The VRIO Framework: An Overview

Barney and Hesterly (2006), describe the VRIO framewor as a !ood tool to e"amine the internal en#ironment of a firm$ %hey state that VRIO &stands for fo'r ('estions one m'st as abo't a reso'rce or ca)ability to determine its com)etiti#e )otential* 1$ The Question of Value* +oes a reso'rce enable a firm to e")loit an en#ironmental o))ort'nity, and,or ne'trali-e an en#ironmental threat. 2$ The Question of Rarity* Is a reso'rce c'rrently controlled by only a small n'mber of com)etin! firms. /are the reso'rces 'sed to ma e the )rod'cts,ser#ices or the )rod'cts,ser#ices themsel#es rare.0 1$ The Question of Imitability* do firms witho't a reso'rce face a cost disad#anta!e in obtainin! or de#elo)in! it. /is what a firm is doin! diffic'lt to imitate.0 2$ The Question of Organization* 3re a firm4s other )olicies and )roced'res or!ani-ed to s'))ort the e")loitation of its #al'able, rare, and costly5to5imitate reso'rces.6 What ty es of resour!es shoul" we evaluate #e$g$% what ty es of resour!es lea" to a !om etitive a"vantage&' 1) tan!ible reso'rces, 2) intan!ible reso'rces, 1) or!ani-ational ca)abilities$ Tangible Resour!es 7irm4s cash and cash e('i#alents 7irm4s ca)acity to raise e('ity 7inancial 7irm4s borrowin! ca)acity 9odern )lant and facilities 7a#orable man'fact'rin! locations 8hysical :tate5of5the5art machinery and e('i)ment %rade secrets Inno#ati#e )rod'ction )rocesses %echnolo!ical 8atents, co)yri!hts, trademar s ;ffecti#e strate!ic )lannin! )rocess Or!ani-ational ;"cellent e#al'ation and control systems Intangible Resour!es ;")erience and ca)abilities of em)loyees %r'st H'man 9ana!erial s ills 7irm5s)ecific )ractices and )roced'res %echnical and scientific s ills Inno#ation and <reati#ity Inno#ation ca)acities Brand name Re)'tation with c'stomers for ('ality and reliability Re)'tation Re)'tation with s'))liers for fairness, non5-ero5s'm relationshi)s Organizational (a abilities 7irm com)etences or s ills the firm em)loys to transfer in)'ts to o't)'ts <a)acity to combine tan!ible and intan!ible reso'rces, 'sin! firm )rocesses to attain desired end$

)*am les
O'tstandin! c'stomer ser#ice ;"cellent )rod'ct de#elo)ment ca)abilities
1

Inno#ati#eness or )rod'cts and ser#ices 3bility to hire, moti#ate, and retain h'man ca)ital

=ote that the material )resented in this hando't are ada)ted from >$B$ Barney, &7irm reso'rces and s'stained com)etiti#e ad#anta!e,6 Journal of Management 1? (1@@1), )$ 101A R$9$ Brand, Comtemporary Strategy Analysis (<ambrid!e, ;n!land* Blac well B'siness, 1@@1), ))$ 1005102A 9$3$ Hitt, R$+$ Ireland, and R$;$ Hos isson, Strategic Management: Competitiveness and Globalization, 2th ed$ (<incinnati, OH* :o'th5Cestern <olle!e 8'blishin!, 2001)A B$B$ +ess, B$%$ D'm) in, 9$D$ %aylor, 3$3$ %hom)son, and 3$>$ :tric land III, Strategic Management (Boston, 9cBraw Hill, 2002) ))$ 121512E$

The VRIO Framework: An Overview

The VRIO Framework: An Overview

A lying the VRIO framework$ 3ccordin! to the VRIO framewor , a s'))orti#e answer to each ('estions relati#e to the firm bein! analy-ed wo'ld indicate that the firm can s'stain a com)etiti#e ad#anta!e$ Below is an e"am)le of how to a))ly the VRIO framewor and the li ely o'tcome for the firm 'nder #aryin! circ'mstances$ A lying the VRIO Framework+the value an" rarity of a firm,s resour!es %he firm can e")ect* <om)etiti#e +isad#anta!e <om)etiti#e )arity (e('ality) <om)etiti#e ad#anta!e (3t least tem)orarily)

If a firm4s reso'rces are* =ot #al'able Val'able, b't not rare Val'able and rare

%hen, if there are hi!h costs of imitation, the firm may enFoy a )eriod of s'stained com)etiti#e ad#anta!e$ <osts of imitation increase d'e to some combination of the followin!* 1) -ni.ue /istori!al (on"itions ()ath de)endenceA first mo#er ad#anta!es), 2) (ausal Ambiguity (lin s between reso'rces and ad#anta!e fo!!y), 1) 0o!ial (om le*ity (social relationshi)s not re)licable), 2) 1atents (do'ble5ed!ed sword since )eriod of )rotection e#ent'ally r'ns o't)$ A lying the VRIO Framework% integrating the notion of Inimitability %he firm can e")ect* %em)orary com)etiti#e ad#anta!e :'stained com)etiti#e ad#anta!e (if or!ani-ed )ro)erly)

If a firm4s reso'rces are* Val'able, rare, b't not costly to imitate Val'able, rare, and costly to imitate

Or!ani-ed )ro)erly deals with the firm4s str'ct're and control (!o#ernance mechanismsGcom)ensation, re)ortin! str'ct'res, mana!ement controls, relationshi)s, etc)$ %hese m'st be ali!ned so as to !i#e )eo)le ability and incenti#e to e")loit the firm4s reso'rces$ 0ummary of VRIO% (om etitive Im li!ations% an" )!onomi! Im li!ations Valuable' =o Hes Hes Hes =o Hes Hes =o Hes Hes Rare' (ostly to Imitate' Organize" 1ro erly' =o (om etitive Im li!ations +isad#anta!e 8arity %em)orary 3d#anta!e :'stained 3d#anta!e )!onomi! Im li!ations Below =ormal =ormal 3bo#e =ormal (at least for some amo'nt of time) 3bo#e =ormal