L 8 growth accelerators, vrio analysis

Growth Accelerators, VRIO Analysis
1

INTRODUCTION
Growth is on the top of the management agenda as
shareholders simply demand return on invested
capital and current business is not delivering it.
So what is the best route companies can take to
achieve it?
How can companies create and accelerate growth?
To succeed companies must possess the capabilities
and take a systematic approach to go beyond their
core business.
2

LOOKING BEYOND CORE BUSINESS
A recent survey shows that the importance of growth
outside the core business will increase.
Companies estimate that as much as 42% will come
from new areas of growth in 2020 compared to 20%
in 2010.
This will push companies to look to both adjacent
and new areas to reach their growth targets.
3

According to Arthur D. Little‘s Global Innovation Excellence
Survey 2012, top innovators obtain a higher share of their
revenues from products/services launched within the last
three years and also benefit from shorter time to break even.
The top quartile innovators show an average of 13% higher
profit from new products/services and an average of 30%
shorter time to break even compared to others.
However, the gap has narrowed compared to previous years,
displaying that it is becoming increasingly difficult to stay
ahead of competition. The question therefor arises “what are
the prerequisites for a company to achieve successful and
sustainable growth?”
To succeed companies need to excel in every step of the
growth journey, from creating a clear and shared vision for
growth, to finding and delivering the growth. Arthur D. Little’s
Innovation Excellence survey 2012 shows that top innovators
use growth enhancing best practices for each of these three
steps 15-18% more than others.
5

According to Arthur D. Little‘s Global Innovation Excellence
Survey 2012, top innovators obtain a higher share of their
revenues from products/services launched within the last
three years and also benefit from shorter time to break even.
The top quartile innovators show an average of 13% higher
profit from new products/services and an average of 30%
shorter time to break even compared to others.
However, the gap has narrowed compared to previous years,
displaying that it is becoming increasingly difficult to stay
ahead of competition. The question therefor arises “what are
the prerequisites for a company to achieve successful and
sustainable growth?”
To succeed companies need to excel in every step of the
growth journey, from creating a clear and shared vision for
growth, to finding and delivering the growth. Arthur D. Little’s
Innovation Excellence survey 2012 shows that top innovators
use growth enhancing best practices for each of these three
steps 15-18% more than others.
7

The survey also shows that top innovators have
overcome many of the common challenges in innovation
based growth such as obtaining management support,
creating alignment towards a common growth strategy,
establishing cross-functional relationships and enabling
fast decision making.
A framework for successful innovation-based growth
The Growth Accelerator Program brings together the
Why, the What and the How of innovation-based growth.
It helps companies answer the two fundamental
questions of growth: Where do we find growth
opportunities and how do we deliver on the growth
strategy?
The Growth Accelerator Modules spans across three
layers of business creation(FIGURE 3):
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A. Creating a clear, shared vision and strategy for
growth
A clear and shared vision is a prerequisite to succeed
in finding and delivering growth. It serves as a
compass, providing direction on the growth journey.
What are your core competencies?
What is a good strategic fit for your company?
Without it you risk spending lots of resources, time
and money on a large portfolio of growth initiatives
and lose focus on the ones that truly can make a
difference for your company.
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B. Finding growth
Opportunities for growth can be found by understanding the fundamental
forces of change in your markets and technologies and by linking unmet
needs to innovative solutions.
Customers and markets. Can you intensify your sales in current markets?
Are there unmet needs or customer groups that you are not serving
properly? Which megatrends and major value chain changes will impact
your end markets and what is the best way to respond?
Competencies and technologies. What are your core competencies and
how can you leverage them in adjacent fields? What new features,
products and systems solutions can you develop building on your unique
competencies? Which emerging technologies may have a disruptive
impact on your businesses in the future?
Opportunity spaces. Future unmet needs and solutions are brought
together in a module called Opportunity spaces. The potential of the
opportunities spaces are evaluated against their strategic fit to the
company’s vision and competencies. One way in which opportunity spaces
for strategic growth initiatives can be systematically explored is by using a
Checkerboard. (FIGURE 4).
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The “checkerboarding” approach helps managers to analyze
the opportunities spaces in a systematic and pragmatic way.
The approach points to distinct opportunity spaces, i.e.
potential new growth areas. These areas are defined as the
intersection between megatrends or emerging technology
fields on the one hand and end markets on the other.
Case example
A high-end steel service provider active in the European
market developed a growth strategy to assess the feasibility of
entering the renewable energy market. By evaluating their
capabilities and matching them to the most attractive
opportunities in four different growth areas six validated
opportunities were identified, which could realistically lead to
>20% additional revenue. In addition concrete business leads
were identified.
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C. Delivering growth
Delivering growth requires a clear roadmap of where to go combined with an
implementation that considers both what the company needs to deliver as well
as how to get there:
Growth roadmaps. For selected opportunities we create actionable Growth
roadmaps covering different growth horizons:
Intensification: ways to protect and increase your company‘s turnover of
existing products and services within the existing customer base (“defend
and grow the core”).
Enhancement: ways to broaden your customer base through smart new
combinations of existing technologies and markets (“extend the core”).
Enlargement: ways to enlarge your product and service portfolio or develop
new applications (“grow beyond the core”).
Pilots and roll-out. It is strongly believed in the value of continuous learning,
testing and adjusting. That is why pilot projects are set up to deliver early wins
and ensure that the Growth Accelerator becomes your company’s way of
working.
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• Organization and processes. Knowing where and how to grow is one
thing, embedding it in the organization is quite another. Does an
opportunity fit comfortably in an existing Business Unit or should it
first mature someplace else? Is it wise to do it alone or should you
work with partners?
• Culture and change. Fundamentally, the Growth Accelerator is about
helping teams and individuals see the right way forward and
understand it is not a one-off event but a continuous journey. Culture
and change management therefore must be an explicit part of the
program from day one.
• Capabilities and tools. Realizing the growth potential in new areas
requires new capabilities – e.g. in business development or in
customer intelligence. Those needs need to be identified and solved,
be it through tool development, setting up competence development
centers or by learning from other (non-competing) companies.
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Case example
A leading packaging company used the Growth Accelerator
Framework to build group-wide strategic marketing capabilities to
enable the organization to realize growth opportunities and
achieve growth excellence.
To do so they developed a Growth Accelerator Toolbox with 12
modules (i.e. market segmentation, technology scan, value
proposition, product roadmap, business plan, go-to-market
strategy) to build capabilities.
They then successfully implemented the toolbox using training
programs and a roll-out program including pilots to ensure a
sustainable change.
17

A Resource-Based Approach
to Organizational Analysis
• Organizational analysis
• concerned with identifying and developing an
organization’s resources and competencies
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Core and Distinctive Competencies
• Resources
• an organization’s assets and are thus the basic building
blocks of the organization
• tangible, intangible
• Capabilities
• refer to a corporation’s ability to exploit its resources
• consist of business processes and routines that manage
the interaction among resources to turn inputs into
outputs
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Core and Distinctive Competencies
• Core competency
• a collection of competencies that cross divisional
boundaries, is wide-spread throughout the corporation
and is something the corporation does exceedingly well
• Distinctive competency
• core competencies that are superior to those of the
competition
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VRIO Framework of Analysis
1. Value: Does it provide customer value and
competitive advantage?
2. Rareness: Do no other competitors possess it?
3. Imitability: Is it costly for others to imitate?
4. Organization: Is the firm organized to exploit the
resource?
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Using Resources to Gain Competitive Advantage
1. Identify and classify resources in terms of
strengths and weaknesses
2. Combine the firm’s strengths into specific
capabilities and core competencies
3. Appraise profit potential—Are there any
distinctive competencies?
4. Select the strategy that best exploits the firm’s
capabilities and competencies relative to external
opportunities
5. Identify resource gaps and invest in upgrading
weaknesses
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Access to a Distinctive Competency
• Asset endowment
• Acquired from someone else
• Shared with another business
• Built and accumulated within the company
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Access to a Distinctive Competency
• Clusters
• geographic concentrations of interconnected companies
and industries
• Access to:
• Employees
• Suppliers
• Specialized information
• Complementary products
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Determining the Sustainability
of an Advantage
• Durability
• the rate at which a firm’s underlying resources,
capabilities or core competencies depreciate or become
obsolete
• Imitability
• the rate at which a firm’s underlying resources,
capabilities or core competencies can be duplicated by
others
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of an Advantage
• Transparency
• the speed at which other firms under the relationship of
resources and capabilities support a successful strategy
• Transferability
• the ability of competitors to gather the resources and
capabilities necessary to support a competitive
challenge
• Replicability
• the ability of competitors to use duplicated resources
and capabilities to imitate the other firm’s success
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of an Advantage
• Explicit knowledge
• knowledge that can be easily articulated and
communicated
• Tacit knowledge
• knowledge that is not easily communicated because it is
deeply rooted in employee experience or in the
company’s culture
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Understanding VRIO Tool
In order to understand the sources of competitive advantage
firms are using many tools to analyze their external (Porter’s 5
Forces, PEST analysis) and internal (Value Chain analysis, BCG
Matrix) environments. One of such tools that analyze firm’s
internal resources is VRIO analysis. The tool was originally
developed by Barney, J. B. (1991) in his work ‘Firm Resources
and Sustained Competitive Advantage’, where the author
identified four attributes that firm’s resources must possess in
order to become a source of sustained competitive
advantage. According to him, the resources must be valuable,
rare, imperfectly imitable and non-substitutable.
His original framework was called VRIN. In 1995, in his later
work ‘Looking Inside for Competitive Advantage’ Barney has
introduced VRIO framework, which was the improvement of
VRIN model. VRIO analysis stands for four questions that ask if
a resource is: valuable? rare? costly to imitate? And is a firm
organized to capture the value of the resources? A resource or
capability that meets all four requirements can bring
sustained competitive advantage for the company.
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Valuable
The first question of the framework asks if a resource
adds value by enabling a firm to exploit opportunities
or defend against threats. If the answer is yes, then a
resource is considered valuable. Resources are also
valuable if they help organizations to increase the
perceived customer value.
This is done by increasing differentiation or/and
decreasing the price of the product. The resources
that cannot meet this condition, lead to competitive
disadvantage. It is important to continually review
the value of the resources because constantly
changing internal or external conditions can make
them less valuable or useless at all.
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Rare
Resources that can only be acquired by one or very few
companies are considered rare. Rare and valuable
resources grant temporary competitive advantage. On
the other hand, the situation when more than few
companies have the same resource or uses the capability
in the similar way, leads to competitive parity. This is
because firms can use identical resources to implement
the same strategies and no organization can achieve
superior performance.
Even though competitive parity is not the desired
position, a firm should not neglect the resources that are
valuable but common. Losing valuable resources and
capabilities would hurt an organization because they are
essential for staying in the market.
31

Costly to Imitate
A resource is costly to imitate if other organizations that
doesn’t have it can’t imitate, buy or substitute it at a
reasonable price. Imitation can occur in two ways: by directly
imitating (duplicating) the resource or providing the
comparable product/service (substituting).
A firm that has valuable, rare and costly to imitate resources
can (but not necessarily will) achieve sustained competitive
advantage. Barney has identified three reasons why resources
can be hard to imitate:
• Historical conditions. Resources that were developed due to
historical events or over a long period usually are costly to
imitate.
• Causal ambiguity. Companies can’t identify the particular
resources that are the cause of competitive advantage.
• Social Complexity. The resources and capabilities that are
based on company’s culture or interpersonal relationships.
32

Organized to capture value
The resources itself do not confer any advantage for
a company if it’s not organized to capture the value
from them. A firm must organize its management
systems, processes, policies, organizational structure
and culture to be able to fully realize the potential of
its valuable, rare and costly to imitate resources and
capabilities. Only then the companies can achieve
sustained competitive advantage.
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Using the Tool
Step 1. Identify valuable, rare and costly to imitate
resources
There are two types of resources: tangible and
intangible. Tangible assets are physical things like land,
buildings and machinery. Companies can easily buy them
in the market so tangible assets are rarely the source of
competitive advantage.
On the other hand, intangible assets, such as brand
reputation, trademarks, intellectual property, unique
training system or unique way of performing tasks, can’t
be acquired so easily and offer the benefits of sustained
competitive advantage. Therefore, to find valuable, rare
and costly to imitate resources, you should first look at
company’s intangible assets.
34

Using the Tool
Finding valuable resources:
An easy way to identify such resources is to look at
the value chain and SWOT analyses. Value chain
analysis identifies the most valuable activities, which
are the source of cost or differentiation advantage.
By looking into the analysis, you can easily find the
valuable resources or capabilities. In addition, SWOT
analysis recognizes the strengths of the company
that are used to exploit opportunities or defend
against threats (which is exactly what a valuable
resource does).
35

Using the Tool
If you still struggle finding valuable resources, you can identify them by asking the following
questions:
• Which activities lower the cost of production without decreasing perceived customer
value?
• Which activities increase product or service differentiation and perceived customer value?
• Have your company won an award or been recognized as the best in something? (most
innovative, best employer, highest customer retention or best exporter)
• Do you have an access to scarce raw materials or hard to get in distribution channels?
• Do you have special relationship with your suppliers? Such as tightly integrated order and
distribution system powered by unique software?
• Do you have employees with unique skills and capabilities?
• Do you have brand reputation for quality, innovation, customer service?
• Do you do perform any tasks better than your competitors do? (Benchmarking is useful
here)
• Does your company hold any other strengths compared to rivals?
36

Using the Tool
Finding rare resources:
• How many other companies own a resource or can perform capability in the
same way in your industry?
• Can a resource be easily bought in the market by rivals?
• Can competitors obtain the resource or capability in the near future?
Finding costly to imitate resources:
• Do other companies can easily duplicate a resource?
• Can competitors easily develop a substitute resource?
• Do patents protect it?
• Is a resource or capability socially complex?
• Is it hard to identify the particular processes, tasks, or other factors that form
the resource?
37

Using the Tool
Step 2. Find out if your company is organized to exploit these
resources
• Following questions might be helpful:
• Does your company has an effective strategic management
process in organization?
• Are there effective motivation and reward systems in place?
• Does your company’s culture reward innovative ideas?
• Is an organizational structure designed to use a resource?
• Are there excellent management and control systems?
38

Using the Tool
Step 3. Protect the resources
• When you identified a resource or capability that has
all 4 VRIO attributes, you should protect it using all
possible means. After all, it is the source of your
sustained competitive advantage. The first thing you
should do is to make the top management aware of
such resource and suggest how it can be used to lower
the costs or to differentiate the products and services.
Then you should think of ideas how to make it more
costly to imitate. If other companies won’t be able to
imitate a resource at reasonable prices, it will stay rare
for much longer.
39

Using the Tool
Step 4. Constantly review VRIO resources and
capabilities
• The value of the resources changes over time and they
must be reviewed constantly to find out if they are as
valuable as they once were. Competitors are also keen
to achieve the same competitive advantages so they’ll
be keen to replicate the resources, which means that
they will no longer be rare. Often, new VRIO resources
or capabilities are developed inside an organization
and by identifying them you can protect you sources of
competitive advantage more easily.
40

VRIO Example
Google’s capability evaluated using VRIO framework
41

VRIO Example
Google’s ability to manage their people effectively is a source of both
differentiation and cost advantages. Unlike other companies, which rely on
trust and relationship in people management, Google uses data about its
employees to manage them. This capability allows making correct (data based)
decisions about which people to hire and the best way to use their skills. As a
result, Google is able to hire innovative employees that are also very
productive ($1 million in revenue per employee).
Besides being valuable, it is also a rare capability because no other company
uses data based employee management so extensively. Is it costly to imitate? It
is costly to imitate, at least, in the near future. First, companies should build
the highly sophisticated software, which is both costly and hard to do. Second,
HR managers should be trained to make data based decisions and forget their
old management methods. Is Google organized to capture value from this
capability? Certainly, it has trained HR managers that know how to use the data
and manage people accordingly. It also has the needed IT skills to collect and
manage the data about its employees.
42

Business Models
• Business model
• a company’s method for making money in the current
business environment
• includes the key structural and operational
characteristics of a firm—how it earns revenue and
makes a profit
43

Business Models
A business model is usually composed of five
elements:
• Who it serves
• What it provides
• How it makes money
• How it differentiates and sustains competitive
advantage
• How it provides its product/service
44

Business Models
Some of the many possible business models are:
• Customer solutions model
• Profit pyramid model
• Multi-component system/installed model
• Advertising model
• Switchboard model
45

Business Models
Some other possible business models are:
• Efficiency model
• Blockbuster model
• Profit multiplier model
• Entrepreneurial model
• De Facto industry standard model
46

Corporate Culture:
The Company Way
• Corporate culture
• the collection of beliefs, expectations and values learned
and shared by a corporation’s members and transmitted
from one generation of employees to another.
47

Functions of Corporate Culture
1. Conveys a sense of identity for employees
2. Generates employee commitment
3. Adds to the stability of the organization as a
social system
4. Serves as a frame of reference for employees to
understand organizational activities and as a
guide for behavior
48

Corporate Culture:
The Company Way
• Cultural intensity
• the degree of which members of a unit accept the
norms, values and other cultural content
associated with the unit
• shows the culture’s depth
• Cultural integration
• the extent of which units throughout the
organization share a common culture
• culture’s breadth
49

Strategic Marketing Issues
• Market position
• refers to the selection of specific areas for marketing
concentration and can be expressed in terms of market,
product and geographic locations
• Marketing mix
• the particular combination of key variables under a
corporation’s control that can be used to affect demand
and to gain competitive advantage
50

Product Life Cycle
• Product life cycle
• a graph showing time
plotted against the sales
of a product as it moves
from introduction
through growth and
maturity to decline
52

Brand and Corporate Reputation
• Brand
• a name given to a company’s product which identifies
that item in the mind of the consumer
• Corporate brand
• a type of brand in which the company’s name serves as
the brand
53

Brand and Corporate Reputation
• Corporate reputation
• a widely held perception of a company by the general
public
Consists of two attributes:
• Stakeholders’ perceptions of quality
• Corporation’s prominence in the minds of
stakeholders
54

Strategic Financial Issues
• Financial leverage
• ratio of total debt to total assets
• describes how debt is used to increase earnings
available to common shareholders
• Capital budgeting
• the analyzing and ranking of possible investments in
fixed assets in terms of additional outlays and receipts
that will result from each investment
• Hurdle point
55

Strategic Research and
Development Issues
• R&D intensity
• spending on R&D as a percentage of sales revenue
• principal means of gaining market share in global
competition
• Technology transfer
• the process of taking new technology from the
laboratory to the marketplace
56

R&D Mix
• Basic R&D
• focuses on theoretical problems
• Product R&D
• concentrates on marketing and is concerned with
product or product packaging improvements
• Engineering R&D
• concerned with engineering, concentrating on quality
control and the development of design specifications
and improved production equipment
57

Impact of Technological
Discontinuity on Strategy
• Technology discontinuity
• when a new technology cannot be used to enhance
current technology, but substitutes for the technology to
yield better performance
58

Strategic Operations Issues
• Intermittent systems
• item is normally processed sequentially, but the work
and sequence of the process vary
• Continuous systems
• work is laid out in lines on which products can be
continuously assembled or processed
• Operating leverage
• impact of a specific change in sales volume on net
operation income
59

Experience Curve
• Experience curve
• unit production costs decline by some fixed percentage
each time the total accumulated volume of production
units doubles
60

Increasing Use of Teams
• Autonomous (self-managed)
• a group of people work together without a supervisor to
plan, coordinate and evaluate their work
• Cross-functional work teams
• various disciplines are involved in a project from the
beginning
• Concurrent engineering
• specialists work side-by-side and compare notes
constantly to design cost-effective products with
features customers want
61

Increasing Use of Teams
• Virtual teams
• groups of geographically and/or organizationally
dispersed co-workers that are assembled using a
combination of telecommunications and information
technologies to accomplish an organizational task
62

Trends Driving Virtual Teams
• Flatter organizational structures
• Turbulent environments
• Increased employee autonomy
• Higher knowledge requirements
• Increased globalization
63

Quality of Work Life and
Human Diversity
Quality of work life includes improvements in:
• Introducing participative problem solving
• Restructuring work
• Introducing innovative reward systems
• Improving the work environment
64

Quality of Work Life and
Human Diversity
• Human diversity
• the mix in the workplace of people from different races,
cultures and backgrounds
• provides a competitive advantage
65

Strategic Information
Systems/Technology Issues
Information systems/technology contributions to
performance:
• Automation of back office processes
• Automation of individual tasks
• Enhancement of key business functions
• Development of a competitive advantage
66

• Web 2.0
• the use of wikis, blogs, RSS (Really Simple Syndication),
social networks (e.g., LinkedIn and Facebook), podcasts
and mash-ups through company Web sites to forge
tighter links with customers and suppliers and to engage
employees more successfully
67

• Supply chain management
• the forming of networks for sourcing raw materials,
manufacturing products or creating services, storing and
distributing the goods and delivering them to customers
and consumers
68

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