The VRIO analysis framework is a strategic tool that is used to assess the existing resources of an organization. It an useful framework for conducting internal audit for an organization. This framework analyzes the organizational resources based on four distinct parameters which are Valuable, Rare, Inimitable and Organizational Exploitability. The VRIO analysis is also quite commonly used to determine the competitive advantage of a firm, as better resources can lead to better advantage for an organization. For a management student, the VRIO framework can be really useful while writing a marketing essay, especially while formulating new marketing strategy for a chosen organization. In this article, we have presented an in-depth guideline on how to use the VRIO framework and how it can be useful for a firm.
As mentioned previously, the VRIO analysis is a tool for analyzing the resources of an organization. Organizational resources like its financial capital, human capital, technologies, design patents, brand trademarks, etc. are utilized by a firm to generate competitive advantage and ensure its sustenance in the market. These resources can also be used by a company to create strong differentiation in its business operation, which can give it added advantage over its rivals.Let us now look at each of the individual parameters of the model to help you with your college essay.
Valuable: This parameter determines whether the resources of an organization can add value for the stakeholders, especially the customers. Resources such as unique technologies or operational processes, can help in offering products and services which are considered to be valuable to the customers. Moreover, such resources enable a firm to exploit the market opportunities, such as consumption trends or customer demands, and to defend itself against external environmental threats such as competition, political or economic conditions. However, the resources that are not able to meet these conditions lead to a competitive disadvantage, which can make it very challenging for the firm to sustain in the market in the long run. The company can be easily outrun by its rivals which has more valuable resources. Thus, it is essential for an organization to source or create valuable resources which sets itself apart from other market players
Rare: The rarity of a resource determines how difficult it is to acquire for an organization. A rare resource is possessed by very small number of firms in the industry. Access to rare resources can give temporary competitive advantage for an organization as it allows a firm to create unique value for its customers. However, it should be noted that as more firms gain access to a resource, its rarity is lost eventually and the organizations find themselves in competitive parity. Firms with nearly identical resources offer standardized value to the customers, as a result there are no differentiating factors which can help in distinguishing the service of one organization from another. For an organization it is absolutely imperative to maintain the rarity of its resources, which is why organizations are driven to invest heavily into research and development, that enables them in creating newer and rarer resources.
Inimitable: Inimitable resources cannot be copied or used by any other firm. These resources are exclusive to an organization and acts as a source of permanent competitive advantage. Resources like brand name, logo, trademarks, good will, etc. cannot be imitated by another firm. Intellectual properties like design and technology patents are also inimitable in nature. It should be noted that this parameter determines the cost of imitate a resource or degree of inimitability. Certain resources are more costly for a rival firm to imitate, than the others. These harder to imitate resources becomes the source of differentiation and competitive advantage. Therefore, it is important for an organization to create inimitable resources, by developing intellectual properties such as patented product designs, memorable brand names, jingles, logo, mascot, etc. In order to create hard to imitate resources, the company needs to invest heavily on R&D to develop new technologies and processes and gaining patent approvals.
Organizational Exploitability: The organizational resources, by themselves cannot yield competitive advantage, as they need to be able to exploit them. Having the right resources to generate value for the stakeholder is not enough to confirm success, unless the organization utilizes them in its own favor. Resources can be exploited using the right business model, culture, operational processes and marketing strategies. Moreover, the organization also requires the right market conditions to make the most out of their available resources. It is important for an organization to constantly look for new ways to improve its operational activities. This can be achieved through training and development of the workforce and also by adoptingmore efficient operational processes such as lean manufacturing and just-in-time approach.
In the previous section, we have presented a thorough explanation of the VRIO analysis framework. But before you start working on your own college paper without any assignment help, let us look at a real life example of Apple. For Apple, the most valuable resources are its brand image, financial capital, high revenue generation, high profitability, etc. The rare resources are the human capital, and product designs. The inimitable resources are the brand names, logo, trademark, and technology patents. Finally, in terms of organizational exploitability, it can be stated that Apple has been able to take advantage of its resources to deliver high value for its stakeholders, through innovative process designs.
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