The VRIO framework is a tool for strategic analysis designed to analyze the firm’s internal resources and capabilities that provide the firm with a competitive advantage. The VRIO analysis was developed by Barney (1991) and is an acronym from the initials of the attributes that a company’s resources and capabilities must possess in order to lead to a sustained competitive advantage: Valuable, Rare, Inimitable, Organization.
The first attribute of the VRIO analysis asks whether a resource adds value to the organization, exploits opportunities and neutralizes competition. If the answer is yes to the above, then you can move on to the next attribute. On the other hand, if it doesn’t provide any value then the firm will struggle to attain competitive advantage.
The second attribute of the framework examines the rarity of the resources and capabilities owned by the firm. The question here is whether the organization in question controls scarce resources and capabilities that are hard to find. When a firm has access to rare resources it means that competitors cannot easily obtain it and are therefore forced to find substitutes.
The third attribute looks into the imitability of the resources and capabilities. If a resource is easily duplicated or an equivalent substitute can easily be found, then a firm will have trouble attaining a sustained competitive advantage. On the other hand, a rare and difficult to attain resource ensures that it is inimitable and that competitors cannot replicate it.
The last factor to be examined is whether the organization’s resources are organized to capture value. Resources themselves cannot bring a sustained competitive advantage if they are not organized. For this reason, the management systems and company culture must be aligned in order to fully support the potential of the valuable, rare and inimitable resources and capabilities.
The VRIO framework is a useful strategic analysis tool used to identify and evaluate the resources and capabilities of a firm on the level of the microenvironment. This in turn determines the strategic decisions to be taken and the approach to the market. As discussed above, VRIO stands for Value, Rareness, Imitability and Organization and if those attributes are satisfied then it is said that a company can achieve a sustained competitive advantage. Yet, this should not be taken for granted since a completive advantage may be influenced by other factors that are out-of-control of the firm, such as market trends and competition.
What makes the VRIO model particularly effective is its simplicity which has led to its widespread application to distinct industry scenarios. It is advised that the VRIO framework is pursued at the onset of the strategic planning process and it is important that the analysis is continually reviewed as resources and capabilities may alter over time. The VRIO analysis may be used in conjunction with other strategic tools in order to provide a thorough internal and external evaluation of the firm.