Find out using VRIO-Analysis!
Companies usually possess various kinds of resources and capabilities—financial, human, organizational, physical, and technological. For strategists, this raises the question as to which ones are so-called core competencies providing a source of sustainable competitive advantage. A good way to find out is the VRIO analysis which was first developed in 1991 by Jay B. Barney, the founder of the resource-based view, and since then repeatedly refined.
The acronym VRIO stands for four questions that help to determine the competitive potential of an organization’s internal resources and capabilities:
Only if all four questions are answered “Yes,” a resource or capability compromises a sustained competitive advantage.
The VRIO approach is particularly helpful in developing new business strategies by facilitating a systematic analysis and assessment of all existing tangible and intangible resources and capabilities along the organization’s value chain in terms of their importance for generating long-term competitive advantage. If helps to identify those existing competencies which a strategy should be based on and those it should not be based on.
At the same time, it provides valuable insights as to which competencies need to be kept, protected, or further expanded. To protect a competence additionally, companies can take different organizational and legal measures, such as increasing the costs of imitation, reducing transparency, or strengthening the enforcement of intellectual property rights. The management of internal resources thus becomes an integral part of strategic planning. In this respect, it is important to apply the approach regularly as the answers to the four questions usually change over time due to changes in the competitive environment.
VRIO analysis can be easily carried out using the strategic intelligence software SOLYP3.
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