Assignment on

VRIO ANALYSIS

Course Title: Strategic Management

Course code: MBS- 501

Submitted to

Dr. Ataur Rahman

Course instructor
Dept. of Green Business School
Green University of Bangladesh

Submitted by
Name ID
Tarek Hassan 172005045

Liuza Akter 171005056

Mariam Akter 172005044
Ruhul Amin 171005008

MBA Program
Dept. of Green Business School
Green University of Bangladesh

Date of Submission: 12 April 2018

Definition of VRIO
VRIO Analysis is an analytical technique brilliant for the evaluation of company’s resources and
thus the competitive advantage. VRIO is an acronym from the initials of the names of the
evaluation dimensions: Value, Rareness, Imitability, Organization.

VRIO is a business analysis framework that forms part of a firm's larger strategic scheme. The
basic strategic process that any firm goes through begins with a vision statement, and continues on
through objectives, internal & external analysis, strategic choices (both business-level and
corporate-level), and strategic implementation. The firm will hope that this process results in a
competitive advantage in the marketplace they operate in.

VRIO falls into the internal analysis step of these procedures but is used as a framework in
evaluating just about all resources and capabilities of a firm, regardless of what phase of the
strategic model it falls under.

VRIO is an initialism for the four question framework asked about a resource or capability to
determine its competitive potential: the question of Value, the question of Rarity, the question
of Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability to exploit the
resource or capability).

VRIO framework is the tool used to analyze firm’s internal resources and capabilities to find out
if they can be a source of sustained competitive advantage.
VRIO Analysis

VRIO Analysis is a systematic strategy splendid for the assessment of the organization's assets and
thus the competitive advantage. VRIO Analysis is a diagnostic procedure splendid for the
assessment of organization's assets and in this manner, thus the competitive advantage. VRIO is a
business examination structure that structures some portion of an association's bigger vital plan.
The fundamental key process that any firm experiences start with a dream proclamation, and
proceeds through destinations, inner and outer examination, vital decisions (both business-level
and corporate-level), and vital execution. The firm will trust that this procedure brings about the
competitive advantage in the commercial center they work.
How Does VRIO Analysis Help Firms

VRIO analysis is a complimentary to PESTEL analysis which assesses macro-environment. The

following analytical statements are taken into consideration by the firms, after which it gets an
idea about the position of their firm.

 If the resource is not valuable, then it should be outsourced as it is of no use to the firm.
 If the resource is valuable but not rare, then the firm is in competitive conformity. It means
that even though the firm is performing badly, it is still better than its competition.
 If the resource is valuable and rare and not expensive to imitate it, then the firm has a
temporary competitive advantage. But, if in the future, other firms try to imitate, then the
competitive advantage is lost.
 If the resource is valuable, rare and is expensive to imitate it but the firm is not able
to organize them, the resource becomes expensive for the firm.
 If the firm can manage the advantages and are able to organize the firm and change the
temporary competitive advantage, it becomes a permanent competitive advantage.

The advantage of a VRIO analysis is its simplicity and clarity. Almost every firm uses VRIO
analysis in combination with other analytical techniques to help evaluate business resources and
capabilities in a more detailed view. For financial resources, there are many detailed financial
indicators that assess the financial condition or performance of the firm from different
perspectives. In the same way, human resources, information or property are other detailed
indicators of their performance, quality or efficiency.
How to make the VRIO Analysis

VRIO examination is a supplement to a PESTEL investigation (which evaluates full-scale

condition). VRIO is utilized to survey the circumstance inside the association (endeavor) - its
assets, their aggressive ramifications and conceivable potential for development in the given region
or for a given asset. Such an appraisal is then utilized for instance in the key administration of
advancement in different regions or for basic leadership about the benefit of an outside or inner
process and the securing administration.

 .If the resource isn't profitable it ought to be outsourced in light of the fact that it conveys
no value to us.
 If the resource is valuable yet not uncommon the organization is in aggressive similarity.
It implies we are not more awful than our opposition,
 If the resource is valuable and uncommon yet it isn't costly to mimic it, we have a transitory
upper hand. Different organizations will attempt to impersonate it sooner rather than later,
at that point we lost our competitive advantage.
 If the asset is significant, uncommon and is costly to mimic it however we are not ready to
compose our organization, the asset winds up plainly costly for us (unused brought about
expenses)
 If we can deal with the favorable position and we can compose our organization and
impermanent upper hand, it moves toward becoming as a permanent competitive
advantage.
Explanation VRIO Analysis

1. The Value of Resources

In the event that assets can be utilized as favorable position, it's conceivable they will give useful
open doors. They can likewise dispose of or diminish the effect of a danger. Partners decide an
incentive by regardless of whether assets are beneficial to the organization.

The asset may help the organization in different territories, internally and externally. Think about
political, financial, social and innovative advances. On the off chance that the asset helps in one
or a significant number of these areas, it might be pivotal for the association's improvement. Yet,
in the event that it doesn't give benefits, it's not helpful. That makes it a shortcoming. For instance,
it could be a costly asset. In the event that the firm cuts the subsidizing, they can designate the cash
somewhere else to see a development in income.

You should think about buyers, suppliers, and rivalry too. The asset might be a danger to
customers, an issue with merchants, or expanded rivalry from others. On the off chance that it can
be substituted, that is additionally a shortcoming.

2. The Rarity of Resources

How rare is the asset? In the event that it's uncommon, this can be a quality. It implies the
opposition will have a troublesome time utilizing it for themselves.

Consider if the asset is hard to find. Do you have repeatable access to it? Culminate! While you
have an elusive thing available to you, the opposition is compelled to discover substitutes. In any
case, this can be switched. When you approach the uncommon asset, however not more than once,
it's not a perpetual favorable position. This might be OK in case you're searching for a brief period
arrangement. Be that as it may, when the brand is worked around this asset and it can't be acquired?
The business endures.

Consider if it's not uncommon or hard to get. A typical asset implies contenders will approach and
utilize it. An effectively open one means everybody can have it. On the off chance that the asset
needs irregularity and accessibility, it might be a shortcoming. What's more, in this manner ought
to be cut.
3. The Imitability of Resources
A rare and difficult to secure asset guarantees trouble to impersonate. This gives you an upper
hand. It's dependent upon you whether to utilize the power and make openings. Or, on the other
hand, to invalidate the effects of threats.
Remember contenders will see the resource. Particularly in the event that they've led competitor
analysis. They may disregard it. At the point when organizations decide it's not worth their assets
or time to acquire the asset, they'll proceed onward. In any case, they may choose to copy it. In the
event that it's effectively possible, it's presumable rivals will emulate or take the help for
themselves.
In the event that it's uncommon, they will endeavor to substitute it. They're after the upper hand
the asset gives, similarly as you seem to be. In the event that it's savvy and bodes well, the
opposition will do it. Resources should be more than uncommon or hard to get. It must not be
imitable.
4. The Value of Organization

This is the last step of VRIO investigation. It requires deciding the value, rarity, and imitability
first. In the event that the asset has passed every one of the three of these prerequisites, the
organization must be sorted out. Something else, the advantages may disappear.

The organization can misuse the upper hand. Now, divisions inside the organization will be
investigated to guarantee it's prepared to utilize this asset to the full favorable position. Are there
showcasing efforts committed to it? Are the sales representatives pushing the asset? Are
solicitations prepared to be conveyed? Are suppliers promptly accessible to give it?
VRIO framework

Understanding the tool

In order to understand the sources of competitive advantage firms are using many tools to analyze
their external (Porter’s 5 Forces, PEST analysis) and internal (Value Chain analysis, BCG Matrix)
environments. One of such tools that analyze firm’s internal resources is VRIO analysis. The tool
was originally developed by Barney, J. B. (1991) in his work ‘Firm Resources and Sustained
Competitive Advantage’, where the author identified four attributes that firm’s resources must
possess in order to become a source of sustained competitive advantage. According to him, the
resources must be valuable, rare, imperfectly imitable and non-substitutable. His original
framework was called VRIN. In 1995, in his later work ‘Looking Inside for Competitive
Advantage’ Barney has introduced VRIO framework, which was the improvement of VRIN
model. VRIO analysis stands for four questions that ask if a resource is: valuable? rare? costly to
imitate? And is a firm organized to capture the value of the resources? A resource or capability
that meets all four requirements can bring sustained competitive advantage for the company.

Valuable
The first question of the framework asks if a resource adds value by enabling a firm to exploit
opportunities or defend against threats. If the answer is yes, then a resource is considered valuable.
Resources are also valuable if they help organizations to increase the perceived customer value.
This is done by increasing differentiation or/and decreasing the price of the product. The resources
that cannot meet this condition, lead to competitive disadvantage. It is important to continually
review the value of the resources because constantly changing internal or external conditions can
make them less valuable or useless at all.

Rare
Resources that can only be acquired by one or very few companies are considered rare. Rare and
valuable resources grant temporary competitive advantage. On the other hand, the situation when
more than few companies have the same resource or uses the capability in the similar way, leads
to competitive parity. This is because firms can use identical resources to implement the same
strategies and no organization can achieve superior performance.

Even though competitive parity is not the desired position, a firm should not neglect the resources
that are valuable but common. Losing valuable resources and capabilities would hurt an
organization because they are essential for staying in the market.

Costly to Imitate

A resource is costly to imitate if other organizations that doesn’t have it can’t imitate, buy or
substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating
(duplicating) the resource or providing the comparable product/service (substituting).

A firm that has valuable, rare and costly to imitate resources can (but not necessarily will) achieve
sustained competitive advantage. Barney has identified three reasons why resources can be hard
to imitate:

Historical conditions.
Resources that were developed due to historical events or over a long period usually are costly to
imitate.
Causal ambiguity.
Companies can’t identify the particular resources that are the cause of competitive advantage.
Social Complexity.
The resources and capabilities that are based on company’s culture or interpersonal
relationships.
Organized to Capture Value
The resources itself do not confer any advantage for a company if it’s not organized to capture the
value from them. A firm must organize its management systems, processes, policies,
organizational structure and culture to be able to fully realize the potential of its valuable, rare and
costly to imitate resources and capabilities. Only then the companies can achieve sustained
competitive advantage.
Using the tool

Step 1. Identify valuable, rare and costly to imitate resources

There are two types of resources: tangible and intangible. Tangible assets are physical things like
land, buildings and machinery. Companies can easily by them in the market so tangible assets are
rarely the source of competitive advantage. On the other hand, intangible assets, such as brand
reputation, trademarks, intellectual property, unique training system or unique way of performing
tasks, can’t be acquired so easily and offer the benefits of sustained competitive advantage.
Therefore, to find valuable, rare and costly to imitate resources, you should first look at company’s
intangible assets.
Finding valuable resources:

An easy way to identify such resources is to look at the value chain and SWOT analyses. Value
chain analysis identifies the most valuable activities, which are the source of cost or differentiation
advantage. By looking into the analysis, you can easily find the valuable resources or capabilities.
In addition, SWOT analysis recognizes the strengths of the company that are used to exploit
opportunities or defend against threats (which is exactly what a valuable resource does). If you
still struggle finding valuable resources, you can identify them by asking the following questions:

 Which activities lower the cost of production without decreasing perceived customer
value?
 Which activities increase product or service differentiation and perceived customer value?
 Have your company won an award or been recognized as the best in something? (most
innovative, best employer, highest customer retention or best exporter)
 Do you have an access to scarce raw materials or hard to get in distribution channels?
 Do you have special relationship with your suppliers? Such as tightly integrated order and
distribution system powered by unique software?
 Do you have employees with unique skills and capabilities?
 Do you have brand reputation for quality, innovation, customer service?
 Do you do perform any tasks better than your competitors do? (Benchmarking is useful
here)
 Does your company hold any other strengths compared to rivals?

Finding rare resources:

 How many other companies own a resource or can perform capability in the same way in
your industry?
 Can a resource be easily bought in the market by rivals?
 Can competitors obtain the resource or capability in the near future?
Finding costly to imitate resources:

 Do other companies can easily duplicate a resource?

 Can competitors easily develop a substitute resource?
 Do patents protect it?
 Is a resource or capability socially complex?
 Is it hard to identify the particular processes, tasks, or other factors that form the resource?

Step 2. Find out if your company is organized to exploit these resources

Following questions might be helpful:

 Does your company have an effective strategic management process in organization?

 Are there effective motivation and reward systems in place?
 Does your company’s culture reward innovative ideas?
 Is an organizational structure designed to use a resource?
 Are there excellent management and control systems?

Step 3. Protect the resources

When you identified a resource or capability that has all 4 VRIO attributes, you should protect it
using all possible means. After all, it is the source of your sustained competitive advantage. The
first thing you should do is to make the top management aware of such resource and suggest how
it can be used to lower the costs or to differentiate the products and services. Then you should
think of ideas how to make it more costly to imitate. If other companies won’t be able to imitate a
resource at reasonable prices, it will stay rare for much longer.

Step 4. Constantly review VRIO resources and capabilities

The value of the resources changes over time and they must be reviewed constantly to find out if
they are as valuable as they once were. Competitors are also keen to achieve the same competitive
advantages so they’ll be keen to replicate the resources, which means that they will no longer be
rare. Often, new VRIO resources or capabilities are developed inside an organization and by
identifying them you can protect you sources of competitive advantage more easily.
VRIO example

Google’s capability evaluated using VRIO framework

Ref: https://managementmania.com/en/vrio-analysis

Google’s ability to manage their people effectively is a source of both differentiation and cost
advantages. Unlike other companies, which rely on trust and relationship in people management,
Google uses data about its employees to manage them. This capability allows making correct (data
based) decisions about which people to hire and the best way to use their skills. As a result, Google
is able to hire innovative employees that are also very productive ($1 million in revenue per
employee). Besides being valuable, it is also a rare capability because no other company uses data-
based employee management so extensively. Is it costly to imitate? It is costly to imitate, at least,
in the near future. First, companies should build the highly sophisticated software, which is both
costly and hard to do. Second, HR managers should be trained to make data-based decisions and
forget their old management methods. Is Google organized to capture value from this capability?
Certainly, it has trained HR managers that know how to use the data and manage people
accordingly. It also has the needed IT skills to collect and manage the data about its employees.

Importance of VRIO analysis:

VRIO analysis is a tool in strategic planning, used by firms to make efficient business decisions.
The analysis provides information and the results will hopefully provide a competitive advantage.
Firstly, VRIO is an internal analysis. It’s used to identify and evaluate resources in a company.
Specifically answering the question, what competitive advantages will it supply the company?

VRIO refers to four criteria firms consider:

Value
Rarity
Imitability
Organization
The Value of Resources

Resources can eliminate or reduce the impact of a threat. Stakeholders determine value by whether
or not resources are beneficial to the company. The resource may help the company in various
areas, internally and externally. Aslo, consider political, economic, social and technological
advances. If the resource helps in one or many of these regions, it may be crucial for the firm’s
development. But if it doesn’t provide benefits, it’s not useful. That makes it a weakness. For
example, it could be an expensive resource. If the firm cuts the funding, they can allocate the
money elsewhere to see a growth in revenue. You must consider buyers, suppliers, and rivalry too.
The resource may be a threat to consumers, an issue with vendors, or increased competition from
others. If it can be substituted, that’s also a weakness.
The Rarity of Resources

Is your resource rare? If yes, it is your biggest strength. Competition will have a tough time over
powering you. If the resource is scarce, do you have repeatable access to it? While you have a
hard-to-find item at your disposal, the competition is forced to find substitutes. But this can be
reversed. When you have access to the rare resource, but not repeatedly, it’s not a permanent
advantage. This may be OK if you’re looking for a short period solution. But when the brand is
built around this resource and it can’t be obtained? The business suffers.

The Imitability of Resources

A rare and difficult to acquire resource ensures difficulty to imitate. This gives you a competitive
advantage. It’s up to you whether to use the power and create opportunities. Or to nullify the effects
of threats. Keep in mind competitors will notice the resource. Especially if they’ve conducted
competitor analysis. When companies determine it’s not worth their funds or time to obtain the
resource, they’ll move on. But they may decide to duplicate it. If it’s easily obtainable, it’s likely
competitors will imitate or take the support for themselves. If it’s rare, they will try to substitute
it. They’re after the competitive advantage the resource provides, just as you are. Moreover, if it’s
cost-effective and makes logical business sense, the competition will do it. Resources need to be
more than rare or difficult to get. It must not be imitable.

The Value of Organization

This is the final step of VRIO analysis. It requires determining the value, rarity, and imitability
first. If the resource has passed all three of these requirements, the company has to be organized.
Otherwise, the benefits may slip away. The company can exploit the competitive advantage. At
this point, departments within the company will be analyzed to ensure it’s ready to use this resource
to full advantage. Are there marketing campaigns dedicated to it? The salespeople pushing the
resource? Invoices ready to be sent out? Are suppliers readily available to provide it? The VRIO
framework, in a wider scope, is part of a much larger strategic scheme of a firm. Also, the basic
strategic process that any firm goes through begins with a vision statement, and continues on
through objectives, internal & external analysis, strategic choices (both business-level and
corporate-level), and strategic implementation. Thus, the firm will hope that this process results in
a competitive advantage in the marketplace they operate in.

Benefits of VRIO analysis:

 Identify the organizations most critical capabilities which are the value creation drives of
the firm.
 Allow quantifications of hard to quantify recourses, such as intangible assets and resources
that involves uncertainty.
  Assistant manager in the strategic decisions making process by highlighting organizations
strength/ weakness.

Limitations:

 Does not take into account factors rapid change or unpredictable circumstance, which could
cause significant changes in the strategy information.
 Only tries to discover factors influencing business competitive advantages at the currant
development state.
VRIO Analysis - Starbucks and Dunkin Donuts

This analysis will compare the resources and capabilities of Starbucks and Dunkin' Donuts to
determine if either one has a competitive advantage over the other. The goal is to have a realized
sustainable competitive advantage that will maximize their potential in these areas.
Starbucks

Strong Global Presence

 Valuable: Having a strong global presence is an important asset for a company trying to
increase their size, sales, and market share. It is a great way to gain more revenues from
new and existing consumers.
 Rare: Starbucks is the biggest coffee corporation globally. Although there are other global
coffee chains, Starbucks is the most recognizable.
 Inimitable and Non-substitutable: In the short term, no competitors of Starbucks could
gain such a large global presence. It would take significant time and resources to
accomplish this. Organized to Exploit: Starbucks is successfully taking advantage of this
capability. As quoted on their website: "With more than 5,500 coffeehouses in over 50
countries, it's clear that our passion for great coffee, genuine service and community
connection transcends language and culture."
 Impact on Competitive Advantage: Realized Sustainable Competitive Advantage

Specialty Coffees.

 Valuable: Starbucks offers many unique and satisfying coffee beverages that other
competitors do not offer on a regular basis. Starbucks also includes calorie information for
these specialty coffees on their menus in order to appeal to a variety of customers.
  Rare: While Dunkin' Donuts only offers specialty coffee drinks around the holidays; many
local coffee shops offer these types of specialty drinks year-round. This mean specialty
drinks are not limited to Starbucks.
 Inimitable and Non-Substitutable: Considering other coffee shops are already utilizing
this capability, it therefore can be imitated.
 Organized to Exploit: By offering a variety of options and continually changing their
menu, Starbucks is taking advantage of this capability. With a lot of options, most people
can find something they like and people who like to try new drinks frequently can easily
do so at Starbucks.
 Impact on Competitive Advantage: Realized Competitive Parity

Upscale and Cozy Atmosphere

 Valuable: The atmosphere at many Starbucks locations allows customers to drink a cup of
coffee and feel relaxed with or without company. As stated on the Starbucks website, "We
believe a coffeehouse should be a welcoming, inviting and familiar place for people to
connect, so we design our stores to reflect the unique character of the neighborhoods they
serve."
 Rare: Starbucks is the only large coffee shop with an upscale, sophisticated ambiance.
Most other coffee shops do not have the atmosphere to encourage customers to bring their
computer and relax for a while.
 Inimitable and Non-Substitutable: It would be relatively easy for other coffee shops to
renovate their stores and copy the business model of Starbucks. Therefore, the upscale and
cozy atmosphere at Starbucks could be imitated.
 Organized to Exploit: Starbucks is efficiently utilizing this capability and creating the
atmosphere that many customers thoroughly enjoy. The company is taking advantage of
the trendy lifestyle that is currently present in many American cities.
 Impact on Competitive Advantage: Realized Temporary Competitive Advantage
Dunkin' Donuts

Coffee for the "Average American"

 Valuable: Dunkin' Donuts focuses on products and prices that are appealing to the
"Average American". By selling common coffee and breakfast items that are priced
affordably, Dunkin' Donuts is able to attract a large market share.
 Rare: Many coffee companies focus on top-quality products, but this also results in higher
prices. Dunkin' Donuts' niche in the market is rare because they are trying to appeal to a
lower income demographic that is sometimes ignored in the coffee industry.
 Inimitable and Non-Substitutable: Any coffee shop could choose to start selling cheaper,
more basic products and this transition could also be done relatively quickly. Therefore,
this capability could be imitated. Organized to Exploit: Dunkin' Donuts is successfully
taking advantage of this capability by offering low prices and a large variety of products.
 Impact on Competitive Advantage: Realized Temporary Competitive Advantage

Convenient Drive-thru Services

 Valuable: Many Americans are very busy and appreciate anything that improves the
efficiency and convenience in their daily lives. Offering a drive-thru service is very
 valuable for Dunkin' Donuts because it helps them appeal to customers who prefer to stay
in their cars and get their items as quickly as possible.
 Rare: Many coffee shops are located in cities or other locations where they could not have
a drive-thru. Also, most high-end coffee shops do not offer drive-thrus because it would
take away from the upscale ambiance they are trying to achieve. By offering drive-thru
services, Dunkin' Donuts is provided a rare service to customers.
 Inimitable and Non-Substitutable: In order for other coffee shops to start providing
drive-thrus, they would need to more many of their locations and rebuild aspects of others.
This would not be realistic on a short-term basis, meaning that this capability is inimitable.
Organized to Exploit: Dunkin' Donuts offers drive-thru services at the majority of their
locations. Therefore, the company is successfully exploiting this capability and gaining the
share of the market that prefers convenience.
 Impact on Competitive Advantage: Realized Sustainable Competitive Advantage.

Very Strong Presence in the Eastern U.S.

 Valuable: Having a very strong presence in one area allows customers to become very
familiar with the company and the products it offers. When there are many locations
around, they have more opportunities to go there. In the eastern U.S. there are Dunkin'
Donuts everywhere, which is very valuable as it helps the company to gain market share.
 Rare: Dunkin' Donuts' strong presence in the eastern U.S. is also rare because many
smaller coffee chains do not have such an established presence. Most coffee chains have
far fewer locations and do not compare to the share size and abundance of Dunkin' Donuts
in the eastern U.S.
 Inimitable and Non-Substitutable: Other coffee chains could expand their companies or
move locations to build a stronger presence in the eastern U.S. Therefore, this capability
could be imitated. Organized to Exploit: Since Dunkin' Donuts has a very strong presence
in the eastern U.S. and they continue to expand, they are successfully exploiting this
capability.
 Impact on Competitive Advantage: Realized Temporary Competitive Advantage
References
 https://en.wikipedia.org/wiki/VRIO
 https://managementmania.com/en/vrio-analysis
 https://www.strategicmanagementinsight.com/tools/vrio.html
 https://sites.google.com/site/starbucksanddunkindonuts/business-strategy/vrio-analysis
 http://www.free-management-ebooks.com/news/vrio-analysis/
 https://blog.v-comply.com/vrio-analysis/
 https://businessanalystlearnings.com/ba-techniques/2017/5/1/vrin-frameworkvrio-
analysis
 http://www.business-to-you.com/vrio-from-firm-resources-to-competitive-advantage/
 http://www.chegg.com/homework-help/vrio-analysis-firm-s-advantage-sustainable-
chapter-concepts-chapter-3-problem-2ee-solution-9781133495239-exc