Barney and Hesterly (2006), describe the VRIO framework as a good tool to examine the internal environment of a firm. They state that VRIO “stands for four questions one must ask about a resource or capability to determine its competitive potential:
The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? 2.
The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare?] 3.
The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate?] 4.
The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?”
What types of resources should we evaluate (e.g., what types of resources lead to a competitive advantage)? 1) tangible resources, 2) intangible resources, 3) organizational capabilities.
Firm’s cash and cash equivalents *
Firm’s capacity to raise equity *
Firm’s borrowing capacity
Modern plant and facilities *
Favorable manufacturing locations *
State-of-the-art machinery and equipment
Trade secrets *
Innovative production processes *
Patents, copyrights, trademarks
Effective strategic planning process *
Excellent evaluation and control systems
| Intangible Resources
Experience and capabilities of employees *
Managerial skills *
Firm-specific practices and procedures
| Innovation and Creativity
Technical and scientific skills *
Brand name *
Reputation with customers for quality and reliability...
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