Business

2.  VRIO framework is the tool used to analyze
firm’s internal resources and capabilities to
find out if they can be a source of sustained
competitive advantage.
 The VRIO framework is an internal analysis
that helps businesses identify the
advantages and resources that give them a
competitive edge

3.  The tool was originally developed by Barney, J.
B. (1991) in his work ‘Firm Resources and
Sustained Competitive Advantage’, where the
author identified four attributes that firm’s
resources must possess in order to become a
source of sustained competitive advantage.
.

4.  According to him, the resources must be
valuable, rare, imperfectly imitable and non-
substitutable. His original framework was
called VRIN. In 1995, in his later work
‘Looking Inside for Competitive Advantage’
Barney has introduced VRIO framework,
which was the improvement of VRIN model

5.  VRIO analysis stands for four questions that
ask if a resource is: valuable? rare? costly to
imitate? And is a firm organized to capture
the value of the resources?
 A resource or capability that meets all four
requirements can bring sustained
competitive advantage for the company.

7.  A resource or capability is said to be valuable
if it allows the firm to exploit opportunities
or negate threats in the environment. If a
resource does not allow a firm to minimize
threats or exploit opportunities, it does not
enhance the competitive position of the
firm.

8.  A resource is rare simply if it is not widely
possessed by other competitors. Of all of the
VRIO criteria this is probably the easiest to
judge. For example, Coke’s brand name is
valuable but most of Coke’s competitors
(Pepsi, 7Up, RC) also have widely recognized
brand names, making it not that rare. Of
course, Coke’s brand may be the most
recognized, but that makes it more valuable,
not more rare, in this case.

9.  A resource is inimitable and non-substitutable if it
is difficult for another firm to acquire it or to
substitute something else in its place. A valuable
and rare resource or capability will grant a
competitive advantage as long as other firms do not
gain subsequent possession of the resource or a
close substitute. If a resource is valuable and rare
and responsible for a market leader competitive
advantage, it is likely that competitors lacking the
resource or capability will do all that they can to
obtain the resource or capability themselves.

10.  The fourth and final VRIO criterion that
determines whether a resource or capability
is the source of competitive advantage
recognizes that mere possession or control is
necessary but not sufficient to gain an
advantage. The firm must likewise have the
organizational capability to exploit the
resources.

11.  The company now known as RTW Retailwinds
has began implementing celebrity brands,
including Kate Hudson, which is now part of
their core competency as they continue to
expand. The Kate Hudson line of products as
well as any future celebrity brands are all
valuable, rare and imitable within the same
quality standards and can be difficult for other
retailers to copy through the same celebrity
partners. RTW is one of the largest omni-
channel retailers for women and will only
continue to grow.

12.  Step 1. Identify valuable, rare and costly to
imitate resources
An easy way to identify such
resources is to look at the value chain and
SWOT analyses. Value chain analysis identifies
the most valuable activities, which are the
source of cost or differentiation advantage. By
looking into the analysis, you can easily find the
valuable resources or capabilities.

13.  If you still struggle finding valuable resources, you can identify them by
asking the following questions:
 Which activities lower the cost of production without decreasing perceived
customer value?
 Which activities increase product or service differentiation and perceived
customer value?
 Have your company won an award or been recognized as the best in
something? (most innovative, best employer, highest customer retention or
best exporter)
 Do you have an access to scarce raw materials or hard to get in distribution
channels?
 Do you have special relationship with your suppliers? Such as tightly
integrated order and distribution system powered by unique software?
 Do you have employees with unique skills and capabilities?
 Do you have brand reputation for quality, innovation, customer service?
 Do you do perform any tasks better than your competitors do?
(Benchmarking is useful here)
 Does your company hold any other strengths compared to rivals?

14.  Finding rare resources:
 How many other companies own a resource or
can perform capability in the same way in your
industry?
 Can a resource be easily bought in the market
by rivals?
 Can competitors obtain the resource or
capability in the near future?

15. Finding costly to imitate resources:
 Do other companies can easily duplicate a
resource?
 Can competitors easily develop a substitute
resource?
 Do patents protect it?
 Is a resource or capability socially complex?
 Is it hard to identify the particular processes,
tasks, or other factors that form the resource?

16.  Following questions might be helpful:
 Does your company has an effective strategic
management process in organization?
 Are there effective motivation and reward systems
in place?
 Does your company’s culture reward innovative
ideas?
 Is an organizational structure designed to use a
resource?
 Are there excellent management and control
systems?

17.  The first thing you should do is to make the
top management aware of such resource and
suggest how it can be used to lower the costs
or to differentiate the products and services.
Then you should think of ideas how to make
it more costly to imitate. If other companies
won’t be able to imitate a resource at
reasonable prices, it will stay rare for much
longer.

18.  Competitors are also keen to achieve the
same competitive advantages so they’ll be
keen to replicate the resources, which means
that they will no longer be rare. Often, new
VRIO resources or capabilities are developed
inside an organization and by identifying
them you can protect you sources of
competitive advantage more easily.