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Using Barneys characteristics (VRIO) revisit the Coca-Cola case and identify which resources are most important for competiti
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Question one
Using Barney’s characteristics (VRIO) revisit the Coca-Cola case and identify which resources are most important for competitive advantage.
The study of sustainable competitive advantage in particular product industries has been encouraged by Barney who came up with VRIO characteristics for examining the internal environment of a firm (1995). The soft drink industry is experiencing rapid growth and diversification, high competition hence, offers a higher potential to achieve a sustainable competitive advantage through close look firm’s internal information. Coca-Cola and Pepsi have been on the first share of the world’s beverage market for soft drinks. The two drinks have been competing in the global market for more than a century. Using VRIO framework, the most important resources for Coca-Cola competitive advantage will be easily identified. The VRIO framework helps to integrate sustainable competitive advantage issues from the field of strategic management, marketing and organization economics with an aim to explore the successful nature of a firm. An organizational analysis based on internal information has a higher potential to achieve superior competitive advantage (Porter 2004).
According to Barney (1995), the analysis of an organization’s resources for achieving a competitive advantage is based on four key factors; value, rarity, inimitability, and organization sustainability. Since the highest competitor of Coca-Cola is Pepsi, the following resources are the most important for competitive advantage as shown from VRIO framework. Firstly, the financial resource affects the competitive advantage of Coca-Cola on bases of value and organizational sustainability. According to Yoffie & Slind (2006), Coca-Cola’s cash and cash equivalents have been highly affected since the emergence of Pepsi. Pepsi entered the market with a full force making Coke customers shift their interest to Pepsi because it was a new drink with new flavors. In addition, Coca-Cola reduced its capacity to raise equity due to low sales volume.
The second form of resources according to VRIO framework is technology, innovation and creativity. This resource caters for inimitability and rarity. The innovation production process adopted by Coca-Cola was copied and modified by Pepsi Company. Cola could not achieve the expected competitive advantage because their competitions had modern and improved distribution channels that ensured the drink reached customers everywhere in the world. In addition, Pepsi introduced trade secrets, patents, and trademarks that were similar to those of Coca-Cola.
The final resource that is of most important for Coca-Cola competitive advantage is the firm’s reputation. Reputation considers factors associated with brand name, customer reputation on quality and reliability, and supplier reputation for fairness and relationships. Company reputation would be of great use in achieving a competitive advantage for Coca-Cola because it has outstanding customer services and excellent product development capabilities. The retail channels used for distribution of Coca-Cola and Pepsi are almost similar because the two drinks have almost similar purchasing power hence highly competitive (Yoffie & Slind 2006).
Question twoBased on the analysis of Coca-Cola’s resources, make recommendations to Coca-Cola’s management as to which of the resources you have identified should be invested (or disinvested) in and/or which resources should be acquired.
The above named resources are selected as the most important to enable Coca-Cola achieve a global competitive advantage. One of the resources that Coca-cola management should consider investing on is technology and innovation because it is a rare, valuable and non-imitable resource. The business world today requires an organization that has high level of technological advancement right from production, distribution, and accountability (Porter 2004). Developing high and sustainable technological operations would place the company in a better position to overcome all its competitors Pepsi included. According to Yoffie & Slind (2006), when Coke’s former marketing executive became Pepsi’s CEO, he came up with more innovations by introducing take-home sales that enabled Pepsi sales to grow by more than 60%. To overcome such a challenge, Coke management should come up with high quality technical and scientific skills that have not been practiced by any other soft drink manufacturing company.
On the other hand, Coke management should consider acquiring one of the resources mentioned in question one above. The financial resource would be best if acquired from a well informed consultant. The main reason for acquiring this resource is due to the fact that company financial analysis requires an experienced person who can plan for the company’s future sales forecast and expected profits. Acquiring the finance resource would also increase the company’s cash and cash equivalents, increase its capacity to raise equity, and increase its borrowing capacity. In addition, the acquisition of external financing services would enable Coke make more investments and expand its business to various parts of the world by opening many retail shops. Moreover, the resource would see the company finance growth projects that the company could not fund by itself. Finally, by acquiring the financial resource, Coke will be in a position to purchase large capital equipments to facilitate innovation and technological growth.
Question three
In your follow-on response, focus on the viability of the suggestions made by other students – to which degree do these suggestions make sense with regard to the possibility of gaining sustainable competitive advantage (related to value, rareness, inimitability and non-substitutability of the factors).
The suggestions made by other students also focused on the company gaining a competitive advantage. For instance one of the students proposed the organizational sustainability resource as the most important. This resource ensures effective strategic planning and excellent evaluation of production processes hence, creating value and firm sustainability. On the other hand, some students proposed the physical resource that deals with determination of favorable firm locations and modern plant and facilities. This resource covers the factors of rareness since it discovers unique business locations. Moreover, the resource considers the factor on inimitability since it enables the firm do an action hard to imitate by competitors (Barney 1995).
References list
Barney, JB 1995, ‘Looking inside for competitive advantage’, Academy of Management
Executive, 9 (4), pp 49-61. Retrieved from: http://sfxhosted.exlibrisgroup.com.ezproxy.liv.ac.uk/lpu?title=academy+of+management+executive&volume=9&issue=4&spage=49&date=1995.
Porter, ME 2004, Competitive Advantage: Creating and Sustaining Superior Performance /
Michael E. Porter, n.p.: New York; Free Press, 2004. University of Liverpool Catalogue, EBSCOhost, viewed 12 July 2013.
Yoffie, D. &Slind, M 2006, ‘Cola wars continue: Coke and Pepsi in 2006’, Harvard Business
Review, (706447). Retrieved from: http://cb.hbsp.harvard.edu/cb/pl/9807336/9807338/c8b6e6fe642e870f0cc14cf20b15b725
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Next Steps
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