Uyai Lizamay Useh

A00021061
MGT 406
Dr. Hassan Yusuf
26/06/2021

MGT 406 FINAL EXAMS: SECTION A

THE VRIO MODEL
“The VRIO Model is an internal analysis tool that firms use to categorize their
resources based on whether they hold certain traits that the framework. This categorization
allows organizations to identify the company resources that are competitive advantages
(Mirkovic, 2021). The VRIO model has four different factors that organizations use to
analyse their resources. They include;
 VALUABLE: The resource creates value when it allows the company to devise and
implement strategies that will improve its efficiency and effectiveness. An attribute
can create value and becomes a resource if it enables the exploitation of opportunities
and/or the neutralization of threats (Cardeal & Antonio, 2012). The valuable resource
could be a better process, stronger access to a supply of raw material, a better supply
chain, a stronger brand recognition, a better reputation that is recognized in the
industry, better trained or skilled employees, a unique location, lower costs of
production, etc (Fahrenwald, 2021). A valuable resource is one that helps the
company increase perceived customer value, exploit an external opportunity or
counter an external threat. Also, firms are to be aware that a valuable resource
declines over the years, so they should put a timeframe on how long they want to
make use of the valuable resource in their business activities.”

 RARE: A rare resource is one that is not common or possessed/used by many

businesses to produce goods/services, because of limited supply or lack of access to
the resource. A resource that is valuable and rare, when used in the business activities
(production, marketing, manufacturing, etc.) leads to competitive advantage in the
market and increased market share. Also over time, some resources become rarer as
scarcity increases because of demand, while others become less rare because high
demand for something in short supply tends to increase production and/ or availability
(Fahrenwald, 2021).”

 INIMITABILITY: A resource that is easily imitable, can be copied and included

into products, thereby making more substitutes and reducing the competitive
advantage of the team with the main resource. Resources are more difficult to imitate
and make if they are; path dependent, there is an ambiguous relationship between the
resources that create competitive advantage, they are socially complex, they are Legal
 property rights (Intellectual property), and the process of their imitation is too long
(Cardeal & Antonio, 2012).”

 ORGANIZATION: A resource can create competitive advantage if the firm’s

management systems, processes, policies, organizational structure and culture can
help it fully realize the potential of resources and have the capabilities to maximise
the value of the resources. A firm that is not capable to fully exploit a valuable, rare
and inimitable resource due to its poor formal and informal organizational and
management structures, incentive systems, or culture, is of little use, because it would
not be able to exploit the resource to gain competitive advantage (Herse, 2018). In this
case, a reorganization of the firm may be needed to be able to exploit it, and gain the
necessary distinctive competencies and overall competitive advantage.”

Fig.1.1: VRIO Framework (Holman, 2021).

THE VRIN MODEL

“The VRIN model defines characteristics resources need to posses in order to enable
competitive advantage to be achieved. According to VRIN model, there are certain factors
that resources need to be to have potential for creating sustainable competitive advantage.
 VALUABLE: A resource that is valuable is one that enables a firm create and
implement strategies that boosts the firm’s effectiveness and efficiency, and improves
the firm’s competitive advantage so that it can outperform its competitors and
counteract their threats (Barney, 1991).”

 RARE: A resource that is rare is one, which is not easily accessible or available to be
utilized by the firm’s competitors/rivals. These resources considered rare have to
deliver a unique strategy that can increase a firm’s competitive advantage above its
competing rivals (Barney, 1991). If a resource is valuable but not rare, many firms
 would include it in their business activities including competencies, and it would
reduce the level of competitive advantage for the firms.”

 IMPERFECTIVELY INIMITABLE: A resource can be inimitable, if other rival

firms cannot not access, duplicate and imitate them perfectly. For resource(s) to be
impefectively inimitable, it has to have uniquely historical conditions, causal
ambiguity between the resources and the firm competitive advantage, and the resource
is socially complex (Barney, 1991).”

 NON-SUBSTITUTABLE: A resource that is non-substitutable is one that cannot be

substituted by any other available resource. This means that the resource should not
be one that is replaceable by any other strategically equivalent valuable resources. If
two resources can be separately utilized to implement the same strategy then they are
strategically equivalent. Such resources are substitutable and can negatively affect the
firm’s competitive advantage (Barney, 1991).”

THE BLUE OCEAN STRATEGY

“The Blue Ocean Strategy is “a business strategy that illustrates the high growth and
profits an organization can generate by creating new demand in an uncontested market
space, or a "Blue Ocean", than by competing head-to-head with other suppliers for known
customers in an existing industry” (Capon et al., 1994).

THE BLUE vs. THE RED OCEAN STRATEGY

 Market Space: Whereas businesses practicing Red ocean strategy compete for
market share in existing market space, businesses engaging in Blue ocean strategy
create their own new uncontested markets to sell new goods and services to them
(Diversification).`

 Competition: In Red ocean strategy; businesses look for new tactics and strategies to
beat existing competitors to gain competitive advantage. In Blue ocean strategy,
businesses aim at making sure that competitors are irrelevant, by creating high
barriers of entry to the market.

 Demand: In Red ocean strategy; businesses aim to exploit the already existing
demand in the market through promotion, pricing, advertising strategies, while in the
Blue ocean strategy, businesses create and capture their new demand.

 Value –Cost: In the Red ocean strategy; business choose between making low cost
products with low value (Cost leadership), or High value products with high cost
(Differentiation), whereas, blue ocean strategy business aim to create low-cost unique
(low-cost differentiation) products.
  Firm’s System: In the Red ocean strategy, firms align business activities to suit their
production choices; either low-cost or differentiation choices. On the other hand,
businesses practicing Blue ocean strategy align business activities to merge low-cost
and differentiation activities (production, marketing, etc).”

THE BLUE OCEAN STRATEGY & VALUE INNOVATION

“Value Innovation is the cornerstone of the Blue Ocean strategy. It is the ability to
make competition irrelevant by create high value for the business customers and firm, so as to
access a new uncontested marketplace, and become the market leader of that market (Kim &
Mauborgne, 2005). This concept focuses full attention on value and innovation, where
companies are able to align innovation (mostly technology) with its utility, price and cost
positions. This allows Blue ocean strategy to be a sustainable strategy. It allows businesses to
break away from competition, while being able to create low cost differentiation products as
opposed to the Red ocean strategy. According to Kim and Mauborgne (2005) “value
innovation is more than innovation. It is about strategy that embraces the entire system of a
company’s activities. Value innovation requires companies to orient the whole system toward
achieving a leap in value for both buyers and themselves.””

THE FOUR ACTIONS FRAMEWORK OF BLUE OCEAN STRATEGY

“This framework is a Blue ocean strategy framework developed by Kim and
Mauborgne (2005) that is “used to reconstruct buyer value elements in crafting a new value
curve or strategic profile.” It’s useful for businesses that want to create value innovation and
break the value-cost trade-off. The framework proposes/asks four questions that challenge an
industry current strategy and business model;

 Eliminate: Which of the factors that the industry takes for granted should be
eliminated? This question is concerned about certain firm/industry factors that require
a lot of investment and effort, but don’t result in a lot of profit and increased customer
base. They could also be outdated factors that are not useful in the current
business/market activities. The factors identified should be eliminated from the
business and industry.

 Reduce: Which factors should be reduced well below the industry’s standard? This
question is concerned about products features that take up cost in production, energy
and time but do not help the business/industry in gaining competitive advantage. This
is often because although they are needed, they are too complicated for the industry at
the present time. The firm should change the features to more cost effective ones that
can satisfy their customers and still help them compete in the market.

 Raise: Which factors should be raised well above the industry’s standard? This
question is concerned about the features of the products the business/industry creates
that do not properly address the pain-points of the customers, and satisfy their needs
and wants. The standards of those products should be increased to satisfy customers
and solve their challenges, or they would lose them and their market share.

 Create: Which factors should be created that the industry has never offered? This
question is concerned about the absence of relevant products to satisfy the needs and
 wants of customers in the industry, and how the company can create products with the
indentified factors so as to gain competitive advantage. Those problems could be ones
that customers are not aware they have.”

“The first two questions allow a business to re-evaluate their products and services to
see if there are extra unwanted features or attributes that are not needed for the products,
while the last two allow the company to focus on what the customers want and increase the
value of their product/service in order to satisfy them.”

Fig 1.2: The four actions framework (Kim & Mauborgne, 2005, p.114) 
 PRINCIPLES OF THE BLUE OCEAN THEORY

RECONSTRUCT MARKET BOUNDARIES

“This principle aims at helping companies successfully identify, commercially
compelling blue ocean opportunities. To reconstruct market boundaries, there is basically a
six paths framework to guide businesses in this principle. They include;

 Look across Alternative Industries: A business has to start analysing/considering

the trade-offs that its customers are likely making across alternative industries. It can
then focus on the key factors that lead buyers to trade across alternative industries and
eliminate or reduce them, so they create a blue ocean of a new target market (Kim &
Mauborgne, 2005). E.g.is NetJets that engaged in fractional owning of private jets
with its customers.”

 Look across Strategic Groups within Industries: A business can also look across
strategic groups (companies that practice a similar strategy). It can then focus on the
key factors that lead consumers to trade across alternative strategic groups and
eliminate or reduce them, so they create a blue ocean of a new target market based on
cheaper price and better performance (Kim & Mauborgne, 2005). E.g. is Curves, a
women fitness company.”

 Look across the Chain of Buyers: Often in a buying decision, there is a chain of
buyers who are directly or indirectly involved in the process. Focusing on one
part/individual in the chain, is not accurate and neglects the system behind a person
purchasing a product within a market. By looking across buyer groups, companies can
get new ideas on how to redesign their value curves to focus on a previous unsatisfied
set of buyers (Kim & Mauborgne, 2005). E.g. is Novo Nordisk that created an insulin
cartridge pen for diabetic patients, so they could easily administer their insulin drugs.”

 Look across Complementary Product and Service Offerings: Untapped value is

often hidden in complementary products and services. A company should observe
what occurs before; during and after customers make use of their products/service.
This would help them identify the pain points in their products/service, and make
complementary products/service to solve/satisfy those problems (Kim & Mauborgne,
2005). E.g. is NABI that used fibreglass to make buses, which reduced the cost of
repairs for a standard bus.”

 Look across Functional or Emotional Appeal to Buyers: A business should be able

to analyse which type of appeal it uses to attract its customers (functional or
emotional), the results, and how they can combine and balance both appeal methods
to attract more customers. A business should avoid using one more than the other
(Kim & Mauborgne, 2005). E.g. Swatch that switched from a functional budget watch
business into an emotion fashion watch store.”

 Look across Time: Managers can actively shape their future by looking across time;
analysing it from the value a market delivers today to the value it might deliver
tomorrow, their impact on the industry and create a new blue ocean strategy to help
them serve their customers (utility) and overall market (Kim & Mauborgne, 2005).
E.g. is Apple that created i-Tunes to introduce online music and reduce piracy.”
FOCUS ON THE BIG PICTURE; NOT THE NUMBERS
“The next principle explains how businesses can align their strategic planning process
to focus on the big picture and apply the ideas in drawing the firm’s strategy canvas to arrive
at an effective blue ocean strategy. To draw out a Firm’s strategy canvas, there is need for;

 Visual Awakening: Here, businesses should design a value evaluation matrix that
compares it with its competitors, analysing its current business situation, identifying
what the issues of the business are and what strategies should change to improve the
business (Kim & Mauborgne, 2005).”

 Visual Exploration: Here, the business creates and sends a team out into the market
to analyse how people use or don’t make use of their products. This would make them
aware of the differentiating advantages or disadvantages of the alternative products
and services, and which factors they need to eliminate, change or create in their own
strategy (Kim & Mauborgne, 2005).”

 Visual Strategy Fair: Here, the business team creates a future value curve based on
perceptions resulting from field observations; they receive feedbacks on the value
assessment matrix of alternatives, coming from customers and non-customers; and
use the feedback combined with their future value curve to build the best strategy for
the future (Kim & Mauborgne, 2005).”

 Visual Communication: Here, businesses communicate the future strategy to its

management and employees in the best way possible; one that the employees can
easily understand. It could be through pictures, videos, etc. The firm should then
support only the projects and initiatives that allow it close the gaps in the
implementation of the new strategy (Kim & Mauborgne, 2005).”

REACH BEYOND EXISTING DEMAND

“This principle explains how business can go extra miles from depending on the
existing market for demand, to creating their demand from their own blue ocean market. To
do this they have to;

 Gain access to Future Potential Customers: This means businesses should not only
focus on their current customers, but also noncustomers, who have potential to
become potential and current customers. There are generally three tiers of non-
customers; First Tier, “Soon-to-be” noncustomers on the edge of your market,
waiting to jump ship. Second Tier; “Refusing” noncustomers who consciously choose
against your market, and finally the Third Tier; who are unexplored noncustomers in
markets distant from yours. They could be attracted via advertisements, promotional
activities, etc (Kim & Mauborgne, 2005). E.g. is Pret A Manger.”

 Finer Segmentation to Accommodate Buyer Differences: Businesses should

further segment their target markets (niches) by exploiting differences among existing
customers and create better offerings to meet customer’s preferences and therefore
satisfy them (Kim & Mauborgne, 2005).”
GET THE STRATEGIC SEQUENCE RIGHT
“This principle explains how businesses go about the strategic sequence of fleshing out
and validating blue ocean ideas to ensure their commercial viability. The strategic sequence
starts with;

 Buyer Utility: There is usually a misunderstanding between innovation and customer

value. A new innovation may not be of great customer value if it does not solve their
problems, and satisfy their needs and wants. Business managers can make use of the
utility map for the buyer, as it allows them identify the full spectrum of utilities that
can be filled by the product or service, and they can create a product that is utilizable
to the customer (Kim & Mauborgne, 2005). E.g. is the Ford Model T created in 1908
that created cars for middle income people.”

 Strategic Pricing: Businesses should set the right strategic price for their products, it
ensures that buyers not only will want to buy your offering but also will have a
compelling ability to pay for it. This is because firms are starting to understanding
that volume generates higher revenue/profits than before, and to a buyer; the value of
a product or service may be closely tied to the total number of people using it. To
establish the right price, the business should conduct a research on the main
alternatives to their product, create a price range (or a corridor) that will attract most
consumers, and then specify a price according to the desired level of protection
(Upper-level pricing, Medium level pricing, and Lower-level Pricing) (Kim &
Mauborgne, 2005). E.g. is Southwest Airlines that offers cheap, no frills flight.”

 Target Costing: To maximize the profit potential of a blue ocean idea, a business
should deduct its desired profit margin from the strategic price to arrive at the target
cost. It is essential to arrive at a cost structure that is both profitable and hardly
equitable. A business can achieve that by simplifying operations, closing their various
partnerships (cost explicit ones), outsourcing, and changing the price model of their
respective industry (Kim & Mauborgne, 2005). E.g. is IKEA furniture that outsourced
it production to over 50 countries in the world for cheap labour.”

 Adoption: Before going forward and investing in the new idea, the company must
first overcome such fears and resistance by educating and motivating the business
three main stakeholders; employees, business partners and investors, and the general
audience. The business managers/owners should communicate to the employees that
change is necessary despite of its threats, and they should explain the change practices
and prepare them to be acceptable to the change. For the Business partners; they are
afraid of losing a beneficial partnership, so the managers can explain how the change
would increase the profits of the organization in the near future. As for the general
audience; the manager/owner should prepare enlightening messages about their latest
innovation, and also be prepared for some level of resistance (Kim & Mauborgne,
2005).”

OVERCOME KEY ORGANIZATIONAL HURDLES

“This principle explains the various organizational hurdles managers have to face when
implementing the blue ocean strategy, and how they can overcome it. The organizational
hurdles include;
  Cognitive Hurdle: This is the hurdle of waking and preparing employees for a
strategic shift. To address and solve this hurdle; the employees must ride the “Electric
sewer”, which means that employees must come face-to-face with the worst
operational problems, regardless of position or level in the organization. Experiencing
the problem firsthand, would make them tip cognitively quickly. Also, they can “meet
with disgruntled customers”. This works best with the top organization members, as
they would be able to learn from the customers about the problems the company has,
and look forward to changing it for the better (Kim & Mauborgne, 2005).”

 Resource Hurdle: In this hurdle, there is an expectation for higher

amount/expensive amount of resources to execute the shift in strategy. In an
organization, Hot spots are activities that have low resource input but high potential
performance gains. Cold spots are activities that have high resource input but low
performance impact. Horse trading involves trading one unit’s excess resources for
another unit’s excess resources to fill remaining resource gaps. To solve this hurdle;
Redistribute resources to the organization’s Hot Spots, Redistribute resources from
the organization’s Cold spots, and engage in Horse Trading from one part of the
organization to another (Kim & Mauborgne, 2005).”

 Motivational Hurdle: The hurdle here is how to motivate key players to move fast
and tenaciously to carry out a break from the status quo. To motivate key players in
the organization, place Kingpins in a fishbowl. This reduces the level of inaction and
low morale, and allows rapid change agents to shine. Another method is to Atomize to
Get the Organization to Change Itself. Make the strategic challenge look small and
attainable, so that the members of the organizations would be motivated to engage in
the change process (Kim & Mauborgne, 2005).”

 Political Hurdle: The hurdle here is opposition from powerful vested interests. To
solve the political hurdle; Secure a Consigliere on Your Top Management Team,
somebody that is highly respected in the top organizational team that would advise the
tipping leader/manager on how to gain the top management’s support in effecting the
change. Another way is to Leverage Your Angels and Silence Your Devils. Here, the
manager discards/isolates those people who would fight against the expected change,
and builds a larger coalition with your supporters to effectively implement the change
(Kim & Mauborgne, 2005).”

BUILD EXECUTION INTO STRATEGY

“The last principle explains how to involve people in the implementation of the Blue
ocean project. To do that, the manager has to use the three E principles of fair process.

 Engagement: Here, the manager should involve employees by asking their opinions
and allowing them to discuss ideas; it sharpens everyone’s thinking and builds better
collective wisdom, because people feel intellectually respected, they are more
comfortable sharing their knowledge. This results in better strategic decisions by
management and greater commitment from all involved to execute those decisions
(Kim & Mauborgne, 2005).”

 Explanation: Here, the manager should explain to the organization members why
they should understand why final strategic decisions are made as they are. It enables
 employees to trust managers’ intentions. It also serves as a powerful feedback loop
that enhances learning in the organization (Kim & Mauborgne, 2005).”

 Expectation Clarity: Here, the manager should state clearly the new rules and
specific goals of the game. The employees should know up front what standards they
will be judged by and the penalties for failure. What are the goals of the new strategy?
What are the new targets and milestones? Who is responsible for what? etc. (Kim &
Mauborgne, 2005).”

“Combined together, these three criteria collectively lead to judgments of fair process.”

REFERNCES

Capon, N., Farley, J. U., and Hulbert, J. M. (1994), "Strategic Planning and Financial
Performance: More Evidence", Journal of Management Studies, Vol. 19, pp. 5-10.

Cardeal, Nuno & António, Nelson (2012). Valuable, rare, inimitable resources and
organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities:
What leads to competitive advantage? South African Journal of Business Management. Vol.6,
Issue 37, pg. 10159-10170.
Fahrenwald, Jeff (2021). VRIO Framework: What it is and How to Use it Effectively.
Envision. MPOWR.

Herse, Ronald (2018). What makes your business unique? Find out using VRIO-Analysis!
EVOLUTIONIZER

Holman, Jeff (2021). A Guide to Intellectual Property Strategy (from an IP Attorney).

Intellectual Strategies.

Kim, W. C., & Mauborgne, R. (2005). Blue ocean strategy: how to create uncontested
market space and make the competition irrelevant. Expanded edition. Boston, Massachusetts:
Harvard Business Review Press.

Barney Jay (1991), “Firm Resources and Sustained Competitive Advantage”, Journal of
Management, Vol.17, Issue1, pg. 99-120.