To help you understand the importance of a VRIO Framework, this article talks about the advantages and limitations of VRIO.
The VRIO framework lays the foundation for mapping out and identifying which resources help you create a competitive edge over the market. This analysis can be further used as a guide in making choices and defining priorities across the organization.
You could perform a VRIO analysis on anything that provides you with an advantage, whether it’s a resource, product, or even a partnership.
How Can You Perform a VRIO Analysis?
VRIO stands for Valuable, Rare, Inimitable, and Organization. To help you better understand what each component stands for, we’ve prepared a list of questions you can ask to find out.
Firstly, to determine the value of a resource, You should ask yourself:
- Does this resource add value to your firm?
- Moreover, does the resource assist you with increasing sales?
Secondly, to determine if the resource you possess is rare in nature, ask yourself:
- Are there any substitutes available in the market?
- Do competitors find it challenging to acquire?
To determine whether your resource is complex for other firms to imitate, you should be aware of the following:
- Is it expensive to duplicate?
- Does a patent protect it from being copied?
Finally, to determine whether your processes and internal structure are in place, ask yourself:
- Is there a resource management system in place?
- Do you exploit the resource to its full economic potential?
VRIO Analysis of NIKE
Let’s perform a VRIO analysis of Nike to get a clearer picture of how a VRIO Analysis is performed.
Firstly, Nike’s brand name and innovative products provide it with immense value. This helps it stay on top of the mountain and remain a premium brand.
Secondly, Nike’s relationship with athletes is a definite advantage over the market. However, it is not rare as other brands can always approach younger talent and sign them on.
Thirdly, It would cost billions of dollars worth of advertisements to try and compete with Nike’s Brand image. Their shoes are patent protected, helping them to fend off plagiarism from the competition while keeping their unique look.
Finally, the organization is structured to maintain the quality of goods and uphold the brand image of Nike globally. All outlet stores give off the premium brand vibe regardless of wherever you are.
What Are The Advantages/Benefits of The VRIO Framework?
The VRIO framework helps you:
1. Identify Competitive Advantage
It enables you to capitalize on previously undetected competitive advantages and transform them into an edge over the market.
2. Increase Efficiency
In addition, It may help you determine the path for future initiatives and better manage corporate resources. Hence, increasing the efficiency of your business model.
3. Identify Opportunities and Dangers
It can also generate insights that aid in identifying and evaluating potential opportunities and dangers to determine which ones deserve more attention.
4. Reduce Operating Costs
Due to the relative importance feature, managers could better understand which tasks deserve more attention than others, helping to reduce operating costs.
Does the VRIO Framework Have Disadvantages/Limitations?
Here are the disadvantages of the VRIO framework:
1. Challenging to Use
It can be challenging to determine which evaluation method best suits your need since there are multiple ways to evaluate the value of a good.
2. Short-term Competitive Advantage
Moreover, the landscape in which businesses operate is frequently evolving. Therefore, it may be impossible to claim a lasting competitive advantage. Sometimes the most you can do is claim a temporary competitive advantage for the months ahead.
3. Market Demand isn’t Considered
The model does not consider internal aspects, such as how market demand shifts and changes.
In summary, The framework serves as an excellent analytical tool that allows you to increase efficiency and reduce the cost of your operations. The VRIO framework breakdown of Starbucks proves just how valuable this analytical tool can be.
Teamwork is essential for performing a VRIO analysis. To learn more about utilizing an online whiteboard with your team, check out Fresco.