What is VRIO Analysis, and what are best practices, tools and online templates for teams and organizations?
Definition of VRIO Analysis
The VRIO Framework is a strategic method that can be used to evaluate an organization’s resources and capability to change. Resources can be both tangible or intangible goods that the organization produces or uses to make their products or services. VRIO is an acronym whose letters stand for value, rarity, imitability, and organization.
Description of VRIO Analysis
In order to optimize the VRIO Framework, an organization must determine whether their resources have value, are rare, can be imitated and whether the organization is capable of harnessing their resources to obtain competitive advantage. If the organization possesses resources or processes that meet these requirements, then it is possible for the company to create a sustainable competitive advantage.
The VRIO Framework involves asking four questions about the resources or strategies the organization possesses:
Question 1: The Question of Value: “Does the organization have valuable resources?” More specifically, a valuable resource or strategy is one that provides advantages on the market, such as increased profits or reduced costs. Some examples of valuable resources are technology, demographic diversity, cultural diversity, existing in a thriving economy, international affairs, laws and policies. Further, valuable resources can suppress a threat on the market such as a potential loss of customers or suppliers, competition, or market entry.
If the answer to this question is “No:” Take more time to think critically about what value your resources have.
Question 2: The Question of Rarity: “Do relatively few organizations posses the strategies or resources that your organization does?” This question generally forces you to consider whether your resources are unique to your organization or held by all of your competitors. Rare resources are those that are hard to obtain and have long-lasting benefits.
If the answer to this question is “No:” your organization will have a harder time obtaining and sustaining competitive advantage because the facets that make your resources valuable can be procured by anyone.
Question 3: The Question of Imitation: “Are there costly consequences to the organizations that are not in possession of the resources or strategies of your organization?” In particular, these disadvantages occur because the resource or strategy possessed by one company that offers competitive advantage cannot be imitated, bought or replaced by any other company. Notably, if a company has resources or procedures that are valuable, rare and hard to imitate will achieve competitive advantage.
If the answer to this question is “No:” any competitive advantage that your organization has can be easily taken away. In this case, try to come up with ways to make your procedures more complex or harder to copy.
Question 4: The Question of Organization: “Is the organization capable of capitalizing on these resources to obtain the benefits from them?” Some of the ways to assess the company’s ability to harness the full power of their resources is through their compensation policies (i.e., the organization’s budget, salary or stock prices) their management (i.e., how well managerial decisions align with the goals of the organization) and chain of command (i.e., who reports to whom).
If the answer to this question is “No:” the organization will still only have a short-lived competitive advantage. In this case, return to the first question and try to determine what would need to be changed to be sure you can answer “yes” to this question.
Tools & Templates
Following the VRIO Framework typically involves the use of a value chain or SWOT analysis to identify valuable resources and procedures.
upBOARD's Online VRIO Analysis Tools & Templates
Unlike most traditional VRIO Framework techniques, upBOARD’s online VRIO Framework model and collaboration tools allow any team or organization to instantly begin working with our web templates and input forms. Our digital platform goes far beyond other software tools by including progress dashboards, data integration from existing documents or other SaaS software, elegant intuitive designs, and full access on any desktop or mobile device.
Learn more about upBOARD’s portfolio of other business strategy best practice tools and templates, including:
ADL Matrix, Affinity Diagrams, Baker’s 4 Strategies of Influence, Balanced Scorecard, Benchmarking, Blue Ocean Strategy, Bowman Strategy Clock, Build-Measure-Learn Feedback Loop, CAGE Distance Framework, Competitive Analysis, Competitive Landscape Analysis, Contingency Planning, Core Competence Analysis, Critical Success Factors, Discovery Driven Planning, Five Forces Model, Force Field Analysis, Gap Analysis, GE McKinsey 9-Box Matrix, Go To Market Strategy, Hambrick & Frederickson’s Strategy Diamond, Hedgehog Model, Hook Model of Behavioral Design, Hoshin Planning System, Kay’s Distinctive Capabilities Framework, Kotler’s Five Product Levels Model, Kotler’s Pricing Strategies, Lafley & Martin’s Five Step Strategy Model, McKinsey’s Seven Degrees of Freedom for Growth, Mission Statements, Mullin’s Seven Domains Model, OGSM Framework, Ohmae’s 3-C’s Model, PEST Analysis, Porter’s Diamond, Portfolio Management, Purpose Statements, Pyramid of Purpose, Scenario Planning, Simonson & Rosen’s Influence Mix, SOAR, Strategic Goals, Strategic Roadmap, Strategy Map, Strategy Roadmap, Strategy Uncertainty Map, SWOT Analysis, TOWS Matrix, Triple Bottom Line, USP Analysis, Value Chain Analysis, Value Disciplines Model, Value Net Model, Values Statement, Vision Statements, VRIO Analysis, and Weisbord’s Six-Box Model.