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VRIO Analysis

Goal of VRIO Analysis:

VRIO Analysis is a type of strategic analysis that aims to reveal the advantages unique to your business. By advantages, this isn’t the strengths of the business, as strengths can be the same across many businesses, nor is it short-term advantages that pop in and out of existence for businesses all the time depending on random external circumstances. It aims to unlock the sustainable competitive advantages of the business. In other words, the aspects of a business that aren’t easily copied. These unique qualities are essential to be aware of so they can be protected and capitalised upon to bring about business success.

How exactly does it work?

VRIO is a four-part analysis framework. The 4 four elements are: value, rarity, imitability and organisation. The first thing to do is list all of your business’ resources and capabilities. These may be tangible or intangible items and may consist of material, financial, or human resources. For example, patents, machinery, people skills, cost advantages. To apply the VRIO framework, evaluate each item on this list with the 4 aforementioned elements as follows:

VALUE: Does this resource/capability add value for customers? • NO: You are at a competitive disadvantage. This resource/capability has no value.
• YES: Your resource/capability has value, now you must consider its rarity.

RARITY: Do you have a resource/capability that is both hard to find and in high demand? • NO: The resource has value but isn’t rare. Your company is in competitive parity. Your resources are valuable but common which will make competing in the market very difficult. • YES: With value and rarity identified, next thing to consider is the resource’s/capability’s imitability.

IMITABILITY: Would it be very difficult and/or expensive for another company to replicate/copy your resource/capability. • NO: Your resource has value and rarity but is easy and/or inexpensive to copy. Therefore, you have a temporary competitive advantage meaning it’ll be very difficult to stay ahead of competitors for any substantial period of time. • YES: You offer something that’s valuable, rare, and hard to imitate—now the focus is on your organization.

ORGANIZATION: Is your company sufficiently organised to profit from its unique resources and capabilities? • NO: Your company will have unused competitive advantage. This means this unique resource/capability of the company has the potential to bring about business success but said company has inadequate organisational structure to do so. The company should therefore work to improve their organization. • YES: Your company has achieved the ultimate goal of sustained competitive advantage. The aim is to identify the capabilities/resources that fulfil all 4 of these elements. In other words, your company’s sustainable competitive advantages.

Advantages of VRIO analysis

  • Businesses can capitalise on previously unrecognized competitive advantages.

  • It allows you to better allocate business resources.

  • It can contribute to your SWOT analysis. For example, you might have value, rarity and organisation, which you can include in your strengths, but not imitability. So you can include its imitability as a weakness and thus reducing its imitability becomes a strategy for your business.

Disadvantages of VRIO analysis

  • The changeable nature of the business environment making it hard to have a long-term competitive advantage.

  • Small businesses that aren’t fully aware of their capabilities and resources will struggle to carry out a productive VRIO analysis.

  • VRIO only analyses a business internally. Therefore, other strategic analysis tools will need to be implemented (such as SWOT and PESTLE) to thoroughly analyse the capabilities of a business.

For more on VRIO analysis:

Explanation of VRIO analysis with helpful graphic

How to carry out a VRIO analysis with example

Advantages and Limitations of VRIO Analysis

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