Chapter 5: Evaluating Firm Strengths and Weaknesses - The Resource Based View

In the previous chapters, we utilized the frameworks suggested in Chapter 3 and 4 to discuss the economical threats and opportunities that plague Chipotle in the marketplace. While these models were helpful in analysis, Chapter 5 introduces "The Resource Based View" to aid in understanding other complexities faced by management. The primary concept discussed is the "VIRO Framework". VIRO is an acronym that stands for: (1) Value, (2) Rarity, (3) Imitability and (4) Organization. Let us examine Chipotle from this standpoint by answering the following questions.

Value

Do a firm's resources and capabilities enable the firm to respond to environmental threats or opportunities? 

Chipotle's greatest value lies in it's dedication to serving organic and GMO-free products, portion size and their customizable  menu options that add value to customer service. For the majority of the company lifespan, Chipotle has been responding to the opportunities presented in the marketplace. That is primarily why the company's customer loyalty has been so high despite higher than average pricing. 

However, the Ecoli outbreak in late 2015 has caused Chipotle to somewhat operate on it's heels and be on the responding end of environmental threats. No food establishment can continue to thrive in the marketplace if consumers become ill from the consumption of its products. Additionally, Chipotle's entire business model is premised on providing "Food with Integrity" that is of a higher quality than that of the typical fast food establishments. 

Chipotle could choose to lower its standards on food but that would affect consumer decisions as the high standards are what has previously generated sales. Conversely, the company could choose to seek out other suppliers or look to produce the items for their products in some internal fashion. However, this could prove to be quite costly in the long run which could reduce profit margins across the board. As a result of the scarcity of low-cost quality food suppliers, Chipotle is operating on the defensive in this situation and is managing a threat.

Rarity

Is a resource currently controlled by only a small number of competing firms?

There is really nothing rare about Chipotle's offerings from an overall food perspective. You have restaurant chains such as Chop't who also provide GMO-free and organic menu items for a above average price for a good size portion as well. Much like Chipotle, Chop't operates only walk-up "street stores" in limited areas and builds customer loyal through high end service and food quality. Similarly, ShopHouse which is Chipotle's Asian inspired restaurant also encompasses these same characteristics. 

However, Chipotle could potentially have some strategic advantages that would set it apart from the competition internally. Not to my knowledge has Chop't had a consumer loyalty and financial setback to the magnitude of Chipotle's Ecoli scare. Therefore, it remains to be seen the type of strategic maneuvering that will be done internally to prevent this calamity and how to resolve this problem in a transparent manner so that no economic losses occur. 

Imitability

Do firms without a resource face a cost disadvantage in obtaining or developing it?'

Nothing that Chipotle current does is proprietary. Therefore, at any time a business can decide to come in and copy the same business model and take it in whatever direction they see fit and there is legally nothing that can be done about it. While this may be a costly undertaking for a startup company or company that has not been doing well fiscally in the marketplace, it can be done and the initial investment could potentially pay off exponentially going forward if Chipotle's model is followed.

Organization
Are a firm's other policies and procedures organized to support the exploitation of its valuable, rare, and costly to imitate resources?

Chipotle has an interesting management style that bridges the gap between the goals of executive management and the responsibility store level management feels to carry these operations out. Almost a decade ago, Chipotle decided to implement  a position known as "restaurateurs" in their business model. The role of these individuals is to create/train general managers for restaurant locations. While on the surface this does not seem too odd, these individuals are compensated very well for each general manager trained that sustains a world class store. Through this, these individuals who were general managers (some even kitchen staff or cashiers) at one time who also provided exemplary service can continue to indirectly make an impact on customer service at the various locations.

All too often when people are chosen for these corporate recruiting roles does the real mission of the restaurant get pushed aside for the politics of the executive team. However, these restaurateurs do an excellent job of maintaining the real mission of Chipotle due to their previous experiences at the store. Also, this position allows for those employed in this role to not be stuck in meaningless middle management positions and make a difference in the operation of the restaurant in itself.

As a result, Chipotle's organizational policies and procedures definitely are impactful in their dedication to customer loyalty and service as many of those creators of policy have started their careers at the bottom of the totem pole and incite change based upon real not theoretical need.

How Chipotle Transformed Itself by Upending its Approach to Management