Applying the VRIO Framework Essay

1Barney and Hesterly (2006), describe the VRIO framework as a good tool to examine the internal environment of a stiff. They state that VRIO stands for four questions angiotensin converting enzyme must ask about a resource or capability to determine its competitive potential1. The Question of Value Does a resource alter a sozzled to bring an environmental opportunity, and/or neutralize an environmental threat? 2. The Question of Rarity Is a resource currently controlled by that a small number of competing firms? are the resources used to make the products/services or the products/services themselves rare? 3. The Question of Imitability do firms without a resource face a cost dis avail in obtaining or developing it? is what a firm is doing difficult to imitate? 4. The Question of Organization Are a firms other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?What types of resources should we evaluate (e.g., what types of resources lead to a competitive advantage)? 1) tangible resources, 2) intangible resources, 3) organizational capabilities. personality with nodes for quality and reliabilityReputation with suppliers for fairness, non-zero-sum relationships Organizational CapabilitiesFirm competences or skills the firm employs to transfer inputs to outputs Capacity to combine tangible and intangible resources, using firm processes to attain desired end. ExamplesOutstanding customer serviceExcellent product development capabilitiesInnovativeness or products and servicesAbility to hire, motivate, and retain human capitalApplying the VRIO framework. According to the VRIO framework, a supportive answer to separately questions relative to the firm being analyzed would indicate that the firm can sustain a competitive advantage. Below is an example of how to apply the VRIO framework and the liable(predicate) outcome for the firm under varying circumstances.Applying the VRIO Frameworkthe value and rarity of a firms resources If a firms resources areThe firm can expectNot valuableCompetitive DisadvantageValuable, hardly not rareCompetitive parity (equality)Valuable and rareCompetitive advantage (At least temporarily)Then, if there are high costs of imitation, the firm may enjoy a period of sustained competitive advantage. Costs of imitation amplify due to some combination of the following 1) Unique Historical Conditions (path dependence first mover advantages), 2) Causal Ambiguity (links between resources and advantage foggy), 3) Social complexity (social relationships not replicable), 4) Patents (double-edged sword since period of protection eventually runs out).Applying the VRIO Framework, integrating the notion of Inimitability If a firms resources areThe firm can expectValuable, rare, but not costly to imitateTemporary competitive advantageValuable, rare, and costly to imitateSustained competitive advantage (if organized properly)Organized properly deals with the fi rms structure and control (governance mechanismscompensation, reporting structures, management controls, relationships, etc).These must be aligned so as to give people ability and incentive to exploit the firms resources.Summary of VRIO, Competitive Implications, and Economic Implications Valuable?