The application of VRIOS framework helps in assessing the performance of an organisation based on its internal factors (Camillo, 2015). The ability of a firm to achieve sustainable competitive advantage is directly related to the adoption of strategies by the managers of the organisation. Therefore, the formulation of strategies should consider the resources which are valuable, rare and suite the needs of the organisation (Lin, et al., 2012). Further, the company needs to understand the sources which are easily imitable and substitutable (Peng, 2015). The attributes of VRIOS are discussed below:
Valuable: The production of goods and services are aimed at creating value to the consumers and other stakeholders. The operation of the organisation will generate positive value if it allows the firm to neutralise the external threats and exploit the opportunities (Pitt and Koufopoulos, 2012). If an organisation is able to create value for the customers with its products and services, then such production techniques can be regarded as strategic asset to the company.
Rare: If an organisation owns resources which are not available to its rivals then such resources help in gaining sustainable competitive advantage. The rarity can be achieved through technological advancement, product knowledge and using sources which are limited in supply (Sanchez, 2008).
Imitability: It can be defined as the ability of a firm to imitate the technique employed by a rival firm. If the resources are easily imitable, then the firm will not be able to achieve a sustainable market position (Enders, et al., 2009).
Organisation Appropriability: It depicts the process through which a firm completely utilises its resources. Large organisations faces the difficulty of transpiring its strategic sources across all the subsidiaries due to its vastness and complex organisational structure.
Substitutability: If the resources employed by a firm have closed substitutes in the market then that resource cannot provide competitive advantage in the long-run. However, if the substitutes are expensive and involve uncertainty in future outcome, then the firm can retain its market position against its rivals (Pitt and Koufopoulos, 2012).
In this paper, VRIOS framework has been applied to the Unilever. It is a multi-national consumer goods manufacturing company with plethora of products including personal care products, food items and cleaning agents (The Guardian, 2010). The market of consumer products is highly competitive and requires certain resources which could be crucial to its competitive advantage.
Table 1: Unilever’s VRIOS Framework and Analysis
|
Evaluation on the four-point scale: A= Outstanding value creation B= Valuable but not of high benefit C= Useful but fading importance D= Declining significance without any hope of future sustainability |
||||||
VRIOS Attributes: |
Valuable |
Rare |
Imitable |
Organisation Appropriability |
Substitutability |
Comments |
Skills |
||||||
1. Diversified product portfolio |
V |
I |
O |
C |
||
2. Strong Product brands |
V |
R |
A |
|||
3. Scale of operation |
V |
I |
O |
B |
||
4. Investment In Innovation |
V |
R |
O |
A |
||
Competencies and capabilities |
||||||
1. Simplified management structure |
V |
I |
O |
B |
||
2. High quality performance |
V |
I |
S |
B |
||
3. Effective business strategy |
V |
R |
O |
A |
||
4. Demographic focus |
V |
R |
A |
|||
Other Assets |
||||||
1. Investment in development of leadership |
V |
R |
O |
A |
||
2. Investment in Training and educating employees |
V |
I |
O |
B |
||
(Source: Author’s Creation)
The VRIOS framework has been applied in relation to the Unilever’s skill, competencies and capabilities to understand the potential of the strategic decisions taken by the management of the company. In the above table, the factors contributing to success of Unilever and then the assessment of the internal factors has been presented according to the pre-defined scale provided in the above the table. The assessment depicts that the resources are valuable but some of them are more important than others. The resources which are rare create outstanding value to the company. The reason behind the ‘B’ ranking of the resources is that those resources are either imitable or substitutable or both.
The skill of the company to produce diversified products is valuable to the company as it increases the channels of attracting consumers to the products manufactured by the company (Braakmann and Wagner, 2011). In the retail industry, there is high rivalry among the competitive firms and the degree of differentiation is low among the products making them substitutes of one another (Reeves and Deimler, 2013). Thus, even the strategy of investing in the brand is useful but lacks potential of providing long-term profits.
Unilever takes pride in having 400 brands, out of which 13 are billion-dollar brands, which makes the company an integral part of the daily lives of the consumers around the world (Unilever, 2016a). Thus, it is extremely valuable for Unilever to have such a diversified and strong brand portfolio. It is not possible for a new entrant to develop such brand image making this source rare and thus according to the table provided, the rank is ‘A’ (George, Joll and Lynk, 2005). However, driven by the large-scale production, Unilever has reduced its pricing to achive cost leadership in the market. Over the years, Unilever has expanded its business through mergers and acquisition which has also provided the company with economies of scale. Although, this strategy is valuable for retention yet Unilever’s market share can be replicated by its competitors.
The company makes significant investment in the research and development wing of the company which results in generation of innovative products and services. Unilever employs over 6000 scientists, technicians, engineers and chefs that contribute to the development for customised solutions to the consumers (Unilever, 2016b). It is difficult for its consumers to find out the specialised formulas used by Unilever to make substitutes.
