The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in.
VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under. VRIO is an acronym for ...view middle of the document...
However if it does not work to exploit an opportunity or mitigate a threat, it is a weakness. Occasionally, some resources or capabilities could be considered strengths in one industry and weaknesses in a different one. (Strategic Management Journal, 5, pp. 171-180. Barney, J.B. (1991)). Six common examples of opportunities firms could attempt to exploit are technological change, demographic change, cultural change, economic climate, specific international events, and legal and political conditions. Furthermore, five threats that a resource or capability could mitigate are the threat of buyers, threat of suppliers, threat of entry, threat of rivalry, and threat of substitutes.
Generally, this exploitation of opportunity or mitigation of threat will result in one of two more outcomes: an increase in revenues or a decrease in costs (or both).
A great way to identify possibly valuable resources or capabilities is by looking into the company’s value chain. In the value chain, a business develops its products and services step-by-step, with each function along the way adding some sort of value to the product or service. The choices a firm makes regarding its value chain (including how to operate, and which steps to operate in) is closely tied to the firms resources and capabilities, therefore making it a valuable tool in identifying value in resources and capabilities. If some asset that your company has allows you to operate more effectively in a certain portion of the value chain, chances are that resource will be considered valuable by the VRIO framework.
Question of Rarity Having rarity in a firm can lead to competitive advantage. Rarity is when a firm has a valuable resource or capability that is absolutely unique among a set of current and potential competitors. How to determine if your resource is rare and creates competitive advantage? A firm’s resources and capabilities must be both short in supply and persist over time to be a source of sustained competitive advantage. If both elements (short supply and persistence over time) aren’t met, then the resources and capabilities a firm has can’t be a sustained competitive advantage. If a resource is not rare, then perfect competition dynamics are likely to be observed. Example of Rarity - A janitor who defines his/her job as helping the firm make and sell better products instead of just referring to their job as simply cleaning up facilities is quite unusual. Most individuals would agree that this firm has a source of competitive advantage over other firms in their industry because their objectives and strategies are transparent throughout the entire firm; unlike many other firms where only top tier management is the only group that believes in their objectives and strategies (Barney & Hesterly, 2011).
Question of Imitability The primary question of “imitability” asked in the VRIO framework in internal analysis is that “ Do firms without a resource or capability face a cost disadvantage...