What are the characteristics of capabilities to sustain competitive advantage?
At the start of this century, American management professor Jay B. Barney developed the so-called VRIO Framework or VRIO Analysis. The VRIO Analysis is perfectly suited for the evaluation of the use of company resources. Show
The VRIO framework is a strategy tool that helps organisations identify the resources and capabilities that give them a sustained competitive advantage. Usually, companies possess various kinds of resources and capabilities. For example, such resources could be financial, human, organisational, physical, or technological in nature. The VRIO analysis is an internal analysis that helps determine the quality and usefulness of a firm’s resources and capabilities. VRIO is an acronym for:
OriginsThis framework was developed in 1991 by Jay Barney [1]. The author identified four attributes that firm’s resources must possess for sustained competitive advantage. According to him, the resources must be valuable, rare, imperfectly imitable and non-substitutable. Jay called his original framework, VRIN. In 1995, in his later work [2], he introduced VRIO framework as an improvement of VRIN model. The VRIO analysis, supplemented by other analytical techniques, help evaluate resources in great detail. For financial resources, there are many detailed financial indicators that reflect the financial performance of a business. Likewise, other detailed indicators reflect performance, efficiency or quality of other departments or functions. The advantage of a VRIO analysis is its simplicity and clarity.VRIO Analysis of Starbucks Resource-based viewThe VRIO framework is part of the Resource-Based View (RBV) managerial framework – a perspective that examines the link between a company’s internal characteristics and its performance. Therefore, RBV is complementary to the Industrial Organization (IO) perspectives. Industrial Organization considers such external factors as competitiveness to determine performance and profit potential. According to RBV, organizations should within their company to find the sources of competitive advantage rather than the competitive environment. Therefore, the key determinants in this framework are:
Firm ResourcesA firm’s resources are defined as:
Resources are often classified into categories such as tangible (e.g. equipment, machinery, land, buildings and cash) and intangible (e.g. trademarks, brand reputation, patents and licenses) or physical, human and organizational resources. Sustainable Competitive AdvantageFor companies to transform resources to sustainable competitive advantage, resources must have four attributes, namely:
ValuableFirst and foremost, resources must be valuable. Resources are valuable only when they enable a firm to achieve sustainable competitive advantage. Resources should help enable strategies, exploit opportunities or mitigate threats. Furthermore, they should improve efficiency and effectiveness. Net Present Value (NPV) appraisals help ascertain the quantitative value of resources. A company is at a competitive disadvantage, if none of its resources are considered valuable. RareSecondly, resources must be rare. If only a few companies can acquire some resources, then those resources are considered rare. If many players in an industry have access to a certain valuable resource, then each of the players can exploit that resource in the same way. Then none of the players gain a competitive advantage through that resource. This situation is called competitive parity or competitive equality. If a company has access to a large amount of valuable and rare resources, it is likely to have, at least, a temporary competitive advantage. InimitableValuable and rare resources help companies to engage in strategies that other firms cannot pursue. However, this is no guarantee for long-term competitive advantage. Such resources may give a company a first-mover advantage, but competitors will probably try to imitate these resources. Resources that are hard and costly to imitate or substitute are more valuable. However, resources can be imperfectly imitable due to:
Organization-wide supportedThe resources themself do not create any advantage for a company. To exploit the advantages and derive value, a company should appropriately organized itself. Therefore, the company should effectively assemble and co-ordinate its resources. Some examples of these organizational components include the company’s formal reporting structure, strategic planning and budgeting systems, management control systems, logistics network, etc. Without proper organization, the company cannot appropriately acquire, use and monitor its resources. This applies even to companies with valuable, rare and imperfectly imitable resources. Without organization, a company cannot create a sustainable competitive advantage through its resources. When all four resource attributes are present, a company has a distinctive competence that it can used to build sustainable competitive advantage. Application of VRIO frameworkThe VRIO approach facilitates a systematic analysis of tangible and intangible resources and capabilities along the organisations’ value chain. It helps to identify existing competencies to formulate strategies. Likewise, this framework reveals the competencies the organisation should be keep, protect, or enhance. Competences and resources evolve within an organization. Correspondingly, managers should periodically revisit this framework to adapt to the changes in the competitive environment.
Summary A VRIO analysis can be applied company-wide or to individual departments for a well-rounded view of how each aspect of your business should position itself in the marketplace. The best time to review your VRIO is at the onset of your strategic planning process. Commiting to the VRIO process and evolving your analysis over time will protect your sustained competitive advantages. APAMLAHarvardVancouverChicagoIEEE Think Insights (December 14, 2022) VRIO – A resource-based framework for sustained competitive advantage. Retrieved from https://thinkinsights.net/strategy/vrio-framework/. "VRIO – A resource-based framework for sustained competitive advantage." Think Insights [Online]. Available: https://thinkinsights.net/strategy/vrio-framework/. [Accessed: December 14, 2022] What are capabilities that lead to competitive advantage?These factors allow the productive entity to generate more sales or superior margins compared to its market rivals. Competitive advantages are attributed to a variety of factors including cost structure, branding, the quality of product offerings, the distribution network, intellectual property, and customer service.
Which characteristics of resources and capabilities determine the sustainability of the competitive advantage they offer?Models of competitive advantage based on resources suggest four key characteristics of the resources and capabilities that determine the sustainability of competitive advantage: durability, transparency, transferability and replicability.
What are the four capabilities features of such competitive advantages?The four primary methods of gaining a competitive advantage are cost leadership, differentiation, defensive strategies and strategic alliances.
What is sustainable competitive advantage What are some essential characteristics of company capabilities that can lead to sustainable competitive advantage?Sustainable competitive advantages are company assets, attributes, or abilities that are difficult to duplicate or exceed; and provide a superior or favorable long term position over competitors.
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