VRIO — A resource-based approach for Organizations
Dr Sindhu Shantha Nair
External and Internal scanning enables a firm to understand its competitive environment and to find a place amidst the competition. Internal scan helps find the internal critical strengths, weaknesses, the strategic factors, and whether it helps to avail opportunistic advantage. This known as organizational analysis, often aid to identify, develop, and take advantage of the available resources and competencies of an organization.
While Resources are the assets (tangible assets, human assets, and intangible assets). Organizational Capabilities tap these resources. The tangible assets are those assets like equipment, finances, plant, location etc. while human assets are the employees, their skills and motivation and intangible assets are technology, copyrights and the like. Organizational capabilities include the business processes, routines, and interaction to motivate full potential of employees. These capabilities become dynamic when it is constantly rewired to adapt to the VUCA environment. When these capabilities are constantly coordinated and integrated cross-functionally, the capability becomes a competency. A collection of such competencies becomes the core-competency. Organizations that do not constantly invest or take interest in reinvesting in such core competencies, are actually risking its core competency and slowly becomes rigid or deficient due the fact that a strength over time matures and becomes a weakness (Hitt, Keats & DeMarie, 2003). Core competency may not be an asset in the Balance Sheet, but it is an invaluable capability that do not wear out, regardless of the fact that how it is used and the more it is used, the more refined it will be evolving as distinctive competencies. Management Development is a distinctive competency and General Electric holds an exclusive title for this distinctive competency.
Resource based approach, enables organizations for hyper returns. The effectiveness arises from the prudent analysis of resources and capabilities, to ascertain, what provides the real competitive advantage. This approach emerged from the works of Wernerfelt (1984) which was subsequently operationalized by Jay Barney, who initially proposed VRIN framework which he himself developed into the VRIO (Valuable, Rareness, Imitability, Organization) framework.
These parameters consider the imperative questions as in
Are your resources adding Valuable impact your business?
Are your resources Rare?
Are your resources Inimitable?
Are you able to Organize your Valuable, Rare and Inimitable resources?
These are relevant big questions which are crucial to any business. Value addition can be in many different ways and can be measured in several ways. It can be through Product or Process, an exclusive product feature, an innovative product design, or a manufacturing process, productive team synergy, engaged employees, a popular brand to attract buyers or the like. This value addition can it be rare or a very remote possibility that others access it like exceptional expertise, networks, experience, exclusive supply chain and logistics, brand or product loyalty, exquisite office location, infrastructure and employer friendly that attracts high quality recruitment, and high quality loyal customers. On the same note, can this Valuable and Rare resources be Inimitable? This is beyond being rare that no other business can imitate your business or substitute the same. So, this can be through copyrights, Patents and licenses also. Finally, are these valuable, rare, inimitable resources organized or wasted? The point of concern is if you don’t use them to the full potential it is a waste of such resources. Maximum usage comes through internal processes and management control through system thinking and design thinking, Psychological safety or circle of safety, supporting innovative explorations, right kind of workforce, office environment and infrastructure, factors to attract and retain talent, appropriate management structures, Agility to reach creativity and innovation to the market, strong finance system, technology to support and able leadership.
Reference
Barney, J. (1991). ‘Firm Resources and Sustained Competitive Advantage,’ Journal of Management, 17(1), 99–120.
Wenerfelt, B. (1984) ‘A Resource-Based View of the Firm,’Strategic Management Journal, 5(2). 171–180