VRIO Framework: What it is, Tips & Advantages

Introduction

The VRIO framework is a tactical planning tool created to help organizations discover and protect the resources and advantages that provide them with a long-term competitive advantage. These advantages are sustainable competitive advantages that can be cloned by competitors to beat them at their game, as these resources are a crucial element of organizational success.

A VRIO framework would aid you in not only identifying your unique selling point but also help you analyze them so you can leverage them as an essential part of your strategy.

Knowing your competitive advantage is important for you as a business and a VRIO framework is a fail-proof way to achieve this.

In this article, we would discuss the components of a VRIO framework, some examples, and how to use the insights gleaned by your VRIO analysis and the advantages.

VRIO Framework Definition

The VRIO framework was invented by Jay B Barney in 1991.VRIO is an acronym for a four-question framework, meaning;

Value

Rarity

Imitability

Organization

The VRIO framework is a benchmark used to assess an organization’s resources and abilities. To know if your organization meets the criteria you can use a decision tree to gauge the results of your probe, to tell if you met the criteria or not.

The VRIO framework is a strategic four-point analysis of an organization’s resources and the ability to sustain its measure of success.

So when using the framework, you would single out each of its variables for the business model or organization that you want to analyze. The aim is to identify these elements in your organization and probe deeper by asking more detailed questions about them.

The inability to identify any of the elements of the VRIO framework in your business means that you might need to conduct more research.

VRIO Framework Breakdown

To begin making a list of your resources, and your competitive advantages, which may consist of tangible or intangible items. For example material resources, human resources, financial capabilities, tools and machinery, patents, human resources skills, and cost management advantages.

You then apply the VRIO framework after itemizing your resources, and you gauge them through each of the VRIO framework elements.

For example,

Value: Do you offer a resource that adds value for customers in a particular aspect? Can you amplify that resource to eliminate competition? If your answer to these questions is yes, then you have established the value of that particular ability and you can proceed to the next component which is a rarity.

However, if your result or outcome is negative, it implies that your organization is at a competitive disadvantage.

Rarity: Does your organization have access to and control of scarce resources and capabilities, for instance, do you own or have developed a product that is hard to find but is in high demand?

If the feedback from your probe is negative, it depicts that you have value but lack rarity making your organization vulnerable to competitive parity, which implies that your valuable resources and abilities are common and anyone can imitate your brand and easily take your market share.

Rarity is vital, because, when it is combined and mixed with value, you have a promising recipe for success. After all, without rarity, it can be hard to capitalize on the value you possess.

However, if it is positive your assets are valuable and rare and the next challenge would be protecting them against imitations and copycats, which brings us to the next phase of the framework which is imitability.

Imitability: This checks if your valuable resources can easily be cloned, or replaced with a more viable option.

If the feedback is no, then it means that you may have value and rarity, and lack imitability. This makes your competitive advantage fleeting and it will take tangible effort to stay ahead of the competition.

Albeit if the response is yes, it means your scorecard on the framework just got higher and you offer a service or product that is valuable, rare, and extremely difficult to imitate. You can then proceed to the next class which is your organization.

If you encounter any difficulty in identifying the potential imitability of your product/service, strategically develop ways you can tweak it to increase its value and attach it to your brand.

Organization: Is your company well structured and does it run a particular structure, process, culture, systems, and capabilities that can be replicated by you even as you grow, to maintain your standard irrespective of your brand’s location? Does your company have organized management systems, processes, structures, and culture to capitalize on resources and capabilities?

Are there established workflows in your organization that breeds success?

A no means there is no internal organization and support, which inhibits your company from reaching its full potential. This implies that you have an untapped competitive advantage and would need to develop ways to run your organization.

A yes implies that your organization has made an A and successfully achieved the ultimate goal of a sustained competitive advantage, as it has successfully identified all of the components of the VRIO framework and achieved them.

A Real-life VRIO Example: Apple

There’s no doubt that the Apple brand is one of the most powerful brands globally and its success stems from a sustained competitive advantage. Breaking down Apple’s VRIO framework, from a human resource/product perspective, it would look like this.

Value: The ability to employ exceptional talent using human capital management data to attract, hire and retain innovative, productive employees. This human resource capability is what enables them to consistently evolve and create products that people all over the world aspire to have irrespective of the price, even when they are cheaper options.

It is clear-cut that the Apple brand is a market leader in their niche and the value of an iPhone, Macbook, or Ipad is almost the same globally and it has not diminished even with time.

Rarity: No other companies have been able to effectively use data-based employee management and product design in the niche they control.

Imitability: The product, data-based human capital, of the Apple brand is difficult and expensive to clone. Anyone who wants to match them would have to build exceptional software and invest in training their HR staff in technology and Strategy like the founder Steve Jobs did.

Organization: Apple is organized to capture value from its capabilities. They have the skill to collect and preserve data, develop technology that cannot be easily cloned, and maintain structure, process, and service delivery to the core brand values irrespective of their location globally.

Having a VRIO framework has helped Apple to adopt a different approach to human capital management and develop products, and make decisions using massive amounts of data.

VRIO Framework vs SWOT Analysis

There is some similarity between the VRIO framework and the SWOT analysis. While both of them are useful and provide tremendous value, however, there are some notable differences between them.

A SWOT analysis is a strategic tool that helps identify the strengths, weaknesses, opportunities, and threats of an individual or an organization.

SWOT

Focuses on innate strengths and weaknesses and external opportunities and threats.
Uses trends and current occurrences to assess future opportunities.
Assess the pros and cons of your business model or plan.
It is straightforward and has a more approachable analysis.

VRIO

It is structured strictly on internal indicators, capabilities, and resources that impact your competitive advantages.
It pays attention to mainly the strengths that trigger a competitive advantage.
It involves in-depth knowledge of your unique selling point as a brand and helps you entrench your place in the marketplace.
It focuses on innate resources that can influence tangible outcomes. Actionable insights and focuses on resources that you possess rather than general strengths, creating very tangible solutions.

What is the Difference Between the VRIO Framework and a SWOT Analysis?

The SWOT analysis strategy and the VRIO framework when adopted procure different insights. The VRIO framework is aimed at assessing internal resources, to hone them to compete favorably in the business space.

SWOT, on the other hand, is (an acronym for “Strengths, Weaknesses, Opportunities, and Threats”), and is a top strategic planning model that allows organizations to identify areas of strengths and weaknesses, from an external perspective.

Hence it does not focus on internal resources or capabilities, like the VRIO model.

What Do You Do with the Resulting VRIO Insights?

The insights gleaned from a VRIO analysis would help you gain clarity on the vision of your organization and proffer answers to the following questions as a founder, CEO, or business leader.

What are you trying to do?
How can you do it uniquely?
How can you sustain your results in a way that keeps your organization relevant in the face of stiff competition?

It’s essential to conduct a VRIO analysis in the budding stages of strategic planning.

The outcomes gleaned from this exercise would define your entry point into the market space and inform strategic decisions that would determine the fate of your organization.

Apart from this, the results of a VRIO analysis can complement the result of your SWOT analysis. For instance, if you don’t meet all the criteria of the VRIO framework, the results gleaned can still be considered strengths, by your SWOT probe.

VRIO Framework Advantages & Limitations

Using a VRIO framework is beneficial, for the following reasons;

It helps organizations identify, protect and take advantage of the competitive edge they possess as an organization.
It shed light on insights that can strategically position an organization to sustain its competitive advantage.
It helps organizations identify internal potential opportunities and threats, this awareness helps them stay on top of the competition.
It also helps to prioritize the allocation of business resources to highlight your unique value.
It allows you to take advantage of previously unrecognized competitive advantages.
It sets the course for plans and helps you better allocate business resources.

Like with every framework, there are some limitations you need to be aware of when you decide to adopt the VRIO framework, such as;

It can be time-consuming
Secondly, it is founded on solely internal analysis, hence you will need to include other frameworks.
It does not take cognizance of your external advantages or opportunities
It cannot predict future values that your organization can develop even as they evolve.
Sustaining a competitive advantage in a constantly evolving business clime can be tasking and financially and mentally challenging.
Budding businesses may experience difficulty in adopting the VRIO framework because their resources and capabilities are in the development stages.

Conclusion

Every company is created to proffer some kind of specific advantage to its target audience. The VRIO framework was established to aid organizations in defining, identifying, and optimizing their innate resources and abilities. This way they are equipped to compete favorably and sustain their customer and market share even in the face of stiff competition.

Any organization that wants to sustain its competitive advantage should measure its resources tangible and intangible along the benchmark of the VRIO framework.