Please review the short strategic highlight 3.2 (page 75) on the "Five Forces in the Airline Industry" or "strategy highlight 4.1 (page 119) on "Applying VRIO: The Rise and Fall of Groupon" in the book. Using these two highlights as your guide, pick any industry or a specific company that are impacted primarily due to the COVID-19 pandemic either positively or negatively by applying Porter's five-forces model or the VRIO framework.

Can you discuss the impacts of COVID-19 on higher education institutions using VRIO framework?

REFERENCES:

Rothaermel, F. T. (2021).Strategic management(5th ed.). McGraw-Hill Education.

Strategy Highlight 4.2 Applying VRIO: The Rise and Groupon facilitates the meeting of supply and demand in Fall of Groupon local markets. When Groupon launched, such local After graduating with a degree in music from Northwestern market-making competency was also rare. Groupon, with University, Andrew Mason spent a couple of years as a web its first-mover advantage, seemed able to use technology designer. In 2008, the then 27-year-old founded Groupon, in a way so valuable and rare it prompted Google's buyout a daily-deal website that connects local retailers and other offer. But was it costly to imitate? Not so much. merchants to consumers by offering goods and services at The multibillion-dollar Google offer spurred potential a discount. Groupon creates marketplaces by bringing the competitors to reproduce Groupon's business model. They brick-and-mortar world of local commerce onto the discovered that Groupon was more of a sales company than a tech venture, despite perceptions to the contrary. internet. The company basically offers a "group-coupon." If To target and fine-tune its local deals, Groupon relies more than a predetermined number of Groupon users sign heavily on human labor to do the selling. Barriers to entry up for the offer, the deal is extended to all Groupon users. in this type of business are nonexistent because Groupon's For example, a local spa may offer a massage for $40 competency is built more on a tangible resource (labor) instead of the regular $80. If more than say 10 people sign than on an intangible one (proprietary technology). Given up, the deal becomes reality. The users prepay $40 for the that Groupon's valuable and rare competency was not coupon, which Groupon splits 50-50 with the local hard to imitate, hundreds of new ventures (so-called merchant. Inspired by how Amazon has become the global Groupon clones) rushed in to take advantage of this leader in ecommerce, Mason's strategic vision for Groupon opportunity. Existing online giants such as Google, was to be the global leader in local commerce. Amazon (via LivingSocial), and Facebook also moved in. Measured by its explosive growth, Groupon became The spurned Google almost immediately created its own one of the most successful internet startups, with over daily-deal version with Google Offers. 260 million subscribers and serving more than 500,000 Also, note that the ability to imitate a rare and valuable merchants in the United States and some 50 countries. resource is directly linked to barriers of entry, which is one Indeed, Groupon's success attracted a $6 billion buyout of the key elements in Porter's five forces model (threat of offer by Google in early 2011, which Mason declined. In new entrants). This relationship allows linking internal November 2011, Groupon held a successful initial public analysis using the resource-based view to external offering (IPO), valued at more than $16 billion with a share analysis with the five forces model, which also would have price of over $26. But a year later, Groupon's share price predicted low industry profit potential given low or no had fallen 90 percent to just $2.63, resulting in a market barriers to entry. cap of less than $1.8 billion. In early 2013, Mason posted a To make matters worse, these Groupon clones are letter for Groupon employees on the web, arguing that it often able to better serve the needs of local markets and would leak anyway, stating, "After four and a half intense specific population groups. Some daily-deal sites focus and wonderful years as CEO of Groupon, I've decided that only on a specific geographic area. As an example, Conejo I'd like to spend more time with my family. Just kidding-I Deals meets the needs of customers and retailers in was fired today." Southern California's Conejo Valley, a cluster of suburban Although Groupon is still in business, it is just one communities. These hyper-local sites tend to have much competitor among many and not a market leader. What deeper relationships and expertise with merchants in their went wrong? The implosion of Groupon's market value can specific areas. Since they are mostly matching local be explained using the VRIO framework. Its competency to customers with local businesses, moreover, they tend to drum up more business for local retailers by offering lower oster more repeat business than the one-off bargain prices for its users was certainly valuable. Before hunters that use Groupon (based in Chicago). In addition, Groupon, local merchants used online and classified ads, some daily-deal sites often target specific groups. They direct mail, yellow pages, and other venues to reach have greater expertise in matching their users with local customers. Rather than using one-way communication, retailers (e.g., Daily Pride serving LGBT communities; (Continued)contro 134 CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies Black Biz Hookup serving African-American business shop or a meal in a specific Thai restaurant. The quality compre for intr owners and operators; Jdeal, a Jewish group-buying site these goods and services cannot be judged unless they are consumed. Creation of experience goods and the carmak in New York City; and so on). consumption happens in the same geographic space. researc "Finding your specific group" or "going hyper local" allows these startups to increase the perceived value Once imitated, Groupon's competency to facilitate fully el 1996. added for their users over and above what Groupon can local commerce using an internet platform was neither case, r offer. Although Groupon aspires to be the global leader, valuable nor rare. As an application of the VRIO model ( see th there is really no advantage to global scale in serving local would have predicted, Groupon's competitive advantage Co1 markets. This is because daily-deal sites are best suited to as a first mover would only be temporary at best (see The C market experience goods, such as haircuts at a local barber Exhibit 4.6). 29 ers, in ultima manda Other developers could have purchased the precise parcel of land that Jane bought its elec if they decided to do this only after construction of the highway was announced, then the GM a would have had to pay a much higher price for this land (and the land adjacent to it). W. vehicle e noquote s2085ed Because in order to reflect the new reality of being located next to an interstate, the price when the land would have increased. In other words, the expectations of the future value of major land would have adjusted upwardly. This increase in the price of the land to reflect its ful electri balles oal asstingy value, in turn, would have negated any potential for competitive advantage. world All these factors together led Jane to develop better expectations of the future value all-ele the resource than her competitors did-in this case, the land she purchased. If Jane is a time, m boyon gelb lor repeat these better expectations over time in a more or less sy nwo at belaon will likely gain a sustainable competitive ady No particular piece of land role in128 CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies differ. The resource-based view, therefore, delivers useful insights to managers about how formulate a strategy that will enhance the chances of gaining a competitive advantage. THE VRIO FRAMEWORK One important tool for evaluating a firm's resource endowments is a framework that answers LO 4-5 the question, What resource attributes underpin competitive advantage? This framework is Apply the VRIO framework to assess implied in the resource-based model, identifying certain types of resources as key to superior the competitive firm performance." For a resource to be the basis of a competitive advantage, it must be implications of a firm's resources. Valuable, Rare, and costly to wil Imitate. And finally, the firm itself must be (se Organized to capture the value of the resource. tive Following the lead of Jay Barney, one of the pioneers of the resource-based view of the firm, abl we call this model the VRIO framework. 18 According to this model, a firm can gain and VRIO framework sustain a competitive advantage only when it has resources that satisfy all of the VRIO crite- A theoretical frame- bur work that explains and ria. Keep in mind that resources in the VRIO framework are broadly defined to include any cer predicts firm-level assets as well as any capabilities and competencies that a firm can draw upon when formu- competitive advantage. lating and implementing strategy. So to some degree, this presentation of the VRIO model sit- for summarizes all of our discussion in the chapter so far. Exhibit 4.6 captures the VRIO framework in action. You can use this decision tree to pro decide if the resource, capability, or competency under consideration fulfills the VRIO rest requirements. As you study the following discussion of each of the VRIO attributes, you will into valuable resource see that the attributes accumulate. If the answer is "yes" four times to the attributes listed in as One of the four key cri- teria in the VRIO frame- the decision tree, only then is the resource in question a core competency that underpins a work. A resource is firm's sustainable competitive advantage. dire valuable if it helps a firm exploit an external 200 opportunity or offset an VALUABLE. A valuable resource is one that enables the firm to exploit an external opportu unti external threat. nity or offset an external threat. This has a positive effect on a firm's competitive advantage. In particular, a valuable resource enables a firm to increase its economic value creation over it wa EXHIBIT 4.6 Applying the VRIO Framework to Reveal Competitive Advantage adva best Is the Resource, Capability, or Competency... Valuable ? YES COs are u Rare? NO YES valua /mitation the fi Costly? and Is the Firm... Competitive NO YES imita Disadvantage Organized YES Sustainable Competitive NO to Capture ers an Value? Competitive Parity Advantage ers. T Temporary NO In ad Competitive perfec Advantage Temporary to mo Competitive throug AdvantageCHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies 129 how to (V - C). Revenues rise if a firm is able to increase the perceived value of its product of service in the eyes of consumers by offering superior design and adding attractive features (assuming costs are not increasing). Production costs, for example, fall if the firm is able to answers put an efficient manufacturing process and tight supply chain management in place (assum- work is ing perceived value is not decreasing). uperior Five Guys' superior ability to deliver fresh, customized hamburgers as well as hand-cut st be fries using the highest-quality ingredients is certainly valuable because it enables the firm to command a premium price due to its perceived higher value creation. Although Five Guys excels at driving up the perceived value of its offerings, it also needs to control costs to ensure that this valuable resource can lay the foundation for a competitive advantage. RARE. A resource is rare if only one or a few firms possess it. If the resource is common, it rare resource One of will result in perfect competition where no firm is able to maintain a competitive advantage the four key criteria in the VRIO framework. A e firm, (see discussion in Chapter 3). A resource that is valuable but not rare can lead to competi- resource is rare if the in and tive parity at best. A firm is on the path to competitive advantage only if it possesses a valu- number of firms that O crite- able resource that is also rare. possess it is less than de any When Five Guys was founded in 1986, its superior ability to deliver made-to-order ham- the number of firms it would require to reach formu- burgers from the freshest ingredients and hand-cut fries made from the best potatoes was a state of perfect certainly rare, as was its restaurant concept: It was neither a fast food place nor a traditional model competition. sit-down establishment. It offered a limited menu, no drive-through option, and a self-service format. This remains the case and Five Guys has managed to charge premium prices for its tree to product-prices that are multiple times higher than that of its fast food competitors. Today, VRIO restaurant models like Five Guys are called fast-casual restaurants, a term that didn't come ou will into the dining vernacular until the 2000s, despite well-known Five Guys' competitors such sted in as Chipotle Mexican Grill (founded in 1993) coming onto the scene much earlier. rpins a To further underscore that Five Guys was rare on multiple fronts is the fact that its more direct competitors (and imitators) in the "better burger" segment-Shake Shack (founded in 2004), Smashburger (founded in 2007), and Burger Fi (founded in 2011)-were not launched oportu- until much later. This head start gave Five Guys the ability to perfect its core competencies antage. over a long period of time before it decided to franchise (see Exhibit 4.1). Moreover, because eation it was so early to the fast-casual dining market, Five Guys was able to enjoy a first-mover advantage, including locking up the best store locations and perhaps more importantly the best suppliers (e.g., Rick Miles of Rigby, Idaho, is Five Guys' sole supplier of potatoes). COSTLY TO IMITATE. A resource is costly to imitate if firms that do not possess the resource costly-to-imitate are unable to develop or buy the resource at a reasonable price. If the resource in question is resource One of the valuable, rare, and costly to imitate, then it is an internal strength and a core competency. If our key criteria in the VRIO framework. A re- the firm's competitors fail to duplicate the strategy based on the valuable, rare, and costly-to- source is costly to imi- imitate resource, then the firm can achieve a temporary competitive advantage. tate if firms that do not For more than 30 years now, Five Guys has delivered fresh, made-to-order premium burg- possess the resource ers and fries. In doing so consistently, Five Guys enjoys a cult-like following by its custom- are unable to develop lable ers. This led to its 50 percent market share in the "better burger" segment during the 2010s. or buy the resource at a comparable cost. titive In addition, Five Guys spent almost 20 years refining, honing, upgrading, and eventually age perfecting its core competency before franchising nationally. This in turn enabled Five Guys to more easily duplicate its core competency in different geographic areas as it franchised throughout the United States and beyond. Although it may appear to be a simple business model ("make the best burger"), it is by no means simplistic. Coordinating a multilayered supply chain of a fairly large number of high-quality, fresh ingredients is a complex undertaking. For example, making sure there are to foodborne illnesses requires strict adherence to established food-handling protocols and130 CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies best practices in every one of its 1,500 stores. In addition, much of Five Guys' business was built around Jerry Murrell's gut feeling- something that cannot be imitated. In fact, Murrell himself cannot articulate the many "strategic hunches" he has had over the years. " Unlike Five Guys, imitators such as Shake Shack, Smashburger, and Burger Fi franchised almost immediately after launching. The Five Guys' imitators moved so rapidly because of their relatively TIFFANY & CO. late entry in the market, and thus in their attempt to compete nationwide with Five Guys. In doing so, however, the imitators dis- covered that it is quite costly to imitate Five Guys' core compe- tency. Moreover, given that most of these chains franchised more Tiffany & Co. has or less immediately, they were unable to perfect their competency before expanding. Taken developed a core together, the combination of the three resource attributes (V + R + n) has allowed Five competency-elegant jewelry design and Guys to enjoy a competitive advantage (see Exhibit 4.6). craftsmanship delivered through a superior Direct Imitation. A firm that enjoys a competitive advantage, however, attracts significant customer experience- attention from its competitors. They will attempt to negate a firm's resource advantage by that is valuable, rare, and directly imitating the resource in question (direct imitation) or through working around it to costly for competitors to imitate. The company provide a comparable product or service (substitution). vigorously protects its We usually see direct imitation, as a way to copy or imitate a valuable and rare resource, trademarks, including its Tiffany Blue Box, but it when firms have difficulty protecting their advantage. (We discuss barriers to imitation never trademarked the shortly.) Direct imitation can be swift if the firm is successful and intellectual property (IP) so-called Tiffany setting for diamond rings, used protection such as patents or trademarks, for example, can be easily circumvented. now by many jewelers Crocs, the maker of the iconic plastic clog, fell victim to direct imitation. Launched in The term has been co- 2002 as a spa shoe at the Fort Lauderdale, Florida, boat show, Crocs experienced explosive opted for advertising by other retailers (including growth, selling millions of pairs each year and reaching over $650 million in revenue in Costco), which now 2008. Crocs are worn by people in every age group and across all walks of life, including maintain it is a generic term commonly used in internet entrepreneur and Google co-founder Sergey Brin, celebrities such as Matt Damon, the jewelry industry. Heidi Klum, Adam Sandler, and even the Duchess of Cambridge Kate Middleton. To pro- Lucas Oleniuk/Toronto Star/Getty Images tect its unique shoe design, the firm owns several patents. Given Crocs' explosive growth, however, numerous cheap imitators have sprung up to copy the colorful and comfortable plastic clog. Despite the patents and celebrity endorsements, other firms were able to copy the shoe, taking a big bite into Crocs' profits. Indeed, Crocs' share price plunged from a high of almost $75 to less than $1 in just 13 months.20 This example illustrates that competitive advantage cannot be sustained if the underlying capability can easily be replicated and can thus be directly imitated. Competitors simply cre ated molds to imitate the shape, look, and feel of the original Crocs shoe. Any competitive advantage in a fashion-driven industry, moreover, is notoriously short-lived if the company fails to continuously innovate or build such brand recognition that imitators won't gain a foothold in the market. Crocs was more or less a "one-trick pony." 09 2 - The ChapterCase notes that Five Guys' imitators in the "better burger" segment were an founded only after Five Guys started to franchise in 2003. Not only did Five Guys have an almost 20-year lead in perfecting its core competency, but also within 18 months of starting m to franchise it sold out of U.S. territory, and its franchisees had locked up most of the beg locations. Given the timing of Five Guys' competitors' entry, the success of Five Guys clue, them in that the fast-casual burger segment is highly profitable, and thus they set out of. direct imitation attempt. First-mover advantages in combination with a perfected core coff petency, however, allowed Five Guys to make such direct imitation attempts quite difficu and thus to sustain its competitive advantage. Substitution. The second avenue of imitation for a firm's valuable and rare resource through substitution. This is often accomplished through strategic equivalence Take the examCHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies 131 of Jeff is. developing Amazon. Before Amazon's inception, the retail book industry was dominated by a few large chains and many independent bookstores. As the inter- net was emerging in the 1990s, Bezos was looking for options in online retail. He zeroed in on books because of their non-differentiated commodity nature and easiness to ship. In purchas- ing a printed book online, customers knew exactly what they would be shipped, because the products were identical, whether sold online or in a brick-and-mortar store. The only difference was the mode of transacting and delivery. Taking out the uncertainty of online retailing to some extent made potential customers more likely to try this new way of shopping. The emergence of the internet allowed Bezos to come up with a new distribution system that negated the need for retail stores and thus high real estate costs. Bezos' new business model of ecommerce not only substituted for the traditional fragmented supply chain in book retailing, but also allowed Amazon to offer lower prices due to its lower operating costs. Amazon uses a strategic equivalent substitute to satisfy a customer need previously met by brick-and-mortar retail stores. Combining Imitation and Substitution. In some instances, firms are able to combine direct imitation and substitution when attempting to mitigate the competitive advantage of a rival. With its Galaxy line of smartphones, Samsung has been able to imitate successfully the look and feel of Apple's iPhones. Samsung's Galaxy smartphones use Google's Android operating system and apps from Google Play as an alternative to Apple's iOS and iTunes Store. Samsung achieved this through a combination of direct imitation (look and feel) and substitution (using Google's mobile operating system and app store)." More recently Amazon has opened a new chapter in its competitive moves by its acquisi- tion of the brick-and-mortar Whole Foods in 2017. As we will see in ChapterCase 8, ive Amazon's entry into high-end groceries involves both imitation and substitution. in ing ORGANIZED TO CAPTURE VALUE. The final criterion of whether a rare, valuable, and on, costly-to-imitate resource can form the basis of a sustainable competitive advantage depends pro- on the firm's internal structure. To fully exploit the competitive potential of its resources, th, capabilities, and competencies, a firm must be organized to capture value-that is, it must organized to capture able have in place an effective organizational structure and coordinating systems. (We will study value One of the four key criteria in the VRIO cop organizational design in detail in Chapter 11.) framework. The om a Before Apple or Microsoft had any significant share of the personal computer market, characteristic of having Xerox's Palo Alto Research Center (PARC) invented and developed an early word-processing n place an effective application, the graphical user interface (GUI), the Ethernet, the mouse as a pointing device, organizational lying and even the first personal computer. These technology breakthroughs laid the foundation of structure, processes, / cre and systems to fully the desktop-computing industry.23 Xerox's invention competency built through a unique com- etitive exploit the competitive Dination of resources and capabilities was clearly valuable, rare, and costly to imitate with the potential of the firm's mpany potential to create a competitive advantage. resources, capabilities, gain a Due to a lack of appropriate organization, however, Xerox failed to appreciate and exploit and competencies. the many breakthroughs made by PARC in computing software and hardware. Why? ere all Because the innovations did not fit within the Xerox business focus at the time. Under pres- ave an sure in its core business from Japanese low-cost competitors, Xerox's top management was tarting busy pursuing innovations in the photocopier business. Xerox was not organized to appreci- the best pe the competitive potential of the valuable, rare, and inimitable resources generated at ys clued PARC, if not in the photocopier field. Such organizational problems were exacerbated by out on a geography: Xerox headquarters is on the East Coast in Norwalk, Connecticut, across the ore com country from PARC on the West Coast in Palo Alto, California." Nor did it help that devel- difficult. Coment engineers at Xerox headquarters had a disdain for the scientists engaging in basic research at PARC. In the meantime, both Apple and Microsoft developed operating sys- tems, graphical user interfaces, and application software. esource is example132 CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies if a firm is not effectively organized to exploit the competitive potential of a valuable rare, and costly-to-imitate (VRI) resource, the best-case scenario is a temporary competitive advantage (see Exhibit 4.6). In the case of Xerox, where management was not supportive of the resource, even a temporary competitive advantage would not be realized even though the resource meets the VRI requirements. In summary, for a firm to gain and sustain a competitive advantage, its resources and capabilities need to interact in such a way as to create unique core competencies (see Exhibit 4.4). Ultimately, though, only a few competencies may turn out to be those specific core competencies that fulfill the VRIO requirements.2 A company cannot do everything equally well and must carve out a unique strategic position for itself, making necessary trade-offs.2 Strategy Highlight 4.2 demonstrates application of the VRIO framework. LO 4-6 ISOLATING MECHANISMS: HOW TO SUSTAIN Evaluate different A COMPETITIVE ADVANTAGE conditions that allow a Although VRIO resources can lay the foundation of a competitive advantage, no competi- firm to sustain a competitive advantage. tive advantage can be sustained indefinitely.27 Several conditions, however, can potentially protect a successful firm by making it more difficult for competitors to imitate the resources, capabilities, and competencies that underlie its competitive advantage. Those conditions isolating mechanisms include barriers to imitation, which are important examples of isolating mechanisms that Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. They include: 28 prevent rivals from com- peting away the advan Better expectations of future resource value. tage a firm may enjoy. Path dependence. the bagage card poses And ingear Social complexity. Intellectual property (IP) protection. Each isolating mechanism is directly related to one of the criteria in the resource-based view used to assess the basis of competitive advantage: costly (or difficult) to imitate. If one, or any combination, of these isolating mechanisms is present, a firm may strengthen its basis for competitive advantage, increasing its chance to be sustainable over a longer period of time. BETTER EXPECTATIONS OF FUTURE RESOURCE VALUE. Sometimes firms can acquire resources at a low cost. This acquisition can lay the foundation for a competitive advantage later, when expectations about the future of the resource turn out to be more accurate than those held by competitors. Better expectations of the future value of a resource allow a firm ofgxe to gain a competitive advantage. If such better expectations can be systematically repeated over time, then it can help a firm develop a sustainable competitive advantage. Let's see how the concept of better expectations of future resource value works in the case of Jane, a real-estate developer looking to purchase land. Jane must decide when and where to buy land for future development. If she buys a parcel of land for a low cost in an undeveloped rural area 40 miles north of San Antonio, Texas, her firm may gain a competi tive advantage-if it anticipates the land will increase in value with shifting demographics Now, let's assume, several years later, an interstate highway gets built near this land. With the highway, suburban growth explodes. New neighborhoods emerge and several new shop ping malls are erected. Jane's firm is now able to further develop the property she pur chased. It decides, for instance, to build high-end office and apartment buildings to accommodate the suburban growth. Thus, the value creation resulting from the purchase of the land ends up far exceeding its initial cost. This in turn allows Jane's firm to gain a com- petitive advantage over other real estate developers in the area