| the VRIO framework is a tool for identifying the competitive advantages of an organization (if they have any). Show
In this article, we explain
There are countless strategy frameworks out there, and we have already covered a few key frameworks which we think are extremely flexible and battle-tested over the years:
VRIO Framework stands for?The acronym VRIO stands for value, rarity, imitability, and organization. This is the four-question framework used to evaluate the resources and capabilities of an organization. Now, what is VRIO Analysis? What is VRIO Analysis?VRIO Analysis is an internal analysis tool, used by organizations to categorize their resources based on whether they hold certain traits outlined in the framework. This categorization then allows organizations to identify the company resources that provide a competitive advantage. The VRIO Analysis is an Internal Analysis tool. The VRIO Model:
We'll go into more detail about each of the dimensions in a moment. First, we would like to explain why the VRIO analysis is such a popular tool. Jay B Barney conceived the VRIO analysis in 1991. Though we should mention, Barney originally conceptualized the framework as VRIN, the last dimension in the framework was refined over the years and the N in VRIN became an O. The framework is simple to understand, easy to use, and can provide enormous value for organizations looking to stay ahead of competitors. This has made the tool an obvious choice for many companies looking to analyze their internal environment. The premise of identifying a firm's resource as a competitive advantage is whether it passes through the dimensions of the framework.  The VRIO Framework ExplainedValuableWhen a resource is valuable, it's providing the organization with some sort of benefit. However, a resource that is valuable and doesn't fit into any of the other dimensions of the framework, is not a competitive advantage. An organization can only achieve competitive parity with a resource that is valuable and neither rare nor hard to imitate. RareA resource that is uncommon and not possessed by most organizations is rare. When a resource is both valuable and rare, you have a resource that gives you a competitive advantage. The competitive advantage achieved from a resource that is both valuable and rare is usually short lived though. Competitors will quickly realize and can imitate the resource without too much trouble. Therefore it's only a temporary competitive advantage. Hard to ImitateResources are hard to imitate if they are extremely expensive for another organization to acquire them. A resource may also be hard for an organization to imitate if it's protected by legal means, such as patents or trademarks. Resources are considered a competitive advantage if they're valuable, rare, and hard to imitate. However, organizations that aren't organized to fully take advantage of the resource, may mean the resource is an unused competitive advantage. Organized to Capture ValueAn organization's resource is organized to capture value only if it is supported by the processes, structure, and culture of the company. A resource that is valuable, rare, hard to imitate, and organized to capture value is a long-term competitive advantage. A resource can not confer any advantage for a company if it’s not organized to capture the value. Only a firm that is capable to exploit valuable, rare, and imitable resources can achieve sustained competitive advantage.
VRIO Analysis ExampleTo use the framework, you'll need to first define your resources. Resources may be tangible or intangible in nature and generally fall into one of the following categories: Financial Resources such as money, shares, bonds, and debentures. Human resources such as the skills of your people and the knowledge of your people. Material resources such as raw materials, facilities, machinery, and equipment. Non-material resources such as patents, brand names, and intellectual property. Once you've defined all your resources, take each resource through the VRIO framework and categorize each based on the traits it holds. Categorize resources into one of the following groups: competitive parity, temporary competitive advantage, unused competitive advantage, or long-term competitive advantage. The framework below should help you visualize the process. Once you've categorized your resources into the four categories, you should have a good understanding of where your competitive advantages lie, and whether they'll be short or long-term advantages. VRIO ResourcesWith your resources categorized through the VRIO framework, you can now start to analyze each.
The aim is to find the resources that have the potential to move from their current category into a higher one. For example, an organization may have a resource that is valuable and rare, such as a certain invention they created. They deem their invention a Temporary Competitive Advantage as per the VRIO analysis. The organization comes to this conclusion because they decide it wouldn't be difficult or expensive for a competitor to imitate the invention if they wanted to. Upon analysis, the organization sees an opportunity to move their Temporary Competitive Advantage to a higher category. After some analysis, they come to the conclusion that if they can obtain a patent for their invention, the resource would then become very difficult for competitors to imitate. The resource would then enter a higher category, as it is valuable, rare, and hard to imitate. The process of analyzing your internal environment is extremely important in the strategic planning process. While this post has only focused on the VRIO framework, there are many other internal analysis tools that can be used by organizations to assist them when strategic planning. We should also mention that an external analysis is just as crucial in the strategic planning process. VRIO Analysis for a sustainable competitive advantageAs previously mentioned, a resource that is a competitive advantage is not a guarantee of value provided to the organization, the resource may be unused by the organization, or it may be only a temporary advantage. What organizations really need to create is a sustainable competitive advantage. However, creating this is much easier said than done. So now that we've categorized our resources and analyzed those with potential, where to next? The category that usually poses the biggest potential for improvement is the Unused Competitive Advantage Category. The resources are already competitive advantages, they only lack the organization required to fully utilize them and gain value from them. This is where your strategic plan comes into play. As mentioned, resources in the Unused Competitive Advantage category don't have the support, processes, and culture in place to completely utilize their value. Developing a strategic plan that takes these unused competitive advantages into account and works to support these resources through strategic management will allow companies to transform their resources into sustained competitive advantages. A strategic plan will align the processes, people, and structure needed to support these resources and turn them into sustainable competitive advantages. By no means is this an easy or quick solution. Developing a good strategic plan that exploits your unused competitive advantages is only the beginning, the organization then needs to manage and track the strategy to ensure its successful execution. Luckily, we've already created articles that will help you on your next part of the journey, creating your strategic plan: How to Write a Strategic Plan: The Cascade Model. When might a capability that is easy to imitate provide a sustained competitive advantage?Question: A capability that is easy to imitate may provide a sustained competitive advantage if: Group of answer choices 1.It can easily be put to use in a variety of settings 2. It can easily be increased in scale 3. It is more valuable in conjunction with rare complementary assets held by the firm 4.
How does strategic capability contribute to competitive advantage?Strategic capability includes resources and competences that a firm utilises to compete in its business environment. It can therefore constitute a firm's strengths and weaknesses, and be a source of competitive advantage or disadvantage over its rivals.
What are the characteristics of capabilities to sustain competitive advantage?The idea here is that if a firm is to maintain sustainable competitive advantage, it must control a set of exploitable resources that have four critical characteristics. These resources must be (1) valuable, (2) rare, (3) imperfectly imitable (tough to imitate), and (4) nonsubstitutable.
How can a firm achieve sustained competitive advantage?How do Firms Gain a Sustainable Competitive Advantage? A firm uses its capabilities and resources to offer products and services that customers want. When a firm uses them optimally to produce a product at the lowest cost and with more features, it creates a cost or differentiation advantage.
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