Following on from article (#3) where we outlined the Resource Based View (RBV) of competitive advantage, this week we will discuss the Value, Rarity, Imitability and Organisation, known as VRIO, of Competitive Advantage. Using VRIO in conjunction with a SWOT framework helps you to understand those attributes that you bring to the Strengths and Weaknesses (S&W) boxes, in the 1internal part of the SWOT framework, and are these attributes giving your 2firm value, rareness and imitability, and is your firm able to capitalize on each through your resources.
As you complete your S&W’s I asked at then end of article #3 to consider the following questions. Are these resources valuable? Are they rare? Are they hard to imitate or copy by a competitor? And how easy can you deploy them? Items such as Intellectual Property (IP) for example you would think should be valuable, they should be rare in that no other competitor has this IP, and it would be nice if competitors found them hard to imitate. How your firm deploys this IP is down to how you use your resources and capabilities that are available, I gave a list of these in article #3.
So lets take a more in depth look at VRIO from the internal side of the SWOT framework.
Value. A firms resources and capabilities should add value by allowing the firm to exploit and mitigate its S&W’s3. Likewise, adding value as to a firms resources and capabilities will lead to competitive advantage4, providing your firm exploits these value added attributes. Taking the example of IP (above) so long as the competition cannot copy your value added or imitate it, your firm will have a Competitive Advantage. But in today’s world sustainable Competitive Advantage is not possible. So yes, a competitor may well innovate something that reduces your value added. For example, in Oct 2001 Apple’s Steve Jobs, launched the iPod, and it could store up to 5000 songs. The MP3 player and its imitators were now, not as valuable.
Rareness. If similar firms control similar valuable resources and capabilities, then they are not rare. The smartphone was rare when introduced by Apple and so it was valuable and rare. Samsung launched the Galaxy, as well as Lenovo and others, it quickly imitated the iPhone, and so the smartphone does not have rarity for either, or any company today. This does not mean that common or similar resources and capabilities are not useful, they may well be if your firm deploys them and exploits them better than the competition. Ryanair and Southwest have valuable aircraft the same as any other airline, but their Competitive Advantage comes from how they deploy and use these aircraft ,with a no frills operating costs and pay as you go additional resources.
Imitability. Tangible Resources and capabilities that are valuable and rare can often be imitated as we have seen in the examples above, but intangible Resources and Capabilities are more difficult to imitate. 3Tacit knowledge for example can be very hard to imitate. Management talent and excellent motivational skills may be impossible to imitate. 2History is also important, take the case of Caterpillar, before WWII they were a firm amongst many firms in the heavy construction business. WWII brought Caterpillar a contract with the US department of war (now defense) to build infrastructure and airfields across Europe and Asia, in effect the US government set up Caterpillar globally. Caterpillar exploited this position post WWII by continuing to operate their global presence and supply network. This global presence was hard to imitate for Caterpillar’s competition. Lastly, socially complex resources and capabilities such as reputation, trust, friendship as well as a firms culture and teamwork also rank as highly imitable attributes.
Organisation. Having all of the above, the V, the R and I, is not going to amount to an effective Competitive Advantage, unless your firm is organised to fully exploit the potential of its resources and capabilities. Are your firms sales people well trained and well versed in the products they are selling? Has marketing exploited traditional as well as social media outlets to portray its message? Is a firms control over its logistics and supply chain sufficiently enabled to allow it to innovate and hold a Competitive Advantage over its rivals, such as Wal-Mart logistics and supply chain does. Is a firm using its comparative or complementary advantage? For example, AMC Logistics in Europe has no trucking haulage; AMC Logistics use various trucking companies with certain skills and cultural awareness across Europe to distribute goods to over 150 sporting tournament stadiums around Eastern and Western Europe, with a 98% customer satisfaction service level.
In summary, the VRIO is an effective way of looking at how to construct a firms strategic Competitive Advantage with the SWOT framework. It forces you to ask the following questions. Do I have value? Is that value rare? Can that value be copied? And how do you exploit and deploy that value?
In article #5 we will discuss the market forces of Competitive Advantage with regards to the external part of the SWOT framework.
1-VRIO can be used for both the internal and external aspects of the SWOT framework, in this case though we are looking at VRIO with regards to the internal side of the SWOT framework, see article #2 figure 3.
2-I use the term ‘firm’, but it can be applied to any individual, groups, department or any institution.
3-Barney, J. (1995) ‘Looking inside for competitive advantage’. Academy of management executive, vol 9 #4
4-Peng, M. (2011) ‘Global Business’ 2nd Edition South Western, Cengage Learning
‘Strategic Global Group (SGG) establishes your Competitive Advantage’.
Author: Phil Wilton has worked in MNC’s as well as developing start-ups and business expansion for SME’s. He received his MBA in International Business, Strategy, Marketing and Emerging Markets from the University of Liverpool. He also completed Business Strategy – Achieving Competitive Advantage at Cornel University.
Feel free to contact Phil (SGG) for a free intro consultation on how SGG can help your firm. firstname.lastname@example.org
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