VRIO - Wikipedia

VRIO is an initialism for the four question framework asked about a resource or capability to determine its competitive potential: the question of Value, the ... VRIO FromWikipedia,thefreeencyclopedia Jumptonavigation Jumptosearch VRIOisabusinessanalysisframeworkthatformspartofafirm'slargerstrategicscheme.Thebasicstrategicprocessthatanyfirmbeginswithavisionstatement,andcontinuesonthroughobjectives,internal&externalanalysis,strategicchoices(bothbusiness-levelandcorporate-level),andstrategicimplementation.Thefirmwillhopethatthisprocessresultsinacompetitiveadvantageinthemarketplacetheyoperatein. VRIOfallsintotheinternalanalysisstepoftheseprocedures,butisusedasaframeworkinevaluatingjustaboutallresourcesandcapabilitiesofafirm,regardlessofwhatphaseofthestrategicmodelitfallsunder. VRIOisaninitialismforthefourquestionframeworkaskedaboutaresourceorcapabilitytodetermineitscompetitivepotential:thequestionofValue,thequestionofRarity,thequestionofImitability(Ease/DifficultytoImitate),andthequestionofOrganization(abilitytoexploittheresourceorcapability). TheQuestionofValue:"Isthefirmabletoexploitanopportunityorneutralizeanexternalthreatwiththeresource/capability?" TheQuestionofRarity:"Iscontroloftheresource/capabilityinthehandsofarelativefew?" TheQuestionofImitability:"Isitdifficulttoimitate,andwilltherebesignificantcostdisadvantagetoafirmtryingtoobtain,develop,orduplicatetheresource/capability?" TheQuestionofOrganization:"Isthefirmorganized,ready,andabletoexploittheresource/capability?""Isthefirmorganizedtocapturevalue?"[1] Contents 1QuestionofValue 2QuestionofRarity 3QuestionofImitability 3.1Formsofimitation 3.2Costofimitation 4QuestionofOrganization 5Seealso 6References 7Externallinks QuestionofValue[edit] ThebasicquestionaskedbytheVintheVRIOframeworkforinternalanalysisis“Isthisresourceorcapabilityvaluabletothefirm?”Inthiscase,thedefinitionofvalueiswhetherornottheresourceorcapabilityworkstoexploitanopportunityormitigateathreatinthemarketplace.Ifitdoesdooneofthosetwothings,itcanbeconsideredastrengthofthecompany.However,ifitdoesnotworktoexploitanopportunityormitigateathreat,itisaweakness.Occasionally,someresourcesorcapabilitiescouldbeconsideredstrengthsinoneindustryandweaknessesinadifferentone.[2]Sixcommonexamplesofopportunitiesfirmscouldattempttoexploitare: technologicalchange, demographicchange, culturalchange, economicclimate, specificinternationalevents, legalandpoliticalconditions. Furthermore,fivethreatsthataresourceorcapabilitycouldmitigateare: thethreatofbuyers, threatofsuppliers, threatofentry, threatofrivalry, threatofsubstitutes. Generally,thisexploitationofopportunityormitigationofthreatwillresultinoneoftwomoreoutcomes:anincreaseinrevenuesoradecreaseincosts(orboth). Agreatwaytoidentifypossiblyvaluableresourcesorcapabilitiesisbylookingintothecompany'svaluechain.Inthevaluechain,abusinessdevelopsitsproductsandservicesstep-by-step,witheachfunctionalongthewayaddingsomesortofvaluetotheproductorservice.Thechoicesafirmmakesregardingitsvaluechain(includinghowtooperate,andwhichstepstooperatein)iscloselytiedtothefirmsresourcesandcapabilities,thereforemakingitavaluabletoolinidentifyingvalueinresourcesandcapabilities.Ifsomeassetthatthecompanyhasallowsittooperatemoreeffectivelyinacertainportionofthevaluechain,chancesarethatresourcewillbeconsideredvaluablebytheVRIOframework. QuestionofRarity[edit] Havingrarityinafirmcanleadtocompetitiveadvantage.Rarityiswhenafirmhasavaluableresourceorcapabilitythatisabsolutelyuniqueamongasetofcurrentandpotentialcompetitors. Howtodetermineifthecompany'sresourceisrareandcreatescompetitiveadvantage? Afirm'sresourcesandcapabilitiesmustbebothshortinsupplyandpersistovertimetobeasourceofsustainedcompetitiveadvantage.Ifbothelements(shortsupplyandpersistenceovertime)aren'tmet,thentheresourcesandcapabilitiesafirmhascan'tbeasustainedcompetitiveadvantage.Ifaresourceisnotrare,thenperfectcompetitiondynamicsarelikelytobeobserved. ExampleofRarity-Ajanitorwhodefineshis/herjobashelpingthefirmmakeandsellbetterproductsinsteadofjustreferringtotheirjobassimplycleaningupfacilitiesisquiteunusual.Mostindividualswouldagreethatthisfirmhasasourceofcompetitiveadvantageoverotherfirmsintheirindustrybecausetheirobjectivesandstrategiesaretransparentthroughouttheentirefirm;unlikemanyotherfirmswhereonlytoptiermanagementistheonlygroupthatbelievesintheirobjectivesandstrategies(Barney&Hesterly,2011).thisraityleadtofightinthecompetion. QuestionofImitability[edit] Theprimaryquestionof“imitability”askedintheVRIOframeworkininternalanalysisisthat“Dofirmswithoutaresourceorcapabilityfaceacostdisadvantageinobtainingordevelopingitcomparedtofirmsthatalreadypossessit?”Firmswithvaluableandrareresources,whicharehardtoimitatebyotherfirms,cangainthefirst-moveradvantagesinthemarketandcanhencegaincompetitiveadvantage. Afirmcaneitherexploitanexternalopportunityorneutralizeanexternalthreatbyusingitsrareandvaluableresources.Inthiscase,thefirmcangaincompetitiveadvantage.Whenthefirm'scompetitorsdiscoverthiscompetitiveadvantage,theymayrespondintwoways.First,theycanchoosetoignoretheprofitgainingbythecompetitiveadvantageandcontinuetooperateintheiroldways.Second,theycanchoosetoanalyzeandduplicatethecompetitivestrategyofitsrival.Ifthereisnocostorlittlecostinobtainingthisrareandvaluableresource,thefellowfirmscanimitatethecompetitiveadvantageinordertogaincompetitiveparity(firmsthatcreatethesameeconomicvalueastheirrivalsexperiencecompetitiveparity).However,sometimesitishardforotherfirmstogetaccesstotheresourcesandimitatetheinnovativecompany'sstrategy.Asaresult,theinnovativecompaniesthatimplementitsstrategiesbasedoncostly-to-imitateandvaluableresourcescangainlong-termcompetitiveadvantage,whichensuresacompany'ssustainedsuccess(Hill&Jones,1998).Hence,tosustainthecompetitiveadvantage,itisnotsufficientforafirm'sresourcesandcapabilitiestobevaluableandrare-theyshouldalsobemostlyinimitable. Formsofimitation[edit] Inmostcases,imitationappearsintwoways,directduplicationorsubstitution.Afterobservingotherfirms’competitiveadvantage,afirmcandirectlyimitatetheresourcepossessedbytheinnovativefirm.Ifthecosttoimitateishigh,thecompetitiveadvantagewillbesustained.Ifnot,thecompetitiveadvantagewillbetemporary.Otherwise,animitatingfirmcanattempttouseasubstituteinordertogainsimilarcompetitiveadvantageoftheinnovativefirm. Costofimitation[edit] Costofimitationisusuallyhighinordertogainacompetitiveadvantageduetothefollowingreasons: UniqueHistoricalConditions-aninnovativefirmgainslow-costaccesstorareresourcesinaparticulartimeandspace, CausalAmbiguity-animitatingfirmcannottellthefactorsthatleadtothecompetitiveadvantageofaninnovativefirm, SocialComplexity-whentheresourcesinvolvedingainingcompetitiveadvantageisbasedoninterpersonalrelationship,cultureandothersocialbackground, Patents-asourceoflong-termcompetitiveadvantagecertificatedbyauthorityinafewindustriessuchaspharmaceuticals.[3] QuestionofOrganization[edit] Oncetheanalysthasrealizedthevalue,rarityandimitabilityofthecompany'sresourcesandcapabilities,thenextstepistoorganizethecompanyinawaytoexploittheseresources.Ifdonesuccessfully,thecompanycanenjoyaperiodofsustainedcompetitiveadvantage.Therearemanycomponentstothisquestionoforganization.Theyinclude,butarenotlimitedto,thecompany'sformalreportingstructure,managementcontrolsystemsandcompensationpolicies.Formalreportingstructuresaresimplyadescriptionofwhointhefirmreportstowhom.Managementcontrolsystemsincludebothformalandinformalmeanstomakesurethatmanagers’decisionsalignwithafirm'sstrategies.Formalcontrolsystemscanconsistofbudgetingandreportingactivitiesthatkeeptopmanagementinformedofdecisionsmadebyemployee'slowerdowninthefirm.Informalcontrolscanincludeacompany'scultureandencouragingemployeestomonitoreachother.Firmsincentivizetheiremployeestobehaveadesiredwaythroughcompensationpolicies.Thesepoliciescanincludebonuses,stocksorsalaryincreasesbutcanalsoincludenon-monetaryincentivessuchasadditionalvacationdaysoralargeroffice.Thesecomponentsoforganizationareknownascomplementarycapabilitiesandresourcesbecausealonetheydonotprovidemuchvalue.However,incombinationwithafirm'sotherresourcesandcapabilities,itcanresultinsustainedcompetitiveadvantage.Withoutthecorrectorganization,evenfirmswithvaluable,rareandcostlytoimitateresourcesandcapabilitiescansuffercompetitivedisadvantage(Barney&Hesterly,2011). Valuable? Rare? Costlytoimitate? Exploitedbytheorganization? Competitiveimplication No Competitivedisadvantage Yes No Competitiveparity Yes Yes No Temporarycompetitiveadvantage Yes Yes Yes No Unexploitedcompetitiveadvantage Yes Yes Yes Yes Sustainedcompetitiveadvantage Seealso[edit] PESTanalysis SWOTanalysis Management Strategicmanagement Strategicplanning Systemdynamics Resource-basedview References[edit] ^"VRIOFrameworkExplained-SMInsight".7October2021. ^StrategicManagementJournal,5,pp.171–180.Barney,J.B.(1991) ^Barney&Hesterly,2011 Barney,JayBandHesterly,WilliamS.StrategicManagementandCompetitiveAdvantage:Concepts.2005PearsonEducation,Inc.,UpperSaddleRiver,NewJersey,07458. StrategicManagementJournal,5,pp. 171–180.Barney,J.B.(1991).“Firmresourcesandsustainedcompetitiveadvantage.”JournalofManagement,19,pp. 99–120. Hill,C.W.L.,andG.R.Jones(1998).StrategicManagementTheory:AnIntegratedApproach,4th.Boston:HoughtonMifflin. Barney,J.B.,&Hesterly,W.S.(2010).VRIOFramework.InStrategicManagementandCompetitiveAdvantage(pp. 68–86).NewJersey:Pearson. Externallinks[edit] http://falcon.jmu.edu/~gallagsr/WDFPD-Internal.pdf http://www.ecofine.com/strategy/RBV%20of%20the%20firm.htm Retrievedfrom"https://en.wikipedia.org/w/index.php?title=VRIO&oldid=1102065547" Categories:BusinesstermsStrategicmanagement Navigationmenu Personaltools NotloggedinTalkContributionsCreateaccountLogin Namespaces ArticleTalk English Views ReadEditViewhistory More Search Navigation MainpageContentsCurrenteventsRandomarticleAboutWikipediaContactusDonate Contribute HelpLearntoeditCommunityportalRecentchangesUploadfile Tools WhatlinkshereRelatedchangesUploadfileSpecialpagesPermanentlinkPageinformationCitethispageWikidataitem Print/export DownloadasPDFPrintableversion Languages DeutschFrançais한국어 Editlinks