What is VRIO? The 4-Step Framework for Continuous Business Success

What is VRIO? The 4-Step Framework for Continuous Business Success process.st/vrio December 2, 2019

Hard work doesn’t always guarantee success.

With that bombshell, you may be wondering “If hard work isn’t enough, what should I do to help my business succeed?!”

The answer’s simple: VRIO. VRIO isn’t the latest must-have app or some new fad – it’s an incredibly useful business framework and analysis tool for understanding whether your business has the capabilities and resources to thrive in the long-term.

Considering that following a VRIO framework could bolster your growth, increase revenue, ensure you’re always one-stepahead of the competition, and keep your business better organized, VRIO isn’t a process to be dismissed.

But if it’s the first time hearing about VRIO, have no fear.

I’ve got you covered.

In this post, I’ll go into the definition of VRIO, tell you how it was conceived, explain the four dimensions that make up the VRIO framework, and tell you the best times to undergo VRIO so your business can reap its rewards. Simply read the following sections to get to grips with it: Let’s get started, shall we?

What is VRIO?

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VRIO is a four-part business analysis framework used to determine a business’ competitive potential.

The dimensions (value, rarity, imitability, and organization) ask whether the business in question’s resources and capabilities are valuable, if they’re unique, if they’re easily replicable, and if the business itself has the right systems and processes in place is ready to truly capture value.

If you’re wondering what “resources” are, they’re defined as the following:

“Resources include all assets, capabilities, organizational processes, firm attributes, information knowledge, etc.” — Jay Barney, Firm Resources and Sustained Competitive Advantage Asking yourselves in-depth questions about your business’ resources doesn’t come without benefit, of course.

Specifically, by following the VRIO framework step-by-step, your business can: Understand your business’ unique advantages.

What makes Google the most-used search engine in the world? Why can you find a McDonald’s in over 120 countries and territories? Why does Patagonia have so many die-hard customers? With VRIO analysis, you can uncover exactly what it is that makes your business’ resources and capabilities unique – and then capitalize on it.

Stay ahead of competitors.

The VRIO framework provides you and your business with profound insight into your business’ resources and capabilities, and how you can take the marketplace by storm with them. With the provided insights, you can make informed strategic decisions, ensuring you’re always one step ahead of your competitors.

Increased growth.

By making the above strategic decisions, your business could benefit from increased growth, higher revenue, reduced churn… and many more positives across the board.

But it’s only when the business passes through all four dimensions (or sections) of this framework, that the business is labeled as having a sustained competitive advantage – which, for solopreneurs to multinationals across the globe – will be like music to your ears.

But where did the VRIO framework come from, and how can you believe that you do, indeed, have a sustained competitive advantage?

Let’s explore that further.

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Where did the VRIO framework come from?

The VRIO framework isn’t some high-level mumbo-jumbo.

The originator of VRIO is James B Barney, an American professor of strategic management. He has taught and written at length about business strategy, including in his book Strategic Management And Competitive Advantage Concepts, which is now in its 4th edition.

Barney evolved a previously-used concept called RBV (Resource-Based View) created by Birger Wernerfelt.

RBV provided the foundation for businesses to reflect on their resources, helping them to acknowledge if they had a competitive advantage or not:

“The fundamental principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the application of the bundles of valuable resources at the firm’s disposal.” – Anton Wiesmann and Tatiana Zalan, Resources, Activities and Competitive Advantage: Application to Outsourcing Barney, however, didn’t agree with Wernerfelt’s view that all of a company’s resources were relevant. That’s why he expanded the RBV into the VRIO framework, allowing businesses to run whatever resources they deem relevant through the framework’s analysis.

The VRIO framework, then, was founded by academics and has been used by businesses across the globe for decades; worry not about its legitimacy or its usefulness.

The only thing you do have to worry about is when you’ll be performing VRIO analysis yourself!

When’s the best time to undergo VRIO? There’s an optimal time for VRIO analysis: Before the strategic planning phase.

Considering the insight and information that VRIO provides, it’s not worth your time going through the long-winded process of defining and implementing strategy, only to realize it could’ve been improved beforehand.

That’s a waste of time.

You don’t need me – or analysis – to tell you that.

But if this is the point you’re thinking “Damn it, our business is 3 years old next month and we’ve never heard of VRIO! What do we do now?!”, you’re in luck.

The wondrous thing with VRIO is that, even if VRIO takes place weeks, months, or years after a business’ strategy has been formed, there’s still incredible value to be had.

After all, a business is a fluid, mutable thing; with every financial quarter, it transforms into a different beast. What a difference, then, 12 months makes. A company’s resources and capabilities can change dramatically in one year, potentially skewing the sustained competitive advantage it had at the beginning of the annum.

Although there is an optimal time to go about VRIO, it’s a process that’s inherently repeatable – and on many levels.

For instance, you could apply the VRIO framework to specific departments – your marketing resources, your HR resources, your financial resources – or you can use the framework for a company-wide analysis.

For instance, here’s VRIO analysis applied to global coffee-chain Starbucks by Jennifer Azarian et al.

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(Source)

As you can see, there are various resources and capabilities that could’ve been chosen to perform this VRIO analysis to understand, analytically, what Starbucks has achieved and realized.

The team at ManagementMania also underwent their own VRIO analysis of Starbucks, and you can see their findings below.

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With the VRIO framework at your disposal, it’s down to you what you want to analyze.

Now, that’s what I call valuable.

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The VRIO framework: Value, rarity, imitability, and organization I know, I know, I know.

I’ve given you a brief introduction regarding VRIO, its definition, how it was created, and the optimal times for undergoing VRIO analysis.

But now you want to get to the nitty-gritty: Discovering the VRIO framework and what exactly it’s composed of.

You’ll be looking at its 4 dimensions – value, rarity, imitability, and organization. Each dimension has 1 main question that must be answered, while some dimensions feature non-compulsory questions that’ll help the business with their overall analysis.

Without further ado, let’s dive in!

VRIO framework dimension #1: Question of value The first section, value, prompts businesses into considering the value of their resources and capabilities. This, in layman’s terms, means asking: The main question: Is the resource or capability valuable to consumers/customers?

Can the business exploit an opportunity such as technological change or cultural change with the resource or capability (thereby increasing revenues)?

Can an external threat – such as the threat of rivalry, substitutes, or entry – be neutralized with the resource or capability (thereby decreasing costs)?

If the answer to the question of value is “no”, then the framework determines that the business has a competitive disadvantage.

Why? Because your business’ resources or capabilities are lacking value, while other businesses are leveraging valuable resources and capabilities for success.

Instead of value, there’s weakness.

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Now, that’s not what any business wants to hear. In fact, it’s rather painful. But it could be the catalyst for change – improvements could be made to the value chain, for instance – so your resources and capabilities have their value bolstered.

However, if the resource or capability that’s being tested is valuable – like Starbucks’ specialty coffees resource from the VRIO analysis above – then the resource or capability can move onto the next dimension: Rarity.

VRIO framework dimension #2: Question of rarity In this section, the framework considers the rarity (and scarcity) of your business’ resource or capability.

Let’s take “specialty coffees” as an example again; although it provides tremendous value, it isn’t exactly a rarity to either find or source.

For instance, I live in the cold, wet city of Edinburgh.

There’s a ton of us who start each morning getting that sweet, sweet caffeine in our systems before starting the workday, and there’s also those who’d rather sit down with a warm cup of coffee than trudge around in miserable weather.

That’s why, if I take a stroll up my area’s main street – Leith Walk – I’ll be spoiled for choice for coffee houses. (In fact, after Googling ‘coffee Leith Walk’, I’m presented with 4 pages of results, which features 20 coffee houses per page.)

To add insult to injury, specialty coffees have become the norm. Modern consumers aren’t happy with a standard cup of Joe – they’re looking for coffee with a little more razzmatazz; flat whites, iced flat whites, cold brews, and other weird and wonderful concoctions.

After all, if people are spending their hard-earned cash, who can blame them for wanting a more unique product?

So, to say that Starbucks is the only one providing specialty coffee – well, that would be a downright lie.

To uncover whether your business’ resources or capabilities are, in the cold light of day, rare or not, ask yourself the following: The main question: Is the resource or capability in demand and hard to come by?

Is the demand for the resource or capability persistent over time?

Is the resource or capability’s control in the hands of a relative few?

Let’s explore the last question “Is the resource or capability’s control in the hands of a relative few?” in deeper detail.

Not only can a resource or capability be rare to find for a consumer, but it can also be rare for a business to come across it and secure control.

For example, Starbucks doesn’t have a monopoly on coffee beans. Coffee beans are sourced, shipped, and used by countless other coffee brands and houses across the globe, meaning that, again, Starbucks would fail the R dimension of the VRIO framework.

If a business’ resource or capability fails this step, it’s then defined by the framework to have competitive parity. This, essentially, means whatever was tested has achieved an average or standard result.

But if a business’ resource or capability passes, it can move onto the next step of this framework’s todo list: Imitability.

VRIO framework dimension #3: Question of imitability

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Imitation, imitation, imitation.

When you’re a business – in whatever sector, field, or line of work – you don’t want a legion of lookalikes popping up left, right, and center.

That’s why, ideally, you’ll want your business to have resources and capabilities that are hard (read: expensive) to imitate.

If competitors – or potential competitors – face high-fees when duplicating the resource or capability in question, then your business is at an automatic advantage. Others will have to splash out more cash to get on your level, while you’re spending that cash on other areas to accelerate your business further.

However, if it is easy (read: inexpensive) to reproduce or replicate, then that’s not exactly ideal.

As you now know, I live by Leith Walk in cold, wet Edinburgh.

I’m looking for a new apartment because the windows only have single glazing which, in Scotland, isn’t great during autumn and winter.

Due to the bad heat retention, that means I’m shelling out more money to keep the radiator on, which I wouldn’t have to do at an apartment with double-glazed windows.

While on my apartment hunt, I have an app folder on my iPhone called ‘Rentals’. In this folder, I kid you not, are 8 different apps I use to search for and find new properties.

In this instance, the capability of being able to find new-on-the-market properties is easy to imitate, meaning companies like Zoopla and Rightmove would fail this step of the VRIO framework.

If a business’ resource or capability does indeed fail this dimension, there’s a temporary competitive advantage, meaning it will take the business extra effort to ensure consumers and customers are using their business’ resources and capabilities, rather than a competitor’s.

Although I used the word “fail” in the above paragraph, it doesn’t mean – by any stretch of the imagination – that the business in question is doomed to fail if their resource or capability can’t move onto the next dimension. It simply means that the company has to be on their toes to ensure they’re always one-step-ahead of their competition, never falling behind.

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If a business can answer yes to the following question: The main question: Will it be expensive for other companies to replicate your resource or capability?

Then it’s time for them to move onto the fourth and final dimension: Organization.

VRIO framework dimension #4: Question of organization If your business’ resource or capability has made it to the last dimension – where questions regarding organization are presented – then it’s in good standing; it’s valuable, rare, and hard to imitate.

But will it be capitalized on?

Specifically: The main question: Does your business have solid systems, structures, and processes (i.e. the organization) to exploit the advantage the resource or capability has?

Now, how each business organizes itself to capitalize on its advantageous resource or capability depends on the business’ size, sector, and what the resource or capability actually is.

Nevertheless, it’s fundamental for your business to do everything in its power to exploit the resource or capability’s unearthed potential.

This could be from making sure your business has a sturdy, positive workplace culture in which employees are paid properly, not burned out, and actively engaged, so their work enables the resource or capability to be fully-capitalized on.

Or, it could be utilizing business process management software, so that your business processes are followed to the T, and human error never gets in the way of your resource or capability becoming the success it can be.

Without solid internal organization, the resource or capability is unsupported, meaning there’s an unused competitive advantage. You’ll have to then go back to the drawing board, think about what internal elements can be bettered and, going forward, how that will happen and what that will look like.

Once those internal amendments have been made, the resource or capability is then supported, which means it’s far more likely for your business to capture the advantages of the resource or capability fully.

This is where the increased growth, high revenue, and lower rates of churn that I mentioned at the beginning of this article come in, because if the answer to the fourth dimension’s question can be changed from “no” to “yes”, then the resource or capability has sustained competitive advantage.

Simply put, this means the resource or capability is set up for continuous long-term business success; the best possible result of undergoing VRIO analysis! Congratulations!

If you’re stuck in limbo, not quite bettering your internal business systems, structures, and processes, don’t worry. It’s the most time-consuming – and toughest – dimension of all to pass.

But I know a solution to help you clinch that elusive sustained competitive advantage.

Let me introduce you to Process Street.

Use Process Street for continuous business success!

If you haven’t come across Process Street before, it’s superpowered checklists.

You can document workflows, business processes, and procedures as templates. From those templates, checklists can be launched each time a recurring task needs to be completed!

It’s as simple as that.

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Plus, our extraordinary workflow features – including stop tasks, task permissions, dynamic due dates, and approvals – help to streamline your processes even further.

Watch the informative introductory video below to understand Process Street and the benefits of process documentation in a little more detail.

For VRIO, you can use our nifty business software in a whole host of ways – too many to name, in fact! But here are a few ideas to get you started: Build a VRIO framework process.

You can document the VRIO framework as a process in Process Street. Then, whenever your business needs to perform VRIO analysis, just launch a checklist and you’re ready to go!

Improve your business’ internal processes by documenting them.

As mentioned in dimension #4, your processes need to be stellar for you to gain a sustained competitive advantage. What better way to achieve VRIO validation while also saving time, effort, and money by documenting your team’s most crucial processes?

Sustain your competitive advantage with continuous improvements.

A sustained competitive advantage is a long-term advantage – not a forever competitive advantage. However, with continuous improvements in your internal systems and processes, you can sustain that competitive advantage for many more quarters – if not years to come! Want to know how? Read our posts on continuous improvement and process improvement.

Automate tasks and processes.

Process Street can be used in tandem with Zapier – a tool that connects over 1,000 business apps together so you can automate recurring tasks and processes, helping you to time-save and truly capitalize on your business’ resources and capabilities!

For more on automation and Process Street, check out the webinar below.

If those VRIO-related ideas have piqued your curiosity, why not jump into Process Street, smash your VRIO analysis, and improve your business exponentially?

After all, it’s free to sign up and get started.

Additional reading for achieving continuous business success Now that I’ve introduced you to VRIO, told you how to apply it, and how you can even create your own VRIO framework checklist in Process Street, I want to provide you with a few more resources (written posts, this time) to ensure you pass VRIO’s fourth dimension.

Check out the links below to get learning!

With all the different types of resources provided to you in this section, you’re one step closer to achieving continuous business success.

Here’s to succeeding. All the time.

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