VRIO stands for Value, Rarity, Imitability, and Organization. The VRIO framework is an analytical tool in the strategic planning and formulation. This framework enables assessment, analysis and evaluation of the available resources and capabilities of the company to determine the competitive advantage of the company.
Value: Value refers to the resources and capabilities which enhances the ability of the company or organization to create value for the customers.
Rarity: As the name suggests, these are the resources which are unique to the company or organization. Such rate availability of resources provides competitive advantages and disables the competitors to replicate.
Imitability: This measures how easily it is difficult to copy or duplicate the available resources. A resource may be rare but it can be duplicated in no time or there are available alternatives to the resource. The more difficult the resource is to imitate the better is the competitive advantage.
Organization: It refers to the fact or ability of the organization to manage, organize, combine or utilize its resources available. A better strategy to manage the available resources, more is the leverage to create value from the resources.
The VRIO framework assists to understand and identify the strength and weakness of the company. Along with it, this framework helps in positioning its competitiveness and in identifying key resources and capabilities. Despite all these advantages and benefits, there are some limitations to the framework.
Limitations of VRIO Framework
- The VRIO framework has internal resources and capabilities for all the considerations. It clearly neglects the external factors that can have impact on the resources and the company. The factors like market trends, customer preferences and other competitive forces will have an impact on the resources of the company. But, this framework has failed to consider all these factors.
- Resources are limited and obsolete in nature. The changing business dynamics and environment differ the VRIO factor of the resources. The resources which are rare may provide competitive advantage today but the same resources with same weight may be a common factor for the company due to changes in other factors in or outside the business.
- The premise of this framework i.e. VRIO is questionable and very subjective in nature. The qualities i.e. value, rarity, imitability and organization may have different weight to different individuals. The VRIO framework of a same company may lead to different analyses when performed by different evaluators.
- The VRIO framework is time sensitive. This means resources which are rare today may become common in future and vice versa.
- The VRIO framework lacks the quantitative perspective. There is no empirical support to this framework. Therefore, it is difficult to provide the precise framework to rank and evaluate the resources and capabilities.
- The VRIO framework has limited scope and implication. This means, VRIO helps in framing the important and unique resources for competitive advantages but it doesn’t provide any guidance to implement the suggestion from the framework. It is limited when it comes to leveraging the results of the framework.