HRM11419 Leading Strategic Decision Making

Introduction:

Hennes & Mauritz or H&M is an international organisation of clothing retail; that is based in Sweden. It is a fast fashion clothing brand of women, men, children as well as teenagers. The organisation operates in approximately 61 nations with around 3,700 outlets and 132,000 employees across the world. H&M was founded in the year 1947 by Erling Persson (H&M, 2021). The term fast fashion states to a fast response of new drifts of fashion items that are made accessible in the outlets right after the launch. After the year 2009, H&M became a world- wide leader within the fast fashion segment with their characteristic business approach and challenged several competitors (Regnér and Yildiz 2014). The business model of H&M is to provide their customers with a high- quality product in a cheap rate that that of their competitors. The organisation always positions its outlets in the prime locations in a city or within the shopping centres (H&M Group, 2019). The brand’s outlets are the most significant channel of communication of the brand with their customers; therefore, it should be inspiring and inviting by strengthening the organisation and offering their customers with a good shopping experience (Regnér and Yildiz 2014). The main aim and purpose of this report is to evaluate H&M’s competitive advantage through the help of VRIO framework and the paper will also discuss the benefits and limitations of this framework.

VRIO framework:

VRIO framework is similar to PESTLE analysis that assesses the macros- environment of the organisation. This framework will assess the situations inside the brand of H&M, its resources, the competitive implication as well as possible potential which will be required for improvement in the provided areas or for a provided resource. VRIO framework is a perfect tool that helps to evaluate the organisations resources since after the organisation understands about its resources they will be bale to know about the weaknesses or competitive advantage. VRIO stands for Valuable, Rare, Imitable and Organisation. The VRIO framework of H&M is discussed as follows:

Financial Resources: The VRIO framework of H&M shows that the brand’s financial resources are very much valuable to them as it helps the company to invest into the external opportunities that arises. In addition to this, it also helps the organisation to combat the external threats. The financial resources of the brand are also found to be rare conferring to the VRIO framework. There ae only a few organisations who have a strong financial resource within the industry (Regnér and Yildiz 2014). These resources are also costly to imitate as they have been acquired by the organisation with the help of lengthy profits over the past years. The entrants as well as new entrants will need the same profit for a longer time in order to collect the amount of financial resources H&M has. In addition to this, the financial resources of the organisation are prepared and they are used strategically by the brand to capitalise in the correct spaces, by making use of the opportunities as well as combating threats (Linet al. 2012). Therefore, the financial resources of the organisation of H&M are proved to be a source of sustainable competitive advantage.

Employees: The VRIO framework displays that the employees of H&M are one of the valuable resources to the organisation. The staff is highly skilled which helps the organisation to lead to a more creative output for the business. In addition to this, the employees of the organisation are also very loyal as well as the retention level are high (H&M Group, 2019). All of this aspect helps the company to translate into a better value for the customer of the brand. The employees are also a rare resource which is recognised by the VRIO framework. The employees of H&M are highly skilled as compared to the other brands (Regnér and Yildiz 2014). The organisation provides their employees with a better compensation as well work environment to guarantee that they do not leave the organisation. But the employees are not costly to be imitated as the other organisation can also train their staffs in order to progress the skills. The competitors can also hire the employees of H&M by providing them with a better compensation (Marques 2015). The employees are trained therefore it can be said that they are well- organisation. This resource of the organisation can be a temporary competitive advantage for the organisation of H&M.

Patent: As stated by the VRIO framework, the patents are valuable for the organisation as these resources allows them to sell their products without the interference of competitors (H&M Group, 2019). This outcomes in a better revenue for the business and these patents also provides the brand with licensing revenue when they license it to the other manufacturers. The patents of H&M are a rare resource as they are not simply obtainable as they are also influenced by the competitors. It helps the organisation to use the patents without competitor’s interference. The patents of the brand are very hard to duplicate since it is not lawfully permissible to duplicate a patented invention. A comparable resource might be established but getting a patent from them is also a very difficult procedure. But the patents of H&M are not properly organized which means that the corporation is not using these patents to their full potential. In addition to this, an indolent competitive advantage arises which can be transformed into a sustainable competitive advantage if the brand starts to trade the patented products before the patents decease (Seraphin and Dosquet 2019).

Distribution Network: According to the VRIO framework, H&M’s distribution network is a valuable resource to them as it helps the organisation to reach out to more and more consumers. It also helps the organisation to gain more revenue (H&M Group, 2019). In addition to this, it also ensures that the activities of promotion are also translated into sales so that the products are easily obtainable. The distribution network of the company is also a rare resource since the entrants will need a huge amount of time and asset to come up with an improved distribution network than H&M brand. Additionally, the distribution system is very costly to imitate as this has taken a lot of time to gradually develop this by the organisation of H&M (Regnér and Yildiz 2014). In order to imitate this, the competitors will have to spend a lot of significant amount within the same distribution system. This particular resource of the organisation is organised conferring to the VRIO framework and the business use this resource to reach their clients by safeguarding that the goods are obtainable in all of their shops (Yudiono, Wilopo and Iqbal 2019). Therefore, the distribution network of the organisation provides them with a sustainable competitive advantage

Products: According to the VRIO framework, the products of H&M are highly differentiated than that of their competitors which makes the professed value for these clients high. In addition to this, these are valued much more than competition by the consumers as there is a differentiation within the products of the organisation (H&M Group, 2019). The products of H&M are found to be rare as they are not easily available in the marketplace. But these products can be imitated by the entrants if they capitalise a noteworthy quantity in research and development and it does not even require a long year of experience (Regnér and Yildiz 2014). Therefore, the products of H&M deliver them with a temporary competitive advantage that their competitors can obtain in the future.

Analysis of the framework (Benefits and Limitations)

The VRIO framework as well as perception resource are the two ideas that is used to help in the corporate strategy. Mainly the VRIO framework offers a way in order to estimate if the capabilities or resources are valuable or not in relative to the organisation’s lowest line. The VRIO analysis model is a resource- based view of the organisation’s strategy and the main goal of this strategy is to create a sustainable competitive advantage. This part of the paper will discuss about the benefits and limitations of this framework which are mentioned as follows:

Benefits of VRIO framework:

VRIO framework can help H&M to recognise the unused competitive advantage so that they will be able to convert it into a sustainable competitive advantage. This tool is used for analysing the significance of the different business activities. It also helps to understand the relative importance of the different business activities where the managers will be also able to understand what the activities that are most important for the organisation. VRIO framework is also used to identify as well as rank the possible opportunities and fears in order to regulate which is the most significant (Toften, Mora and Hammervoll 2018). In addition to this, this framework ill guide the managers of H&M to make choices about the distribution of resources by classifying the areas that provide the highest return on investment (Knott 2015). This framework also delivers a way for the organisations such as H&M to arrange their hard work by increasing the competence as well as reducing the charges.

Limitations of VRIO framework:

Apart from all the benefits of the VRIO framework, it also presents some of the disadvantages. The business environment in which the organisation such as H&M operates changes constantly which means that it could be very difficult for the organisation to achieve a sustainable competitive advantage.  In this situation, the best an organisation can do is top have a competitive advantage only for the predictable upcoming. VRIO framework are not applied by a small organisation or start-ups. This is because, the organisation may not have enough capabilities or resources to recognise any type of sustainable competitive advantage (Gürel and Tat 2017).  This particular framework does not factor in the internal factors such as the shift and change of demand in the marketplace. This framework does not take all the factors into account that might affect the organizational performance. The VRIO framework is not an extensively used perception and with this framework it might be problematic to evaluate the performance of each and every constituent in separation. Like the several other theories used in business, this framework has its share for criticism. For instance: it is very hard to regulate the suitable level of examination due to the resources’ wide descriptions. Additionally, some type of resources such as organization’s knowledge or reputation are subjective. In addition to this, the managers should also consider the fact that assortment does not necessarily imply uniqueness (Vargas-Hernández, Medrano and López-Lemus 2020). It is true that the resources of an organization are important but they are not only the main factors behind performance and growth. Strategic planning, regulatory policies as well as the other aspects are the ones that also matter am lot. Another issue is that the new technologies as well as trends are developing day by day and they might have a dramatic effect on the key resources.

Conclusion:

Lastly from the above discussion, it can be concluded that there are several resources and capabilities of the organisation of H&M due to which they have maintained a competitive advantage within the market. By analysing the VRIO framework it was observed that there are some of the major resources of the organisation such as financial resources, distribution networks, patents, employees and more that are valuable for the organisation as well as rare. But there are some of the resources which is imitable if the competitors put a little effort in the research and development, they will be able to imitate the resources. In addition to this, the benefits and limitations of the VRIO framework has been discussed which states that with the help of this tool the organisation can recognize their resources and can work on them to gain a competitive advantage. The limitations of VRIO framework includes that as the business environment changes constantly in the industry in which H&M operates due to the change of customers preferences, it will be very difficult to gain a sustainable competitive advantage.

References:

Gürel, E. and Tat, M., 2017. SWOT analysis: a theoretical review. Journal of International Social Research, 10(51).

Hmgroup.com. 2019. H&M Group. [online] Available at: https://hmgroup.com/wp-content/uploads/2020/10/HM_Annual-Report-2019.pdf  [Accessed 24 April 2021].

Knott, P.J., 2015. Does VRIO help managers evaluate a firm’s resources?. Management Decision.

Lin, C., Tsai, H.L., Wu, Y.J. and Kiang, M., 2012. A fuzzy quantitative VRIO‐based framework for evaluating organizational activities. Management Decision.

Marques, S., 2015. Internationalization strategy of Relance Shoes to Singapore (Doctoral dissertation).

Regnér, P. and Yildiz, H.E., 2014. H&M in Fast Fashion: continued success?. Johnson, Whittington, Scholes, & Regner, pp.574-582.

Seraphin, H. and Dosquet, F., 2019. Travel Agencies and Tour Operators at KidZania: A Proactive and Innovative Approach. In Handbook of Research on International Travel Agency and Tour Operation Management (pp. 48-64). IGI Global.

Toften, K., Mora, P. and Hammervoll, T., 2018. Niche firms in Bordeaux and their sustainable competitive advantages. Journal of Marketing Trends (1961-7798), 5(2).

Vargas-Hernández, J.G., Medrano, M.D.J.M. and López-Lemus, J.A., 2020. Circular Green Economy: Resources and Capabilities–Theory-Based Analysis. In Handbook of Research on Entrepreneurship Development and Opportunities in Circular Economy (pp. 21-37). IGI Global.

www.hm.com/. 2021. H&M. [online] Available at: https://www.hm.com/entrance.ahtml?orguri=%2F  [Accessed 24 April 2021].

Yudiono, N., Wilopo, W. and Iqbal, M., 2019. VRIO Analysis to Measure E-Business Readiness in the Automotive Industry in East Java (Study on Otobus Company Kalisari and Otobus Company Menggala). Wacana Journal of Social and Humanity Studies, 22(4).

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