# 2.2 VRIN Model For Assessing Organisations Capabilities

Channel: MeanThat
Video: https://www.youtube.com/watch?v=VFVGa-v4HjU
Duration: 13 min
Language: English
Words: 1971
Transcript page: https://viewrankai.com/tools/youtube-transcript/VFVGa-v4HjU

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[0:00] hello and welcome to another video in the course where we are learning about business strategy in previous video we have discussed strategic capabilities core competencies or however you call them these are important so that our organization can survive on the market and at the same time be profitable and safe be more successful now in this video we are going to talk about so-called brain model for accessing organization's capabilities why do we need model for it well there is a simple question how can we assess which of the capabilities are important for us and this is going to be exactly the topic of this video we are going to look

[0:40] particularly at each of these and ask whether they are important ones and this is an example of how it will look so the brain model stands for value rarity in imitability and non substitutability we are going to go through each of these so under value we will ask a question do capabilities exist that are valued by customers and provide potential competitive advantage rarity do capabilities exist that no or few competitors possesses in imitability our capability is difficult for competitors to imitate and final one non substitutability is the risk of capability substitution low so let's start with analyzing of value of some strategy capability when it comes to value of strategic

[1:29] capability I have one short definition that is I think very beautiful strategy capabilities are of value when they provide potential competitive advantage in a market at a cost that allows an organization to realize acceptable levels of return now I see many entrepreneurs who are failing at two points within the sentence that I have suggested one is the value itself the other one being a cost that allows for acceptable levels of return now not everything that we would like to do within our business say as an innovation as a name movement we will deliver a value why is it so because when we talk about value we mean value to the end customer or to

[2:14] the end consumer and let's make a simple example for instance we are selling hotdogs on the street and we are trying to purchase a new grill for making the sausages now this new grill developer chains is going to consume much less electricity so we will save on electricity bills is this a valuable strategic capability no even though it has value for us as an organization it doesn't have any value for the end customer unless the new grill is going to make better sausages or they're going to be produced faster there is absolutely no value for the end customer essentially the customer doesn't really care what is happening

[2:56] behind the scenes usually he cares only about the service or a product that he receives so when we are creating the value we have to make sure this value is created or we think about it as a value for the end consumer now secondly costs when we are purchasing some piece of equipment or investing in the improvement of our service and it's quite easy to think about costs when it is a purchase so for instance if we were purchasing this grill we could simply say okay it's $2,000 that's going to be a cost of my strategic capability assuming it was creating a value for a customer now there are many

[3:38] enterpreneurs or forgetting that even some other improvements that we are trying to do will doesn't directly create cost it creates indirect cost for instance so we have this hot dog stand and we have an employee who is selling the hot dogs now we are thinking about strategic capabilities and we are like hmm ok I want to create a value for the end consumer I will now instruct my seller so that he holds a small conversation with every customer that comes to the stand and purchases a hot dog now I'm gonna instruct him to do so and it's gonna take what one minute to hold this conversation

[4:20] well there are no direct costs associated with this improvement and it's clearly gonna be an improvement because the customers will now be happy that someone has a small talk with them in the morning when they're purchasing an hotdogs well the part about the value is true but we should not forget the cost the cost will be at a time of our employee now let's try to calculate it the conversation is going to take one minute and we are selling let's say 100 hotdogs during a day so there's gonna be 100 minutes per day there are 20 working days so that's going to be 2,000 minutes which could adapt to something like 35

[5:02] hours or something like that if I calculate incorrectly now that's the labor time 35 hours if we have average hourly salary $20 that's gonna add up to something like $800 well I guess my calculations are a bit off but maybe $800 a month that's our investment that our cost so now we have to put it beside the improvements or the value that is created for the consumer that they will be more happy with the small talk that the hay holding the morning - $800 a month that is going to cost us on the eyebrow now why is there constantly per hour because the employee while making

[5:45] the small talks he could do something else he could be cleaning the grill and cleaning the stand so there is always a cost associated with some improvement that we are trying to make now that is about the value of strategy capability we have to think about the value to the end consumer and about the cost associated with it the second letter R stands for rarity of strategic capability let's go for the definition rare capabilities are those possessed uniquely by one organization or few others I think this is quite easy concept to understand we should be different or our products will be different than the products of our

[6:24] competitors yet it is not so easy just to be different doesn't mean that you are useful so there are two important points we have to meet customers need so we have to be unique in a way that is valuable for a customer let's imagine that we are producing the best accounting software in the world well considering that we have a hot dog stand that doesn't really matter for our customers we have rare we have unique none of our competitors will try to produce the best accounting software well because the we are all selling the hot dogs so being unique doesn't mean that you are useful second point sustainability

[7:07] if we are if we are if our strategic capabilities in rare we need to sustain it we need to create a business model around it so that this rarity that we possess will be sustainable over time well if you remember there was this big question the big headlines in the newspapers will Apple survive without Steve Jobs because he himself as a personality was so unique in the eyes of consumers in the eyes of the world dead people were simply scared that once he died and this rarity was diminished will the company sustainably produce and perform so well as it has before of his death so you see we need to meet

[7:53] customer's demands and of course think about the sustainability of our rarity that is the rarity of strategic capability the third letter I stands for in imitability let's go for the definition right away inimitable capabilities are those that competitors find difficult to imitate well what can be difficult to imitate if we think of some hardware or equipment or machinery those are things that are usually easy to imitate if we don't have some great patterns so if we are unique just because of our machinery vocation Factory and so on this is not a strategic capability that would not be easy to imitate our competitors can just purchase the same machinery as we do

[8:40] they can have a location same as ours so you see this is not that great for us let's filter is it people well that's better because people are some some great minds are just within our research facility so let's better but people can still leave our company and join the competitors well maybe the competitors HR department can just run a special campaign to attract our employees so that they can take the strategic capability that we have within our employees so people as employees that still not really the best strategy capability that would not be possible to imitate now what is the ultimate strategic capability that cannot be easily imitated that is

[9:27] organizational culture it's so intangible and so hard to copy or transfer to other organization that this is considered the strongest strategic capability that we have if we are able to create great environment for our employees so that they feel motivated they feel thankful to our organization that will remain as a sustainable unlimited competitive advantage for us so keep in mind organizational culture now for the last point which is known substitutability we have been discussing substitutes already in one of the previous video where we had an idea to make a business with carpooling service there are two cities close to each other and we're gonna offer carpooling service

[10:14] that will be great for business travelers maybe because we have to keep in mind that there is a substitute to our product which is train it's not our direct competition but it can provide the same value to our customer just by different means or slightly different value now when we are thinking about strategic capabilities we have to make sure that these are non substitutable now there are two ways how our business rural strategic capability can be endangered by substitutability first of them being product or service substitution imagine that we have spent years designing a great postal service we had a local postal company and we are delivering

[11:00] letters packages and everything else to the customers in our area and we have spent years designing this business from the first to the last bit and it's the most perfect postal service of them all now we can get our product or a service substitute very easily by say email communication email communication all of a sudden started to be a thing and no one is really sending letters anymore so our business will go obsolete just because of a substitute that arrives we have to be really careful about it now secondly there is competence substitution again let's think of an example the competence itself will get substituted so we have a factory and we

[11:46] do our best follow the guidelines and create the strategic competencies really well so our organizational culture and people within our organization are our strategic competence so we have the most skilled workers around and we are producing our products in the best possible quality now what can happen a competitor comes to the town and he will do the same thing however with machines so robots will now replace the workers well even though that we have best workers around they cannot be better than the machinery then another robot performing their tasks so you see our competence in itself will get substituted and that has been everything from the remodel keep in mind these four

[12:36] points that we have discussed always ask the questions about value rarity in imitability and non substitutability and I'm looking forward to seeing the upcoming videos

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