help with marketing

How to do a VRIO analysis

These are some notes to help you with the internal analysis within your situation analysis section of the marketing plan. 

What is the VRIO framework?

The VRIO framework and analysis was first developed by Jay Barney in 1991 and is used to evaluate whether or not a particular company's resources ('firm resources') can be sources of sustained competitive advantage (SCA) that the company can leverage for on-going growth. 

What are firm resources?

'Firm resources' include all the assets, capabilities, organisational processes, firm attributes, information, knowledge, and any other resources that are under the control of the company that allow them to generate and implement strategies that improve efficiency, effectiveness, and therefore competitiveness. There are three broad categories of resources that a company can have:

1. Physical capital resources—e.g., physical technology, plant and equipment, geographic location, access to raw materials.

2. Human capital resources—e.g., training, experience and expertise, relationships, employee insight.

3. Organisational capital resources—e.g., formal reporting structure, formal and informal planning, controlling, and coordinating systems, informal networks. 

What is the difference between competitive advantage and sustained competitive advantage?

A competitive advantage is a value-creating strategy that is not currently being used by any current or potential competitors. A sustained competitive advantage is a value-creating strategy that is not currently being used by any current or potential competitors and it is unable to be imitated by other companies. The key difference is that a sustained competitive advantage is not prone to an expiry date set according to when a competitor starts to use the same value-creating strategy (i.e., imitation). 

How do I use the VRIO framework?

According to Barney (1991, 1995), a sustained competitive advantage is valuable, rare, inimitable, and the firm must be organised to exploit. When using the VRIO framework to analyse a company's resources, the questions for each resource/capability that should be asked are:

1. Valuable: Does the company's resource/capability enable them to respond to environmental threats or opportunities? 

2. Rare: Is the resource/capability currently controlled by only a small number of competitors?

3. Inimitable: Do companies without the resource/capability face a cost disadvantage in obtaining or developing it? 

4. Organised: Are the company's policies and procedures organised in a way that supports the exploitation of the resource/capability?

Evaluating resources/capabilities using the framework:

· Resources/capabilities that do not meet any of the four criteria are considered to be competitive disadvantages. These should not be exploited.

· Resources/capabilities that are only valuable but do not meet the other three criteria are considered to be competitive parities. These should be exploited to be on par with competitors.

· Resources/capabilities that are valuable and rare but do not meet the other two criteria are considered to be temporary competitive advantages. These should be exploited to gain a first-mover advantage.

· Resources that meet all four criteria are considered to be sustained competitive advantages. These should be exploited and leveraged for creating distinctive competencies. 

You can present your VRIO analysis in table-form, like this (just an example from Google):