Essay About Competitive Advantage And Analysis Of The Firm

V.R.I.O. Analysis
V.R.I.O. Analysis
A FRAMEWORK FOR ANALYSIS : VRIO
Resource-based analysis of the firm determines which resources and capabilities result in which strengths or weaknesses
Strategies are to be implemented which exploit (or build) strengths and avoid (or eliminate) weaknesses
What constitutes a strength or weakness is partially a function of the external environment
Framework for analysis: VRIO – resources and capabilities should be
o Valuable
o Rare
o Inimitable
o Organization can effectively exploit them
VALUE of resources and capabilities
A VALUABLE resource or capability (or a combination thereof) must
Contribute to fulfillment of customers needs
At a price the consumer is willing to pay, which is determined by

Customer preferences

Available alternatives (including substitute products)

Supply of related or supplementary goods
Thus, value is partially a function of external environment (product market, demand forces)
Changes in consumer tastes, industry structure, technology, etc. can result in changed value
Resources of different firms can be valuable in different ways (e.g., Timex versus Rolex)
Value = Lowered costs or increased revenues or both
SCARCITY of resources and capabilities
Resources and capabilities must be in short supply to create competitive advantage (and go beyond competitive parity)
What would happen if this were not the case?
An analysis of the firms resources and capabilities must include critical assessment whether they are unusual when compared to those of competitors
How rare does a resource have to be in order to have potential for generating a competitive advantage?
Example of a rare resource: Wal-Marts point-of-purchase inventory control system
To be a source of sustained competitive advantage the rarity of the resource must persist over time
INIMITABILITY of resources dans capabilities
Requirement for sustained competitive advantage
Ease of imitation depends on
Cost asymmetries (“Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it?”)
Capabilities of competitors
Sources of cost asymmetries / cost disadvantages fall into two categories :
Impediments to imitation : Impede rivals from duplicating critical resources and capabilities
Early-mover advantages : Set in motion a dynamic that increases the magnitude of that advantage relative to other firms over time
Impediments to imitation :
Legal restrictions on imitation :

Patents, copyrights, trademarks

Governmental control over entry into markets (licensing, certification, quotas on operating rights)
Superior access to inputs or to customers
Market size and scale economies
Intangible barriers to imitation

Causal ambiguity

Dependence on historical circumstances

Other path dependencies

Social complexity
Degrees of resource and capability imitability
Source: C. Montgomery, “Resources: The essence of Corporate Advantage”, Harvard Business School Case N1-792-064.
• Cannot be imitated : Patents, unique