In this assignment I’m going to use the resource based view to explain the success of TomTom’s international business strategy. First I’ll start with a short description and history of the company. Thereafter, I will use the VRIO Framework of Barney to analyze the competitive implications and firm performance. In the end I’ll give a short conclusion. TomTom is the world’s leading supplier of in-car location and navigation products and services focused on providing all drivers with the world’s best navigation experience. Headquarted in Amsterdam, TomTom over 3500 employees and sells its products in more than 40 countries.
TomTom was founded in 1991 with a focus on developing software products for mobile devices. By 1998, TomTom had established themselves as a market leader in PDA software, creating a number of consumer applications for PDAs, such as EnRoute and Citymaps navigation application. In 2001, as more accurate GPS satellite readings became available, they recognized that in-car navigation presented major opportunity’s. TomTom Navigator was launched in 2002 and the first stand-alone portable navigation device (PND), the TomTom GO, was introduced in March 2004.
TomTom successfully listed on the NYSE Euronext Amsterdam in May 2005, in order to fund the growth and invest further in R&D. In 2008 TomTom purchased global digital mapping company Tele Atlas for 2 billion euro. In 2008 TomTom launched HD traffic. In 2009 the first fully integrated in-dash product together with Renault was launched, which represented the entry of an in-dash navigation system for the mass market. In September 2012 Apple collaborated with TomTom to provide its mapping data for IOS 6.
The next step is to analyze why the firm is that successful in terms of internal RBV. To be successful a firm must have a competitive advantage. A firm has a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. A firm is said to have a sustained competitive advantage when it’s implementing a value creating strategy not simultaneously being implement by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy (Barney 1991).
To have the potential to hold a sustained competitive advantage, a firm resource must have four attributes: 1) It must be valuable, in the sense that it exploit opportunities and / or neutralizes threats in a firm’s environment. 2) It must be rare among a firm’s current and potential competition. 3) It must be imperfectly imitable. 4) The firm’s other policies and procedures must be organized to support the exploitation of its valuable, rare and costly-to-imitate resources. TomTom is going through a difficult time.
The market for PND’s is saturated. In the Product Life Cycle stage the PND is now a standardized product with low margins. The turnover of the company has been declining for years. But it’s going to chance. The company is going through a transition from hardware to software and TomTom has made some great deals in licensing and integrated in-dash products. The expectation is that the turning point will be reached in 2014. Then offsets the increase in revenues from content and services the decline of revenues from PND’s.
I’m going to analyze where the potentials of sustained competitive advantages are. TomTom formulates their competitive advantage as: ‘We aim to gain competitive advantage through superior products, a leading brand and a flexible production structure. We deliver better maps through a combination of their high quality map data base that is continuously kept up to date through input from their extensive fleet of surveying vehicles and their large community of users.
We deliver better routing through the worlds largest historical speed profile data base and their unique real time traffic information service. Together this enables TomTom to offer cutting edge navigation solutions that can be used on different hardware platforms (www. tomtom. com). ’ TomTom consists of four customer facing business units – Consumer, Automative, Licensing and business solutions. The Business solution business counts for only 5 percent of the turnover, so I exclude this business unit for my analysis.
In the last few years TomTom saw a big decline in the demand for PND’s. In 2011 the consumer business unit costumer revenue decreased year-on-year by 325 million (-28%), but it still counts for 66% of the total revenue. Positive is the development of TomTom HD traffic. TomTom HD traffic is now available in 23 countries around the world. It covers up to 99,9% of the road networks and includes coverage of traffic jams on main roads as well as secondary and local roads. It’s an unique, high quality system and really hard to copy. In 2011 the active users doubled to 1,5 million.
TomTom had to find some new ways to make money and become less dependent of the PND sales. TomTom saw a big opportunity in the in-dash navigation products. Renault, Fiat, Opel, Mazda, BMW and Abarth are clients now. In two years TomTom has sold over 1 million in-dash navigation products for Renault only. It’s a big growth market for TomTom (+31% in 2011 compared to 2010). In 2010 the business model of TomTom has come under pressure after Google and Nokia began offering free navigation systems on their GPS-equipped smartphones.
Google, Nokia and TomTom are the only companies with worldwide mapping databases. Because Nokia, Google and Apple are big rivals, there was a huge opportunity for TomTom. In September 2012 Apple collaborated with TomTom to provide its mapping data for IOS 6. Over 100 million people upgraded to IOS 6 since the software was made. Unfortunately customers encountered a lot of problems with the mapping. TomTom moved to distance itself from the criticism because its map data provided only the foundations of the Apple’s mapping software.
It has now led to some reputational damage, but if the problems can be restored, there will be great opportunities for TomTom. What resources or capabilities are valuable, rare, costly to imitate and exploited by the organization? I think the core competence of the firm is that they deliver better maps and better routing. With the acquisition of Tele Atlas TomTom increased its competitive advantage. The integration of Tele Atlas has enabled TomTom to speed up the release of new maps, increase map accuracy and make the map production process more efficient.
The resources mapping and routing are extremely valuable because TomTom is capable of negotiating exclusive contracts with Apple and a couple of big autofirms. TomTom shows with this deals that they are a world leader in mapping, and if they can make such deals, their products must be of really high quality. How rare are the valuable resources and capabilities? Over the years TomTom has invested billions of dollars in and acquired all of the content, knowledge and technologies that support today’s car driver’s navigation experience.
TomTom possess resources that are imperfectly imitable. I think the most important service for TomTom is the HD traffic service. It’s the highest quality live service in the world, and until now no company approaches the quality. Finally, the organization, is it properly organized? After a couple of years of downturn and some big reorganizations I think the company is able to support the exploitation of its valuable, rare and costly-to-imitate resources. In 2012, they’ve made a couple of incredible exclusive deals. They could start to think about growth again instead of cuts.