Strategic Management

Professor PD Jose
Professor Rejie George Pallathitta
Professor Sai Yayavaram
Illustration – Walmart

I will now illustrate the application of the VRIO framework using Walmart’s locational advantage in
small towns in the United States. Wal-Mart stores in small towns in the United States, provided a
service which was valued by those customers who lived in these small towns. The late Sam Walton
recognized that these were underserved markets, which the other retailers had largely ignored.
Therefore, by tapping into this underserved market, Walton exploited opportunities in the
environment. That is the underserved small town.

Therefore, Wal-Mart’s small-town location can be considered to be a valuable resource. In the initial
years of its operation, owing to a lack of conviction in the viability of a discount store operation
focused on small towns and due to the reluctance of suppliers to supply to these isolated small
towns, rivals largely focused on larger cities and suburban areas.

In fact, for several years after Wal-Mart was set up in the early 1960s, there were a large number of
these small towns, which did not face competition from comparable discount retailers. The small-
town location was therefore fairly rare in the initial years of Wal-Mart’s operation. Wal-Mart’s small-
town location and strategy of locating a store with more than enough capacity to service the town's
requirement enabled Wal-Mart to preserve its small-town strategy.

By locating a store with a capacity to expand beyond the current carrying capacity of the town, it
exploited early mover advantages and made it economically unviable for competitors to locate a
comparable store in the small town in which Wal-Mart store was already present. This resulted in
Walmart’s small-town locational advantage being inimitable or difficulty to copy as it economically
deterred competitors. While their rivals could see what Wal-Mart was doing and could fully
understand its objectives for pursuing this strategy, it would be prohibitively expensive for them to
replicate it as it would require recreating all of the back-end supply chain logistics, which Wal-Mart
had developed over the years with no realistic prospects of recouping these investments.

While Wal-Mart’s small-town location was a valuable, rare, and inimitable resource, given the
challenges of the remote location, the resource can yield a sustainable long-term advantage only if it
can be leveraged effectively by the organization. Wal-Mart’s investments in the back-end of its
supply chain through its vast distribution centres to its suppliers would send their products to, its
investments in information technology, its ownership and operation of a large fleet of trucks created
a hub and spoke operational model, which facilitated the exploitation of the small town location.

Therefore, apart from the small-town location being a valuable, rare and inimitable resource, it is the
organizational exploitation of these resources, which makes the small-town location a VRIO resource
and an important basis for its sustained competitive advantage.

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Strategy Management, delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data,
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