What makes your organization special? How close are your competitors to overtaking you? Good ol’ hard work will NOT guarantee success.
The VRIO framework is a strategic analysis tool to help organizations uncover and protect the resources and capabilities that give them a long-term competitive advantage. Not a list of strengths, which are things you do well but are not necessarily unique to your organization. Not advantages that are fleeting. Sustainable competitive advantages are ones that competitors can’t easily duplicate in the foreseeable future; they are also a crucial element of business success.
VRIO is an acronym for a four-question framework focusing on Value, Rarity, Imitability, and Organization, the criteria used to evaluate an organization’s resources and capabilities.
Start by making a list of your resources and capabilities. These may be tangible or intangible items and may consist of material, financial, or human resources, such as patents, machinery, people skills or cost advantages. Intangible resources tend to be the source of most sustainable competitive advantages, but that’s not always the case. To apply the VRIO framework, evaluate each item on this list through the following four lenses:
- Value: Do you offer a resource that adds value for customers? Are you able to exploit an opportunity or neutralize competition with an internal capability?
No: You are at a competitive disadvantage and need to reassess your resources and capabilities to uncover value.
Yes: If value is established, move on in your VRIO analysis to rarity.
- Rarity: Do you control scarce resources or capabilities? Do you own something that’s hard to find yet in demand?
No: You have value but lack rarity, putting your company in a position of competitive parity.
Yes: With value and rarity identified, your next hurdle is imitability.
- Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it difficult to find an equivalent substitute to compete with your offerings?
No: If your resource has value and rarity, but is affordable or easy to copy, you have a temporary competitive advantage.
Yes: You offer something that’s valuable, rare, and hard to imitate—now the focus is on your organization.
- Organization: Does your company have organized management systems, processes, structures, and culture to capitalize on resources and capabilities?
No: Without the internal organization and support, it is difficult to realize the potential of your valuable, rare, and costly-to-imitate resources. Your company will have an unused competitive advantage and will need to reassess how to attain the needed organization.
Yes: Your company has achieved the ultimate goal of sustained competitive advantage when it has successfully identified all four components of the VRIO framework.