Applying the VRIO Framework
1Barney and Hesterly (2006), describe the VRIO framework as a good tool to examine the internal environment of a firm. They state that VRIO “stands for four questions one must ask about a resource or capability to determine its competitive potential:
1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat?
2. 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?]
3. 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?]
4. 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?”
What types of resources should we evaluate (e.g., what types of resources lead to a competitive advantage)? 1) tangible resources, 2) intangible resources, 3) organizational capabilities.
Tangible Resources
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
Intangible Resources
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
Organizational Capabilities
Firm competences or skills the firm
1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat?
2. 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?]
3. 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?]
4. 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?”
What types of resources should we evaluate (e.g., what types of resources lead to a competitive advantage)? 1) tangible resources, 2) intangible resources, 3) organizational capabilities.
Tangible Resources
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
Intangible Resources
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
Organizational Capabilities
Firm competences or skills the firm