An Infrequent Look at Analytical Tools: VRIO Analysis
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Examples of VRIO Analysis
Let's consider two examples:
Apple
- Value: Apple's innovative product design, strong brand reputation, and efficient supply chain management are all valuable resources and each contributes to the company’s success.
- Rare: Apple's ability to consistently introduce new products (or features) and maintain a high level of customer loyalty is rare.
- Imitable: While competitors can try to imitate Apple's products and marketing strategies, it is difficult for them to replicate the company's culture and innovation capabilities.
- Organized: Apple is highly organized around its products and, to a great extent, it’s brand. This effective and efficient organizational structure allows it to focus on development, production, and marketing its products.
Amazon
- Value: Amazon's vast product selection, efficient logistics network, and customer-centric approach are all valuable resources that contribute to its success.
- Rare: The company’s scale and scope of operations, as well as its ability to leverage technology to improve its business processes, are rare.
- Imitable: While competitors can try to imitate Amazon's business model and technology, it is difficult for them to replicate the company's scale, customer base, and brand recognition.
- Organized: Highly organized and adaptable, the company’s organizational structure that allows it to quickly respond to changes expand into new areas.
The VRIO framework is a powerful tool for identifying and assessing a company's competitive advantages. By examining the value, rarity, imitability, and organization of a company's resources and capabilities, managers can develop strategies to sustain and strengthen their a strong competitive position.
Pros and Cons
Even though VRIO can be a great tool for analysis of internal capabilities to try to capture competitive advantage, it is not always the right tool (I’m looking at you again, SWOT).
Pros
- Easy to Use: The framework is a linear way of looking at those properties which may provide competitive advantage and evaluating those.
- Advantage Identification: The tool and the process of going through the exercise (read, “Doing the work necessary to make it effective) will help a company identify areas of competitive advantage to exploit in the marketplace.
- Informs Innovation: The framework’s results can help a company build out and / or develop on existing competitive advantage. Used with other analytical tools, VRIO can be an arrow in a company’s quiver for growth.
Cons
- Navel-Gazing: The framework looks only at internal strengths, but these have to meet market opportunities. While it can be a great tool to help identify strengths, it cannot be a stand-alone analytical tool, especially when looking to develop a growth strategy.
- Pronounceability: Neither “imitability” nor “inimitability” roll off the tongue. VRIO itself is a pretty terrible name.
- Necessary Planning: In today’s world of the desire for easy and immediate gratification, the work needed to conduct a good VRIO analysis (or almost any other analysis, for that matter) requires planning. My drill instructor, Staff Sgt. Barber, USMC, used to say (yell), “Proper planning prevents poor performance.” I think he was paraphrasing Aristotle who said, “Well begun is half done,” which I suspect did not rhyme in ancient Greek. Regardless, be prepared to prepare or the entire process will become an unorganized, unfocused, and biased wreck - and your reputation won’t be far behind.
