VRIO Framework

VRIO Framework

Barney and Hesterly (2006), describe the VRIO framework as a good tool to examine the internal environment of a firm. They state that VRIO “stands for four questions one much ask about a resource or capability to determine its competitive potential:

1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity / and/or neutralize an environmental threat?

2. The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? (Are the resources used to make the products/services or the products/services themselves rare?)

3. The Question of Imitability: Do firms without a resource face a cost disadvantage in obtaining or developing it? (Is what a firm is doing difficult to imitate?)

4. The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?”

What types of resources should we evaluate? What types of resources lead to a competitive advantage?

1. Tangible Resources
2. Intangible Resources
3. Organizational Capabilities

Tangible Resources

1. Financial
a. Firms cash and cash equivalents
b. Firm’s capacity to raise equity
c. Firms borrowing capacity

2. Physical
a. Modern plant and facilities
b. Favorable manufacturing locations
c. State-of-the-art machinery and equipment

3. Technological
a. Trade secrets
b. Innovative production processes
c. Patents, copyrights, trademarks

4. Organizational
a. Effective strategic planning process
b. Excellent evaluation and control systems

Intangible Resources

1. Human
a. Experience and capabilities of employees
b. Trust
c. Managerial skills
d. Firm-specific practices and procedures

2. Innovation and Creativity
a. Technical and scientific skills
b. Innovation capacities

3. Reputation
a. Brand name
b. Reputation with customers for quality and reliability
c. Reputation with suppliers for fairness, non-zero-sum relationships

Organizational Capabilities
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