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:
This framework was developed in 1991 by Jay Barney . 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. His original framework was called VRIN. In 1995, in his later work , 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.
Application of VRIO framework
The 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 organisation. Correspondingly, managers should periodically revisit this framework to adapt to the changes in the competitive environment.
- If the resource is not valuable, then the firm should outsource it as it is of no use to the firm
- If the resource is valuable but not rare, then the firm is in competitive conformity. It means that even though the firm is performing badly, it is still better than its competition
- If the resource is valuable and rare and not expensive to imitate it, then the firm has a temporary competitive advantage. But, if in the future, other firms try to imitate, then the competitive advantage is lost
- If the resource is valuable, rare and is expensive to imitate it but the firm is not able to organize them, the resource becomes expensive for the firm.