The vrio framework in English
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The document summarizes the VRIO framework for evaluating a firm's internal resources and capabilities. The VRIO framework involves assessing whether a resource is valuable, rare, costly to imitate, and whether the firm is organized to exploit the resource. Resources that are valuable, rare, costly to imitate and supported by the firm's organization can provide sustained competitive advantages. Examples of resources include financial, physical, technological, organizational, reputation and human capital resources. Capabilities refer to a firm's ability to utilize its resources effectively to create cost advantages or differentiation.
![1/11/2013
1
The VRIO Framework
Amie Kusumawardhani
∗ the VRIO (Value, Rare, Inimitability,
Organized) framework as a good tool to
examine the internal environment of a firm
∗ VRIO stands for four questions one must ask
about a resource or capability to determine
its competitive potential
Barney & Hesterly (2006)
∗ The Question of Value: Does a resource enable a
firm to exploit an environmental opportunity,
and/or neutralize an environmental threat?
∗ The Question of Rarity: Is a resource currently
controlled by only a small number of competing
firms? [are the resources used to make the
products/services or the products/services
themselves rare?]
Four Questions (1)
∗ The Question of Imitability: do firms without a
resource face a cost disadvantage in obtaining
or developing it? [is what a firm is doing difficult
to imitate?]
∗ The Question of Organization: Are a firm’s
other policies and procedures organized to
support the exploitation of its valuable, rare,
and costly-to-imitate resources?”
Four Questions (2)
1) Tangible resources
2) Intangible resources
3) Organizational capabilities
Types of Resources should be evaluated
(Types of resources lead to a competitive
advantage)
Financial
• Firm’s cash and cash equivalents
• Firm’s capacity to raise equity
• Firm’s borrowing capacity
Physical
• Modern plant and facilities
• Favorable manufacturing locations
• State-of-the-art machinery and equipment
Technological
• Trade secrets
• Innovative production processes
• Patents, copyrights, trademarks
Organizational
• Effective strategic planning process
• Excellent evaluation and control systems
Tangible Resources](https://image.slidesharecdn.com/thevrioframework-171009141605/85/The-vrio-framework-in-English-1-320.jpg)
The vrio framework in English
- 1. 1/11/2013 1 The VRIO Framework Amie Kusumawardhani ∗ the VRIO (Value, Rare, Inimitability, Organized) framework as a good tool to examine the internal environment of a firm ∗ VRIO stands for four questions one must ask about a resource or capability to determine its competitive potential Barney & Hesterly (2006) ∗ The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? ∗ The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare?] Four Questions (1) ∗ The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate?] ∗ The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?” Four Questions (2) 1) Tangible resources 2) Intangible resources 3) Organizational capabilities Types of Resources should be evaluated (Types of resources lead to a competitive advantage) Financial • Firm’s cash and cash equivalents • Firm’s capacity to raise equity • Firm’s borrowing capacity Physical • Modern plant and facilities • Favorable manufacturing locations • State-of-the-art machinery and equipment Technological • Trade secrets • Innovative production processes • Patents, copyrights, trademarks Organizational • Effective strategic planning process • Excellent evaluation and control systems Tangible Resources
- 2. 1/11/2013 2 Human • Experience and capabilities of employees • Trust • Managerial skills • Firm-specific practices and procedures Innovation and Creativity • Technical and scientific skills • Innovation capacities Reputation • Brand name • Reputation with customers for quality and reliability • Reputation with suppliers for fairness, non-zero-sum relationships Intangible Resources • Firm competences or skills the firm employs to transfer inputs to outputs • Capacity to combine tangible and intangible resources, using firm processes to attain desired end Examples • Outstanding customer service • Excellent product development capabilities • Innovativeness or products and services • Ability to hire, motivate, and retain human capital Organizational Capabilities Valuable? Rare? Costly to Imitate? Organized Properly? Competitive Implications Economic Implications No No Disadvantage Below Normal Yes No Parity (equality) Normal Yes Yes No Temporary Advantage Above Normal (at least for some amount of time) Yes Yes Yes Yes Sustained Advantage Above Normal Summary of VRIO, Competitive Implications & Economic Implications ∗ deals with the firm’s structure and control (governance mechanisms—compensation, reporting structures, management controls, relationships, etc). ∗ These must be aligned so as to give people ability and incentive to exploit the firm’s resources. Organized properly ∗ When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage. ∗ A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Competitive Advantage and Sustainable Competitive Advantage ∗ A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation ∗ To develop a competitive advantage, the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear. Resource-based View
- 3. 1/11/2013 3 A Model of Competitive Advantage Resources Capabilities Distinctive Competencies Cost Advantage or Differentiation Advantage Value Creation are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. Examples : ∗ Patents and trademarks ∗ Proprietary know-how ∗ Installed customer base ∗ Reputation of the firm ∗ Brand equity Resources ∗ refer to the firm's ability to utilize its resources effectively. An example of a capability is the ability to bring a product to market faster than competitors. Such capabilities are embedded in the routines of the organization and are not easily documented as procedures and thus are difficult for competitors to replicate ∗ The firm's resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage. Capabilities