VRIO Analysis is an analytical technique briliant for the evaluation of company’s resources and thus the competitive advantage. VRIO is an acronym from the initials of the names of the evaluation dimensions: Value, Rareness, Imitability, Organization.
The VRIO Analysis was developed by Jay B. Barney as a way of evaluating the resources of an organization (company’s micro-environment) which are as follows:
- Financial resources
- Human resources
- Material resources
Non-material resources (information, knowledge) Question of Value. Resources are valuable if they help organizations to increase the value offered to the customers. This is done by increasing differentiation or/and decreasing the costs of the production. The resources that cannot meet this condition, lead to competitive disadvantage.
Question of Rarity. Resources that can only be acquired by one or few companies are considered rare. When more than few companies have the same resource or capability, it results in competitive parity.
Question of Imitability. A company that has valuable and rare resource can achieve at least temporary competitive advantage. However, the resource must also be costly to imitate or to substitute for a rival, if a company wants to achieve sustained competitive advantage.
Question of Organization. The resources itself do not confer any advantage for a company if it’s not organized to capture the value from them. Only the firm that is capable to exploit the valuable, rare and imitable resources can achieve sustained competitive advantage.