VRIO Analysis

VRIO Analysis
TI - UNINDRA
From Good to Great to Gone:
• Circuit City
 A great performer from 1982 – 2000:
 World-class logistics and customer responsiveness
 4S: service, selection, savings, and satisfaction
 6 times better investment than GE under Jack Welch
• Bankruptcy in fall of 2008
 Outflanked by firms like Best Buy and Amazon

The Theory Behind Internal Analysis
The Resource-Based View
• developed to answer the question: Why do some

firms achieve better economic performance
than others?
• used to help firms achieve competitive advantage

and superior economic performance
• assumes that a firm’s resources and capabilities

are the primary drivers of competitive advantage
and economic performance
Creating Strategic Fit to Leverage Internal Strengths
The Resource-based View
• Google Example
– Tangible resources valued at $5 billion
– Intangible brand valued at over $100 billion
– Googleplex has both tangible and intangible aspects
• Competitive Advantage More Likely…..

– From intangible resources
4–6
Two Critical Assumptions in RBV
• Resource heterogeneity
– Bundles of resources and capabilities differ across firms
– Southwest Airlines and Alaska Airlines have different resources
• SWA
– Higher employee productivity
– Informal organization, pilots help load luggage
• Resource immobility
– Resources tend to be “sticky” and do not move easily
– Southwest Airlines sustained advantage
• Several decades superior performance
• Competitors have unsuccessfully imitated SWA model
4–7
Applying RBV: Decision Tree Competitive Implications
Applying the VRIO Framework
The Question of Value
• in theory: Does the resource enable the firm

to exploit an external opportunity or neutralize
an external threat?
• the practical: Does the resource result in an

increase in revenues, a decrease in costs, or
some combination of the two? (Levi’s reputation
allows it to charge a premium for its Docker’s pants)
The Question of Rarity

• if a resource is not rare, then perfect competition
dynamics are likely to be observed (i.e., no
competitive advantage, no above normal profits)
• a resource must be rare enough that perfect
competition has not set in
• thus, there may be other firms that possess the

resource, but still few enough that there is scarcity
(several pharmaceuticals sell cholesterol-lowering
drugs, but the drugs are still scarce—look at prices)
The Question of Imitability
• the temporary competitive advantage of valuable

and rare resources can be sustained only if
competitors face a cost disadvantage in imitating
the resource
» intangible resources are usually more
costly to imitate than tangible resources
(Harley-Davidson’s styles may be easily
imitated, but its reputation cannot)
The Question of Organization

• a firm’s structure and control mechanisms
must be aligned so as to give people ability
and incentive to exploit the firm’s resources
• examples: formal and informal reporting structures,
management controls, compensation policies,
relationships, etc.
• these structure and control mechanisms complement
other firm resources—taken together, they can help a
firm achieve sustained competitive advantage
(3M Company)
The Resource-Based View
Resources & Competitive

Capabilities Advantage
• Valuable CA will be sustained if:

• Rare • other firms’ costs of
• Costly to Imitate imitation are greater
than benefit of imitation
• Organized to Exploit
• the firm is organized
to exploit advantages
VRIO Analysis “SAMSUNG”
Exploited by the Competitve
Resources/Capability Valuable? Rare? Difficult of Imitate Firm Implications
Tech & Prod. Line Sustained Comp.
Capabilities Y Y Y Y Advantage
Sustained Comp.
Brand Value Y Y Y Y Advantage
Sustained Comp.
Quality Y Y Y Y Advantage
Sustained Comp.
Brand Value Y Y Y Y Advantage
Product Mix & Temporary Comp.
Customization Y Y N Y Advantage
Temporary Comp.
Fabrication Capacity Y Y N Y Advantage
R & D Prod. Facility @
Same Loc. Y N - Y Parity
Temporary Comp.
Partners & Customers Y Y Y Y Advantage
VRIO Analysis “STARBUCK”
VRIO Analysis “STARBUCK”

VRIO Analysis

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VRIO Analysis

 A great performer from 1982 – 2000:

 World-class logistics and customer responsiveness

 4S: service, selection, savings, and satisfaction

 6 times better investment than GE under Jack Welch

• Bankruptcy in fall of 2008

 Outflanked by firms like Best Buy and Amazon

The Resource-Based View

• developed to answer the question: Why do some

• used to help firms achieve competitive advantage

• assumes that a firm’s resources and capabilities

• Competitive Advantage More Likely…..

The Question of Value

• in theory: Does the resource enable the firm

• the practical: Does the resource result in an

The Question of Rarity

• thus, there may be other firms that possess the

The Question of Imitability

• the temporary competitive advantage of valuable

The Question of Organization

Resources & Competitive

• Valuable CA will be sustained if:

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