Sunday, April 21, 2013

RBO through VRIO

Resources are tangible and intangible. The tangible resources are physically present and felt like buildings, physical assets, equipments, human resource etc. Whereas the intangible resources include motivation, culture, employee’s skills, knowledge, competencies, brand image etc. According to Kaplan & Norton (2004) ‘’ Intangible assets are the ultimate source of sustainable value creation’’.

The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in. VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under. VRIO is an acronym for the four question framework you ask about a resource or capability to determine its competitive potential: the question of Value, the question of Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability to exploit the resource or capability).

The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat with the resource/capability?"
The Question of Rarity: "Is control of the resource/capability in the hands of a relative few?"
The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?"
The Question of Organization: "Is the firm organized, ready, and able to exploit the resource/capability?"

Valuable? Rare? Costly to imitate? Exploited by the organization? Competitive implication
No       Competitive disadvantage
Yes No     Competitive parity
Yes Yes No   Temporary competitive advantage
Yes Yes Yes No Unexploited competitive advantage
Yes Yes Yes Yes Sustained competitive advantage

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