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VRIO – A resource-based framework for sustained competitive advantageVRIO framework is a strategic tool that helps organizations identify the resources and capabilities that give them a sustainable competitive advantage.Home/Strategy/VRIO – A resource-based framework for sustained competitive advantage Show
Idea in shortAt the start of this century, American management professor Jay B. Barney developed the so-called VRIO Framework or VRIO Analysis. The VRIO Analysis is perfectly suited for the evaluation of the use of company resources. The VRIO framework is a strategy tool that helps organisations identify the resources and capabilities that give them a sustained competitive advantage. Usually, companies possess various kinds of resources and capabilities. For example, such resources could be financial, human, organisational, physical, or technological in nature. The VRIO analysis is an internal analysis that helps determine the quality and usefulness of a firm’s resources and capabilities. VRIO is an acronym for:
OriginsThis framework was developed in 1991 by Jay Barney [1]. The author identified four attributes that firm’s resources must possess for sustained competitive advantage. According to him, the resources must be valuable, rare, imperfectly imitable and non-substitutable. Jay called his original framework, VRIN. In 1995, in his later work [2], he introduced VRIO framework as an improvement of VRIN model. The VRIO analysis, supplemented by other analytical techniques, help evaluate resources in great detail. For financial resources, there are many detailed financial indicators that reflect the financial performance of a business. Likewise, other detailed indicators reflect performance, efficiency or quality of other departments or functions. The advantage of a VRIO analysis is its simplicity and clarity.VRIO Analysis of Starbucks Resource-based viewThe VRIO framework is part of the Resource-Based View (RBV) managerial framework – a perspective that examines the link between a company’s internal characteristics and its performance. Therefore, RBV is complementary to the Industrial Organization (IO) perspectives. Industrial Organization considers such external factors as competitiveness to determine performance and profit potential. According to RBV, organizations should within their company to find the sources of competitive advantage rather than the competitive environment. Therefore, the key determinants in this framework are:
Firm ResourcesA firm’s resources are defined as:
Resources are often classified into categories such as tangible (e.g. equipment, machinery, land, buildings and cash) and intangible (e.g. trademarks, brand reputation, patents and licenses) or physical, human and organizational resources. Sustainable Competitive AdvantageFor companies to transform resources to sustainable competitive advantage, resources must have four attributes, namely:
ValuableFirst and foremost, resources must be valuable. Resources are valuable only when they enable a firm to achieve sustainable competitive advantage. Resources should help enable strategies, exploit opportunities or mitigate threats. Furthermore, they should improve efficiency and effectiveness. Net Present Value (NPV) appraisals help ascertain the quantitative value of resources. A company is at a competitive disadvantage, if none of its resources are considered valuable. RareSecondly, resources must be rare. If only a few companies can acquire some resources, then those resources are considered rare. If many players in an industry have access to a certain valuable resource, then each of the players can exploit that resource in the same way. Then none of the players gain a competitive advantage through that resource. This situation is called competitive parity or competitive equality. If a company has access to a large amount of valuable and rare resources, it is likely to have, at least, a temporary competitive advantage. InimitableValuable and rare resources help companies to engage in strategies that other firms cannot pursue. However, this is no guarantee for long-term competitive advantage. Such resources may give a company a first-mover advantage, but competitors will probably try to imitate these resources. Resources that are hard and costly to imitate or substitute are more valuable. However, resources can be imperfectly imitable due to:
Organization-wide supportedThe resources themself do not create any advantage for a company. To exploit the advantages and derive value, a company should appropriately organized itself. Therefore, the company should effectively assemble and co-ordinate its resources. Some examples of these organizational components include the company’s formal reporting structure, strategic planning and budgeting systems, management control systems, logistics network, etc. Without proper organization, the company cannot appropriately acquire, use and monitor its resources. This applies even to companies with valuable, rare and imperfectly imitable resources. Without organization, a company cannot create a sustainable competitive advantage through its resources. When all four resource attributes are present, a company has a distinctive competence that it can used to build sustainable competitive advantage. Application of VRIO frameworkThe VRIO approach facilitates a systematic analysis of tangible and intangible resources and capabilities along the organisations’ value chain. It helps to identify existing competencies to formulate strategies. Likewise, this framework reveals the competencies the organisation should be keep, protect, or enhance. Competences and resources evolve within an organization. Correspondingly, managers should periodically revisit this framework to adapt to the changes in the competitive environment.
SummaryA VRIO analysis can be applied company-wide or to individual departments for a well-rounded view of how each aspect of your business should position itself in the marketplace. The best time to review your VRIO is at the onset of your strategic planning process. Commiting to the VRIO process and evolving your analysis over time will protect your sustained competitive advantages. APAMLAHarvardVancouverChicagoIEEE Think Insights (August 17, 2022) VRIO – A resource-based framework for sustained competitive advantage. Retrieved from https://thinkinsights.net/strategy/vrio-framework/. "VRIO – A resource-based framework for sustained competitive advantage." Think Insights - August 17, 2022, https://thinkinsights.net/strategy/vrio-framework/ Think Insights December 19, 2017 VRIO – A resource-based framework for sustained competitive advantage., viewed August 17, 2022,<https://thinkinsights.net/strategy/vrio-framework/> Think Insights - VRIO – A resource-based framework for sustained competitive advantage. [Internet]. [Accessed August 17, 2022]. Available from: https://thinkinsights.net/strategy/vrio-framework/ "VRIO – A resource-based framework for sustained competitive advantage." Think Insights - Accessed August 17, 2022. https://thinkinsights.net/strategy/vrio-framework/ "VRIO – A resource-based framework for sustained competitive advantage." Think Insights [Online]. Available: https://thinkinsights.net/strategy/vrio-framework/. [Accessed: August 17, 2022] Was this article helpful? Yes No× We appreciate your feedback! We will use your feedback to improve the quality and diversity of our content. The more feedback you provide, the better our content will be. Meanwhile, please feel free to:
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I am Mithun Sridharan, Founder & Author of Think Insights and INTRVU. I am a Global Industry Advisor at a leading cloud technology company, where I advise CxOs & Executives at global corporations on their strategic initiatives. Previously, I served on senior leadership roles at global Management Consulting & technology firms, such as KPMG, Sapient Consulting, Oracle, and EADS. My insights on this website are based on my 1st-hand client engagement experiences across Capital Markets, Automotive and Hi-tech verticals. Please feel free connect with me on LinkedIn. Related PostsWhich of the following is true according to the rule of one eighth quizlet?Which of the following is true according to the rule of one eighth? 20% percent of organizations will actually do what is required to build profits by putting people first.
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