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The VRIO Framework is a strategic method that can be used to evaluate an organization’s resources and capability to change. Resources can be both tangible or intangible goods that the organization produces or uses to make their products or services. VRIO is an acronym whose letters stand for value, rarity, imitability, and organization.
Description of VRIO Analysis
In order to optimize the VRIO Analysis, an organization must determine whether their resources have value, are rare, can be imitated and whether the organization is capable of harnessing their resources to obtain competitive advantage. If the organization possesses resources or processes that meet these requirements, then it is possible for the company to create a sustainable competitive advantage.
The VRIO Analysis involves asking four questions about the resources or strategies the organization possesses:
Question 1: The Question of Value: “Does the organization have valuable resources?” More specifically, a valuable resource or strategy is one that provides advantages on the market, such as increased profits or reduced costs. Some examples of valuable resources are technology, demographic diversity, cultural diversity, existing in a thriving economy, international affairs, laws and policies. Further, valuable resources can suppress a threat on the market such as a potential loss of customers or suppliers, competition, or market entry.
If the answer to this question is “No:” Take more time to think critically about what value your resources have.
Question 2: The Question of Rarity: “Do relatively few organizations posses the strategies or resources that your organization does?” This question generally forces you to consider whether your resources are unique to your organization or held by all of your competitors. Rare resources are those that are hard to obtain and have long-lasting benefits.
If the answer to this question is “No:” your organization will have a harder time obtaining and sustaining competitive advantage because the facets that make your resources valuable can be procured by anyone.
Question 3: The Question of Imitation: “Are there costly consequences to the organizations that are not in possession of the resources or strategies of your organization?” In particular, these disadvantages occur because the resource or strategy possessed by one company that offers competitive advantage cannot be imitated, bought or replaced by any other company. Notably, if a company has resources or procedures that are valuable, rare and hard to imitate will achieve competitive advantage.
If the answer to this question is “No:” any competitive advantage that your organization has can be easily taken away. In this case, try to come up with ways to make your procedures more complex or harder to copy.
Question 4: The Question of Organization: “Is the organization capable of capitalizing on these resources to obtain the benefits from them?” Some of the ways to assess the company’s ability to harness the full power of their resources is through their compensation policies (i.e., the organization’s budget, salary or stock prices) their management (i.e., how well managerial decisions align with the goals of the organization) and chain of command (i.e., who reports to whom).
If the answer to this question is “No:” the organization will still only have a short-lived competitive advantage. In this case, return to the first question and try to determine what would need to be changed to be sure you can answer “yes” to this question.
Praxie's Online VRIO Analysis Tools & Templates
When a strategy team needs to develop a long-term strategy vision for their company or organization, it’s important to develop the right framework. The VRIO Analysis forms part of a business or firm’s largest strategic vision and plan. The new online VRIO Analysis template from Praxie is a strategic tool that helps business leaders through the process of developing a vision statement, defining long-term objectives, conducting both an internal and external market analysis, making strategic choices and coming up with a plan for strategic implementation.
How to use it:
- List your products or product features.
- For each, describe how it does or should address each element of the VRIO Analysis.
- Based on your work, identify the implications and strategies needed to strengthen each product or feature.
- Develop an action plan for creating your VRIO Analysis.
Unlike most traditional VRIO Analysis techniques, Praxie’s online VRIO Analysis model and collaboration tools allow any team or organization to instantly begin working with our web templates and input forms. Our digital platform goes far beyond other software tools by including progress dashboards, data integration from existing documents or other SaaS software, elegant intuitive designs, and full access on any desktop or mobile device.