying customer needsor At a price that the consumer is willing to pay, which is determined by Customer preferences Available alternatives (including substitute products) Supply of related or supplementary goods• Therefore, value is partially a function of the external environment (product market, demand forces) • Changes in consumer tastes, industry structure, technology, etc. can result in a change in value • Different companies' resources can be valuable in different ways (e.g. Timex vs. Rolex) • Value = Cost reduction or revenue increase or both Resource and capability scarcity • Resources and capabilities they must be in short supply to create a competitive advantage (and go beyond competitive parity) • What would happen if this were not the case? • An analysis of the firm's resources and capabilities must include a critical evaluation of whether they are unusual compared to those of competitors • How rare must a resource be to have the potential to generate competitive advantage? • Example of a rare resource: Wal-Mart's view purchase... middle of paper... and competitors• Competitive advantage is not only a function of how you play the business game, but also how resources can be employed and re-employed in an evolving market context • Strategy analysis must be situational • Strategy involves the choice and commitment to long-term skills development paths; strategic change is difficult and expensive • Entry decisions must be made with reference to skills and capabilities • Business opportunities are close to the company's existing business • Focus must be defined in terms of distinctive capabilities, not products Inherent limitations of the firm's dynamic capabilities • Learning is typically incremental, not innovative • The search for new sources of competitive advantage is path dependent • Development of new products and capabilities can enhance or destroy the value of complementary assets