Vrio model
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The VRIO model is a strategic management tool used to assess the internal resources and capabilities of a business in order to identify and exploit competitive advantage. The acronym stands for ‘Value’, ‘Rareness’, ‘Imitability’ and ‘Organisation’. It is designed to help managers analyse their organisation’s capabilities, and to identify areas where their organisation has a sustained competitive advantage, or potential to develop one. The model can also be used to assess the resources of potential competitors. By doing so, managers can identify threats and opportunities within the market. The model is based on the notion that a firm's resources and capabilities must be valuable, rare, costly to imitate and well organised in order for the organisation to achieve a sustained competitive advantage.
Example of VRIO model
- Human Resources: Human Resources is one of the most important resources that a company can possess. Human Resources can provide a company with a wide range of benefits such as increased productivity, improved customer service, and higher employee satisfaction. These benefits can help a company gain a competitive advantage over its competitors. Human Resources must be valuable, rare, costly to imitate and well organised in order for the organisation to achieve a sustained competitive advantage.
- Brand: A strong brand can be a valuable resource for a business. A strong brand can bring in more customers, increase customer loyalty, and help to differentiate a business from its competitors. The brand must be valuable, rare, costly to imitate and well organised in order for the organisation to achieve a sustained competitive advantage.
- Technology: Technology is a key resource for many businesses. Technology can streamline processes and increase efficiency, which can lead to increased profits and a higher market share. Technology must be valuable, rare, costly to imitate and well organised in order for the organisation to achieve a sustained competitive advantage.
- Patents: Patents are a valuable resource for any business. Patents can be used to protect a business’s intellectual property, preventing competitors from copying the business’s products or services. Patents must be valuable, rare, costly to imitate and well organised in order for the organisation to achieve a sustained competitive advantage.
Formula of VRIO model
The VRIO model is a strategic tool which can be used to assess the internal resources and capabilities of a business in order to identify and exploit competitive advantage. The acronym stands for ‘Value’, ‘Rareness’, ‘Imitability’ and ‘Organisation’. The VRIO model is based on the idea that a firm's resources and capabilities must be valuable, rare, costly to imitate and well organised in order for the organisation to achieve a sustained competitive advantage.
The VRIO model can be represented by the following formula:
VRIO = \frac{V}{R+I+O}
Where:
V = Value – Does the resource add value to the business?
R = Rareness – Is the resource possessed by the business rare compared to competitors?
I = Imitability – Is it difficult or expensive for the competitors to imitate the resource?
O = Organisation – Is the resource managed and utilised in a way that allows the business to gain a competitive advantage?
The VRIO model is used to assess the internal resources and capabilities of a business in order to identify and exploit competitive advantage. The formula helps to determine the value of a resource in terms of its rareness, imitability and organisational capability, in order to assess whether or not the business has a competitive advantage. By evaluating the resources of potential competitors, managers can identify threats and opportunities within the market.
When to use VRIO model
The VRIO model can be used in a variety of strategic management contexts. It can help managers to identify their organisation’s strengths and weaknesses, and to develop a strategy to gain a competitive advantage. It can also be used to assess the resources of potential competitors. The model can be used to:
- Identify the organisation's core competencies and strategic capabilities
- Analyse the internal environment to identify the resources that create a competitive advantage
- Understand the sources of value created by the organisation's resources and capabilities
- Assess the potential of new business opportunities
- Identify the potential threats posed by competitors
- Identify opportunities to improve existing resources and capabilities.
Types of VRIO model
The VRIO model can be divided into four distinct types:
- Value: These are resources and capabilities that are valuable to the organisation, and can be used to create and sustain competitive advantage. They should be easy to identify, and their value should be measurable.
- Rareness: Resources and capabilities that are rare among competitors, and not easily imitated, are said to be rare. This means that competitors cannot easily replicate the resources or capabilities and the firm can benefit from its uniqueness.
- Imitability: Resources and capabilities that are difficult to replicate are said to be costly to imitate. This means that competitors cannot easily replicate the resources or capabilities and the firm can benefit from its uniqueness.
- Organisation: Resources and capabilities that are well organised and used effectively are said to be well organised. This means that the resources are strategically managed, and the firm is able to take advantage of the resources and capabilities to gain a competitive advantage.
Advantages of VRIO model
The VRIO model has several advantages for strategic management. These include:
- It provides managers with a structured way to assess the internal resources and capabilities of their organisation, which can be used to identify and exploit competitive advantage.
- It can be used to assess the resources of potential competitors, allowing managers to identify threats and opportunities within the market.
- It is based on the notion that a firm's resources and capabilities must be valuable, rare, costly to imitate and well organised in order to achieve a sustained competitive advantage.
- It is a straightforward and easy to use tool that provides a comprehensive overview of an organisation’s resources and capabilities, and can be used to develop an effective strategy.
- It has been used by many high-profile organisations to successfully identify areas for improvement and growth.
In addition to the VRIO model, there are several other strategic management approaches that can be used to assess the internal resources and capabilities of a business. These approaches include the following:
- Resource-Based View (RBV): The Resource-Based View is a model for analysing a company’s resources and capabilities in order to identify and exploit competitive advantages. It is based on the notion that a firm’s resources and capabilities must be valuable, rare, inimitable and non-substitutable in order to achieve a sustained competitive advantage.
- Porter’s Five Forces Model: The Five Forces Model is a model for analysing the competitive environment of an industry, and the potential for profitability within that industry. It examines the bargaining power of buyers and suppliers, the threat of new entrants, the threat of substitutes and the intensity of rivalry between existing competitors.
- SWOT Analysis: SWOT Analysis is a strategic planning tool used to assess the strengths, weaknesses, opportunities and threats of an organisation. It is used to identify strategic options and to assess the potential impact of these options on the organisation’s performance.
- PEST Analysis: PEST Analysis is a strategic planning tool used to assess the political, economic, social and technological environment of an organisation. It is used to identify external risks and opportunities and to assess the potential impact of these factors on the organisation’s performance.
In summary, there are several strategic management approaches that can be used to assess the internal resources and capabilities of a business. These include the VRIO Model, the Resource-Based View, Porter’s Five Forces Model, SWOT Analysis and PEST Analysis. Each of these approaches has its own strengths and weaknesses, and can be used to identify and exploit competitive advantage.
Suggested literature
- Simão, J. (2010). An extended Vrio model as a framework for sustainable tourism planning. Sustainable Tourism IV, 139, 87-97.
- Simao, J., & Diaz, P. (2013). An extended Vrio model as a framework for sustainable tourism planning: A review. Tourism as a Tool for Development, 4, 71-81.
