Unlocking Business Uniqueness- Explaining The VRIO

Framework
Find your company’s sustainable competitive advantages using the VRIO framework.

RJ Messineo
March 13, 2024

What makes your organization special? How close are your competitors to
overtaking you? Too many companies can’t answer questions like these
and simply believe hard work will guarantee success.
In a competitive business landscape, where nearly 50% of businesses
struggle to pinpoint what sets them apart, understanding and leveraging
unique advantages is crucial. Enter the VRIO framework.
The VRIO framework is a strategic planning tool designed to help
organizations uncover and protect the resources and capabilities that give
them a long-term competitive advantage. Note that we’re not simply talking
about a list of your strengths, which are things you do well, but are not
necessarily unique to your organization. Nor are we talking about
advantages that are fleeting. Sustainable competitive advantages are those
that competitors can’t easily duplicate in the foreseeable future; they are
also a crucial element of business success.
Whether you have one or many sustainable competitive advantages, a
VRIO analysis will help you identify and leverage them as part of your
strategic plan. In this article, we’ll outline what a VRIO analysis entails,
share a VRIO framework example, and explain what to do with your VRIO
insights after the exercise is complete.
What is the VRIO framework, and how does it uncover Sustainable
Competitive Advantage?
VRIO is an acronym for a four-question framework focusing
on value, rarity, imitability, and organization, the criteria used to evaluate
an organization’s resources and capabilities. You can use a decision tree to
help map the outcomes of your probe, depending on whether you deem a
resource as having met the criteria or not.
Looking for a VRIO decision tree template? Download our free strategic
planning templates to help you get started with VRIO and other strategic
planning approaches.
Before you get started, make a list of your resources and capabilities.
These may be tangible or intangible items and may consist of material,
financial, or human resources, such as patents, machinery, people skills,
cost advantages, or anything else. Intangible resources tend to be the
source of most sustainable competitive advantages, but that’s not always
the case. To apply the VRIO framework, evaluate each item on this list
through the following four lenses:
 Value: Do you offer a resource that adds value for customers? Are you
able to exploit an opportunity or neutralize competition with an internal
capability?
 ‍ o: You are at a competitive disadvantage and need to reassess your
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resources and capabilities to uncover value.
 Yes: If value is established, move on in your VRIO analysis to rarity.
 Rarity: Do you control scarce resources or capabilities? Do you own
something that’s hard to find yet in demand?
 ‍ o: You have value but lack rarity, putting your company in a position
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of competitive parity. Your resources are valuable but common, which
makes competing in the marketplace more challenging (but not
impossible). It’s recommended to go back one step and reassess.
 Yes: With value and rarity identified, your next hurdle is imitability.
 Imitability: Is it expensive to duplicate your organization’s resource or
capability? Is it difficult to find an equivalent substitute to compete with
your offerings?
 ‍ o: If your resource has value and rarity, but is affordable or easy to
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copy, you have a temporary competitive advantage. It will require
considerable effort to stay ahead of competitors and differentiate your
services—go back one step and reassess.
 Yes: You offer something that’s valuable, rare, and hard to imitate—
now the focus is on your organization.
 Organization: Does your company have organized management
systems, processes, structures, and culture to capitalize on resources
and capabilities?
 ‍ o: Without the internal organization and support, it will be difficult to
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fully realize the potential of your valuable, rare, and costly-to-imitate
resources. Your company will have a unused competitive
advantage and will need to reassess how to attain the needed
organization.
 Yes: Your company has achieved the ultimate goal of sustained
competitive advantage when it has successfully identified all four
components of the VRIO framework.

A Real-life VRIO Example: Google

There’s no doubt that Google is one of the most powerful companies in the
world, and its success arguably stems from a sustained competitive
advantage in human capital management. If we were to break down
Google’s VRIO framework from the HR perspective, it might look
something like this:
 Value: Use human capital management data to hire and retain
innovative, productive employees. These employees consistently
create some of the most popular consumer products and services in
the world.
 Rarity: No other companies are using data-based employee
management so extensively.
 Imitability: Data-based human capital management is both costly and
difficult to imitate, at least for the near future. Companies have to build
the software and invest in training their HR staff on the new technology
and strategy.
 Organization: Google is organized to capture value from this capability.
The IT department has the skills to collect and maintain the data, while
HR and team leaders are trained on how to use the data to hire,
promote, manage, and improve performance of employees.
Having a VRIO framework in place allowed Google to take a completely
different approach to human capital management and make decisions
using massive amounts of objective data. For example, Google’s People
Operations team set out to identify which characteristics make a great
manager. The data used to determine this included surveys, performance
evaluations, and great-manager nominations. Google also conducted
double-blind interviews with the company's highest- and lowest-rated
managers. By determining what qualifies as a great manager, Google
strengthens its internal team and the foundation of its sustained competitive
advantage. (Source: Strategic Management Insight, “VRIO Framework.”)
What are some benefits and limitations of the VRIO framework?
Few organizations take the time to delve into their core competencies to
determine what makes them unique. In our view, it’s a worthwhile exercise
because:
 It allows you to take advantage of previously unrecognized competitive
advantages.
 It can help set the course for future plans and help you better allocate
business resources.
 It can produce insights that may help identify and evaluate potential
opportunities and threats to determine which ones are more important.
While the VRIO framework is useful for understanding your competitive
position and providing strategic insights, it also has some limitations:
 The business environment is constantly changing, making it difficult
(but not impossible) to have a sustainable competitive advantage for
the long term; three to five years is more realistic.
 New and small businesses may find it more difficult to apply the VRIO
framework simply because they haven’t yet fully developed their
resources or capabilities to establish a sustained competitive
advantage.
 VRIO is solely an internal analysis, so you will need other frameworks
(like the SWOT analysis) to fill in the gaps.
What’s the difference between the VRIO framework and a SWOT analysis?
‍
If you’re familiar with strategic planning, you’ve probably also heard of
a SWOT analysis. While you can use both SWOT and VRIO in the early
stages of strategic planning, they are different tools that produce different
insights.
‍
The VRIO framework focuses solely on evaluating internal resources and is
intended to help identify the specific resources that make your firm more
competitive.
SWOT, on the other hand (an acronym for “Strengths, Weaknesses,
Opportunities, and Threats”), is a high-level strategic planning model that
helps organizations identify areas where they’re doing well and where they
can improve, both from an internal and an external perspective. It does not
thoroughly evaluate your internal resources like VRIO but rather aims to
help you assess your future prospects based on your current position and
external conditions.
ClearPoint Strategy, a strategy management software solution,
revolutionizes strategic planning by harnessing the power of artificial
intelligence. With answers to a few simple questions, ClearPoint's AI
Assistant can conduct a comprehensive VRIO analysis, evaluating
resources and competencies within an organization to determine their
potential as a source of competitive advantage. The tool provides
actionable insights that may have otherwise required hours of manual
assessment. Furthermore, the AI Assistant can be tailored to employ
various strategic frameworks, offering unparalleled depth and breadth in
strategic decision-making.

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What do you do with the resulting VRIO insights?
It’s important to conduct a VRIO analysis in the early stages of strategy
planning, before making your strategic plan. In particular, this exercise will
inform your vision statement, which is a forward-thinking proclamation of
where your company wants to be in the future. The differentiators and
advantages you identify through VRIO will help determine how to approach
the marketplace and inform strategic decisions that shape the fate of your
company. So, think about how you can best exploit your VRIO resources to
provide the most value to your customer, and use those ideas to formulate
a precise vision statement.
The VRIO framework can also inform your SWOT analysis. Whatever
competitive advantages you uncover should be included in the “Strengths”
section of your SWOT analysis. Even some resources that don’t pass the
full VRIO test may still be considered strengths (for instance, if something
is VRO—valuable and rare, and your organization can capitalize on it);
however, don’t identify a resource or capability as a sustainable competitive
advantage unless it meets all the criteria—that’s where your uniqueness
lies. On the flip side, if an existing resource isn’t yet a sustainable
competitive advantage and you would like to change that, you could identify
it as a “weakness” or an area that needs improvement.
The VRIO framework and SWOT analysis are important parts of the
strategy development phase. Once you’ve developed your strategic plan,
you’ll then need to take specific actions to make it come to fruition. Many
organizations use a strategic framework (like the Balanced Scorecard) to
help transform their strategy ideas into an actionable plan and strategy
software (like ClearPoint) to break those ideas into manageable goals they
can then organize and track.
Need help getting started with the VRIO framework?
If you’re ready to take on strategic planning but don’t know where to start,
download our booklet of strategic planning templates. It includes eight of
the most popular strategic planning approaches—including the VRIO
framework and SWOT analysis—and will help set you up for success. In
the meantime, if you have any questions about strategy planning—or how
ClearPoint performance management software can help—please reach
out!

RJ Messineo
Account Executive & True Crime Fanatic
RJ drives new business for ClearPoint, guiding prospective clients through
the sales process.