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VRIO Analysis

 VRIO Analysis

At the start of this century, American management professor Jay B. Barney developed the so-called VRIO Framework, VRIO Framework or VRIO Analysis. The VRIO Analysis is perfectly suited for the evaluation of the use of company resources. Following this technical analysis, a company will be able to better position itself relative to its competitors. After all, the VRIO Analysis also provides insight into the advantages of an organization vis-à-vis its competitors. VRIO is an acronym that stands for: 

V = Value, 

R = Rareness, 

I  = Imitability, 

O = Organisation.

1. Value: This refers to the value of the resource used; how expensive is it, is it easily available, should it be purchased, rented, or leased? Should the resource be too expensive, it may be better to outsource it. It is, after all, about utilized opportunities and the value that a resource will ultimately generate for the company. Take the rental of a large office building, for example. If calculations show the rental fee to be too exorbitant and the purchase of a property would be cheaper in the long run, then it is a good idea to terminate the rental agreement and purchase the property using a loan.

2. Rareness:  This concerns the rarity of the resource or its scarcity when it comes to purchasing. How rare or scarce is the resource? If the resource is valuable, but not scarce, the organization may compare it to that of competitors. If it is a very expensive and scarce resource, then the company can use it to distinguish itself from its competitors. The rarer or scarcer a resource, the greater the competitive advantage. The company will then be able to use an absolutely unique product to keep the competition at bay. Take an exclusive fishing company, for example, which distinguishes itself by being one of the few suppliers of black caviar to high-class seafood restaurants.

3. Imitability: This concerns the degree of imitation when it comes to resources. To what extent is it possible to imitate the product, allowing competitors to produce similar products? When a resource is valuable and scarce and inexpensive to replicate, it will not provide a competitive advantage. On the other hand, should the resource be difficult to replicate, the competitive advantage will be significant. For example, where the aforementioned caviar be replaced with pink salmon eggs that are a lot cheaper, it is the taste of the end product that ultimately determines whether this is a good substitute. If restaurants decide against purchasing this alternative for lack of quality, then the competitive advantage is great when it comes to imitability.

4. Organization: This concerns the arrangement of tasks and the ranking of all actions that are yet to be executed. It goes without saying that the creation of a product requires a lot of resources. These resources must be ordered, price agreements must be established, comparisons should be made, and assembly must take place. These are merely a few of the actions that require adequate organization. The organization of tasks involves multiple departments on a tactical level. At the same time, operational employees in the workplace must know exactly what is expected of them. Resources must be processed and used as efficiently as possible. A company should therefore always consider whether its internal administration is in order and whether structural elements are properly adapted to the processing of these particular resources. Is nothing going to waste?

 

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