The VRIO framework comes to the help of managers when analyzing a company’s resources and capabilities. VRIO is an acronym for Valuable, Rare, Inimitable, and Organized. These four bricks of VRIO represent the four properties of the resources and capabilities that help at generating a sustainable competitive advantage.
When the resource satisfies all these requirements, the competitive advantage thus achieved will be sustainable, whereas, when it meets fewer standards, the competitive advantage will be temporary. A sustainable competitive advantage comes from core competencies that arise from resources and capabilities. Hence, this framework is used to determine its competitive potential and is also an excellent approach to enhance an organization’s strategic planning process.
A VRIO analysis can help us understand why operational performance varies from one business to another. To achieve a source of sustainable competitive advantage, the resource or capability a firm owns must be valuable, rare, inimitable, and organized –
- Value – How expensive the resource is and how easy it is to obtain it from the market
- Rare – How rare or limited the resource is
- Inimitable – How difficult it is to imitate the resource
- Organized – Existing arrangements that support the proper utilization of the resource
Let’s look at Google’s VRIO analysis. Having a VRIO framework in place allowed Google to take a completely different approach to human capital management and make decisions using massive amounts of objective data. For example, Google’s People Operations team set out to identify which characteristics make a great manager. The data used to determine this included surveys, performance evaluations, and great-manager nominations. Google also conducted double-blind interviews with the company’s highest- and lowest-rated managers. By determining what qualified as a great manager, Google strengthened its internal team and the foundation of its sustained competitive advantage.
If the VRIO framework were implemented correctly, an organization could accurately identify current and future key resources, and accordingly develop plans that will outperform the competition when executed.
Contributed by: Team Leveraged Growth