Vrio Framework
Barney 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?”
According to the VRIO framework, a supportive answer to each of these questions relative to the firm being analyzed would indicate that the firm can sustain a competitive advantage. Below is an example of how to apply the VRIO framework and the likely outcome for the firm under varying circumstances.
|Applying the VRIO Framework |
|If a firm’s resources are: | |The firm can expect: |
|Not valuable | |Competitive Disadvantage |
|Valuable, but not rare | |Competitive parity (equality) |
|Valuable and rare | |Competitive advantage (At least temporarily)|
Then, if there are high costs of imitation, the firm may enjoy a
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?”
According to the VRIO framework, a supportive answer to each of these questions relative to the firm being analyzed would indicate that the firm can sustain a competitive advantage. Below is an example of how to apply the VRIO framework and the likely outcome for the firm under varying circumstances.
|Applying the VRIO Framework |
|If a firm’s resources are: | |The firm can expect: |
|Not valuable | |Competitive Disadvantage |
|Valuable, but not rare | |Competitive parity (equality) |
|Valuable and rare | |Competitive advantage (At least temporarily)|
Then, if there are high costs of imitation, the firm may enjoy a