Finding a way to stand out from your competitors is an essential part of your product strategy. While there are many strategic frameworks to help you determine your advantage, a VRIO analysis can take it a step further. It can help transform your resources into a sustained competitive advantage.
In this article, you’ll learn what VRIO analysis is, why it’s important for your product strategy, and how you can implement it within your product team.
VRIO stands for value, rarity, imitability, and organization. It’s a framework to determine if your product has a sustained competitive advantage.
There’s a difference between a competitive advantage and a sustained competitive advantage:
Now, this doesn’t mean that a company’s sustained competitive advantage will last forever, as changes within the industry and economy could weaken the advantage. However, it does mean that for the moment, the company has an edge over competitors since the benefits can’t be duplicated.
There are four ways a VRIO analysis can help formulate a product strategy:
Now, let’s take a look at each section of the VRIO framework:
A resource has value when it helps a company become more effective. There are a few ways resources can add value:
Not all resources are strategically relevant to your company’s competitive advantage. Some resources may hinder it or not affect it at all. Other value chain analysis frameworks can help determine the usefulness of a resource.
If a resource can’t pass the value hurdle, it’s called a competitive disadvantage and actively causes harm to your company. You’ll need to determine ways to improve the resource or remove it completely.
A resource is considered rare when it is hard to obtain and is also in demand. Some examples of a rare resource include:
For some resources, they may be valuable, but aren’t considered rare. In this scenario, a company’s resource has competitive parity. It can make it more difficult for market positioning, but it’s not impossible.
Imitability determines if a resource is easy and inexpensive for a competitor to reproduce for themselves. Company resources that are valuable and rare may have an easier time with product innovation, but it doesn’t stop competitors from copying them. Imitability is crucial to ensuring a company’s sustained competitive advantage.
Here are some ways a resource is inimitable:
If your resource is imitable, it’s considered a temporary competitive advantage. Your competitors can copy you, so it will take significant effort to stay ahead of them and keep your advantage.
An organization’s structure can make a significant impact on a resource. Take this scenario: You and your competitors all have the same resource. However, your organization is more prepared to use the resource than your competitors. Ultimately, you are in a better position to gain a competitive advantage.
Some examples of how an organization can use a resource include:
Organization often relies on complex social structures to support the resource. It can make it difficult for competitors to replicate. While it’s easier for your company to maintain its sustained competitive advantage.
You have an unused competitive advantage if your organization isn’t set up to support a resource. It’s your company’s biggest potential. You’ll have to improve the organizational structure to take advantage of your resources.
Conducting a VRIO analysis can take some time, but the efforts lead to a better understanding of your company’s strengths. It also shows you how to use your resources to build a better product that edges out the competition.
You can’t analyze resources you don’t know you have within your company. Identify all resources within your organization. Resources are usually contained within three categories:
Once you have identified your resources, you can analyze each one individually with the VRIO framework.
Go through each section for every resource. If any resource fails to pass a section, it may not be a company strength. You should evaluate the resource to determine if there is any way to improve it and make it provide value to the company.
You should consider the following when conducting a VRIO analysis:
The VRIO analysis should provide you with an overview of what resources are and aren’t working for your organization. Depending on the results, you can put in strategies to:
Companies should continuously conduct a VRIO analysis to maintain a sustained competitive advantage. It ensures resources aren’t underutilized and keeps strong resources protected.
A VRIO analysis can inform your product strategy by identifying your strengths and areas of potential. Developing a strategic plan can ensure your company is capitalizing on your resources.
Once you have an understanding of how your company can create sustained competitive advantage, you can start to implement strategies, measure your progress, and make continuous adjustments to ensure success.
Featured image source: IconScout
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