Introduction to VRIO Analysis

We all know that organizations are required to maintain a strong competitive position in the industry to remain successful. But, do you know what organizations can do to remain competitive? It is through strategic planning and implementation that the organizations achieve a competitive position in the industry.

The VRIO Analysis is an important internal analysis model that can be used by identifying the resources and capabilities of the organization and determining if resources are valuable, rare, inimitable, and organized. This model was given by Jay B. Barney as the way to evaluate the resources of an organization.

VRIO Analysis for Strategic planning

The need for VRIO Analysis

The main reason why the organization uses the VRIO Analysis Framework is to assess the internal situation of the organization which includes its resources, capabilities, competitive implication, and potential for improvement. This model helps to consider each type of resource of the organization including financial resources, human resources, material resources, non-material resources, etc. The organizations use this model to assess the resources and capabilities of the organization. This model helps the organization to determine not only the areas of core competencies but also the areas of non-core competencies which further helps the organization to effectively plan and implement various future strategies. The use of the VRIO Analysis helps the organization to leverage core competencies as part of the strategic plan. Thus, the use of this model helps the organization in strategic decision-making.

How to perform the VRIO Analysis?

The VRIO Analysis is a strategic analysis tool that focuses on four questions relating to the value, rarity, imitability, and organization of the resources and capabilities of the organization. This model can be used by the organization by making a list of the resources and capabilities of the organization which can be tangible as well as intangible resources. The VRIO Analysis helps to evaluate each resource or capability on the list through the focus on the following four factors-

Value-

The first factor that you need to consider while using the VRIO Analysis is to determine if the organization has the resources that can add value to the operations of the organization. The answer to this phase can be Yes or No.

  • Yes- If Value is established, you can mark Yes in the VRIO Analysis table and can move to the rarity.
  • No- If Value is not established, it means that the organization is at a competitive disadvantage which requires the organization to reassess its resources and capabilities to uncover the value.

Rarity

The rarity component of the VRIO Analysis helps to determine if the organization controls the scarce resources and capabilities. The organization at this stage needs to answer if the organization has some resource that is hard to find but yet in demand in the market. The answer to the rarity component is also in the form of Yes or No.

  • Yes- You can mark Yes on the rarity component if the organization holds and controls the scarce resources. With value and rarity identified, you can move to the next hurdle i.e. imitability.
  • No- It may happen that the organization’s resources or capabilities have value but lack rarity which can put the organization in the area of competitive parity.

Imitability

You can also determine if the organization’s resources and capabilities are expensive to duplicate. The organizational resources are imitable if the competitor or some other organization can find an equivalent substitute to the organization’s resources or capabilities. The answer to this column can also be in the form of Yes or No.

  • Yes- Yes can be marked for the columns if the organization’s resources or capabilities are hard to imitate.
  • No- If the organization’s resources are valuable and rare but the resources are easy to be copied by the other firm, then the organization can attain a temporary competitive advantage.

Organization

The organization management team is also required to effectively manage and organize the organization’s resources and capabilities. Yes, or No to the organized column is marked if the organization has organized management systems, structures, culture, processes, etc.

  • Yes- The organization can achieve a sustainable competitive advantage if all the resources and capabilities of the organization are organized.
  • No- The organization may lack internal support and organization which can make it difficult for the organization to realize the full potential of its resources. The organization can have an unused competitive advantage if the organizational resources are not properly organized.

VRIO Analysis real example

Let us consider the Starbucks VRIO Analysis for a more lucid understanding of the planning model.

Resources and capabilities Valuable Rare Inimitable Organized Competitive advantage
Strong brand image Yes Yes Yes Yes Long term competitive advantage
Global presence Yes Yes Yes Yes Long term competitive advantage
Special flavors and coffee quality Yes Yes Yes Yes Long term competitive advantage
Convenient drive-thru services Yes Yes No No Temporary competitive advantage
Specialized coffees Yes Yes Yes Yes Long term competitive advantage
Customer service experience Yes Yes Yes Yes Long term competitive advantage
Trademarks and patents Yes Yes Yes Yes Long term competitive advantage
Human capital management Yes Yes Yes Yes Long term competitive advantage
Store ambiance Yes No No No Competitive parity
Supply chain Yes Yes No Yes Temporary competitive advantage

The above VRIO Analysis of Starbucks shows that Starbucks has various resources and capabilities that provide a strong competitive advantage to the company. However, it is found that the convenient drive-thru services and supply chain of Starbucks provide only a temporary competitive advantage as these resources are easy to imitate. Along with this, the store ambiance of Starbucks is not rare which results in competitive parity for the organization as various other firms such as McDonald’s have focused on improving the store interior through menu boards, etc. to ensure higher customer satisfaction.