The Vrio Framework Evaluating Competitive Resources And -Books Pdf

The VRIO Framework Evaluating Competitive Resources and
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The VRIO framework evaluating competitive,resources and capabilities. As discussed earlier in this chapter som e of a company s heterogeneous resources and. capabi lities hold the potential for sustained competitive advantages As Barney68 suggests. to have this potential, a firm resource must have four attributes a it must be valuable in the sense that it. exploits opportunities and or neutralises th reats in a firm s environ ment b it must be. rare a mo ng a firm s current and potential competition c it must be im perfectly imi. tabl e and d it must be ab le to be explo ited by a firm s organisational processes These. attributes of compa ny resources can be thought of as indicators of how heterogeneous. and immobile a firm s resources are and thus how useful these resources are for gen. erating sustained competitive advantages, These attributes have been further developed into a framework the value rarity. imitability and organisation VRJO framework that can be applied in assessing the. potential of a broad range of company resources to be sources of sustained competitive. advantage These a nalyses not only specify the theoretical conditions under which sus. tained competitive advantage might exist they also suggest specific empirical questions. that need to be addressed before the relationships between a particular company resource. 0 PART 2 THE TOOLS OF STRATEGY ANALYSIS, and sustained competitive advantage can be un derstood A descripti on of the fo ur com. ponents of the VRJO framework fo llows, 1 The q uestio n o f value Do a fi rm s resources a nd ca pabilities enab le th e compa ny to res.
po nd to e nvironmental threats o r o ppo rtuniti es The traditi o nal strength s wea kn esses. o ppo rtunities and threats SWOT model suggests that co mpa ni es can improve their per. fo rma nce o nly if th eir strategies explo it o pportunities o r neutra lise threats Compa nies. might have o ther cha racteristics that can serve as sources of competitive advantage e g. rari ty inimitability and o rganisati o nal abilities processes but these characteris tics become. valuable resources o nly when they explo it oppo rtunities o r neutralise threats in the com. pany enviro nment 69 A company must have va luable resources in order to create eco no mic. value and increase the willingness o f custo mers to pay decrease its costs o r bo th. 2 The qu estio n of rarity ls a resource currently co ntro lled by o nly a sm all number of. com peting compa nies Valuable resources of a compa ny th at a re also possessed by large. numbe r of competitors canno t serve as a source of co mpetitive ad van tage Each of these. com panies h as th e capability of explo iting that resource in the same way a nd imple. m enting a commo n strategy which would no t allow o ne co mpany to create a com. petitive ad vantage 70 In o rde r to implement some strategies co mpa ni es need to form. bundles o f resources and these bund les have to be valua ble to enable co mpanies to. create a co mpetitive adva ntage Compa nies must still maintain valuable but commo n. resources These help compa ni es to su rvive w hen th ey are explo ited to create competi. tive pari ty a conditio n under w hich no o ne compa ny is able to create a co mpe titive. advantage According to Po rter 1 companies increase th eir proba bility of eco no mic sur. vival under co nditions of competitive parity The q uesti o n of how ra re a va luable com. pany resource sho uld be in o rder to serve as a source o f a competitive adva ntage does. no t have a commo n a nswer Barney and Clark 72 assert that. as the number of fi rms that possess a pa rticular valuable resource or a bundle of. va luable resources is less than the number of firms needed to generate perfect com. petition dynamics in an industry that resource has the potential of generating a. com petitive advan tage, 3 The q uestio n o f imitability Do com panies witho ut a resource face a cost disadvantage. in o btaining o r developing it Compan ies with valuable a nd ra re resources can enjoy a. first mover advantage acting as innovato rs because their resources a llow the m to co n. ceive a nd engage in strategies that o ther co mpani es could not co nceive no r implement. due to th e lack of relevant resources O n the o ther hand valuable a nd ra re resources. help companies to sustain their competitive advantage o nly if competitors canno t. o btain th ese resources by direct duplicati o n o r substitutio n B It depends o n how diffi. cult o r costly it is to imitate th e compa ny s resources which can be attributed to the. fo llowing three main reasons, a Unique historical conditions determin ed th e path a compa ny fo llowed to a rrive unique historical conditions. at its curre nt situati o n and the co mpa ny s lo ng term perfo rm a nce Barn ey a nd circumstances that. Clark suggest tha t unique histo ri cal co nditio ns can lead to a sustained competitive determined the path a. ad vantage in at least the fo llowing two ways 7 4 company followed to arrive. at its current situation and,the company s long term. First it may be that a particular fi rm is the fi rst in an industry to recognize and. performance, exploit an opportunity and being fi rst gives the firm a first m over adva ntage. Second when events early in the evoluti on of a process have significa nt effects. on subsequent events path dependence allows a firm to gain a co mpetitive. advantage in the cu rrent period based on the acquisition and development of. resources in earli er periods, CHAPTER 5 ANALYSIN G RESOURCES A ND CAPA BILITIES 0.
causal ambiguity the b There is causal ambiguity in the link between the resources con trolled by the. situation in which the link company and its competitive advantage This link is either no t understood or not. between the resources understood clearly The main situatio ns in which m anagers m ay no t fully under. controlled by the company stand their sources of competitive advantage include when the resources and. and its competitive advantage capabilities are invisible e g relatio nships with custo m ers and or suppliers and. is unclear or not understood, o rga nisatio nal culture when m a nagers are unable to evaluate which resources. and capabilities o r their combinatio ns create a competitive advantage and wh en. the reso urces and capabilities a re complex netwo rks of relationships between. individuals groups and techno logy This last source o f competitive adva ntage is. referred to as interconnectedn ess of asset stocks and asset m ass efficiencies 75 In. general when sources of competitive advantage are widely spread across processes. o f the compa ny locatio ns and people these sources are d ifficult to understand and. costly to imitate, social complexity the degree c Social complexity of a company s resources means that it is beyond the company s. to wh ich sociocultural forces ability to systematically manage and influence these resources A w ide va ri ety of. are organised resources may be socially complex fo r example the interperson al relationships. among m an agers in a company 6 a company s culture 77 and its reputatio n amo ng. custo mers and suppliers O fte n it is clear how these socially complex relatio ns add. value to the company and there little or no causal ambiguity about the link between. these resources and competitive advantage At the same time such understanding. does not necessarily lead com pani es w ithout these socially complex resources to th e. process o f their creatio n, 4 The questio n of organisation Are a firm s other po licies and procedures o rganised to sup. po rt the expl oitatio n of its valuable ra re and costly to imitate resources Valuable rare. and inimitable reso urces can serve as a source o f competitive advantage if the company. is organised to exploit the potential offered by these resources O rganisational processes. assist companies in building and susta ining competitive adva ntage The fo ll owing com. po nents allow companies to explo it the full competitive potential o f their resources and. capabilities their fo rmal reporting structure explicit management control systems and. reward policies These compo nents are often referred to as complem entary resources. and capabilities as they have limited ability to generate competitive advantage in iso. lation It is in combination with other resources and capabilities th ey can enable a firm. to realise its full po tential fo r co mpetitive advantage 78. Bringing these questions o f value rarity imitability and o rganisatio n together provides. a single framewo rk to understand the return potential associated with explo iting any of. a company s resources and capabilities This fram ework is summarised in table 5 3 9. TABLE 5 3 The VRIO framework,Is a resource or capability. costly to exploited by, valuable rare imitate organisation Competitive implications Economic performance.
No No Competitive Below normal,disadvantage,Yes No Competitive parity Normal. Yes Yes No Temporary competitive Above no rmal, Yes Yes Yes Yes Sustained competitive Above no rmal. 0 PART 2 THE TOOLS OF STRATEGY ANALYSIS, The RBV asserts that the individual resources capabilities of companies provide a. stro nger bas is fo r strategy develo pment than industry analysis The main argument for this. view is th at it w ill identify those resources and capabilities that are outstanding and thus. have the potential fo r sustainable competitive advantage. CHAPTER 5 ANALYSING RESOURCES AND CAPA BILITIES 0,.

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