VRIO: Value, Rarity, Imitability, Organization

VRIO is a method for analyzing a company’s internal resources and abilities. It asks four questions, and the answers form a larger picture of the company or organization’s competitive position.

Use the VRIO method to write an analysis of the company you chose and its resources/abilities.

VRIO Diagram

As you can see in the diagram, a top row of circles shows the four questions. (Is the resource, capability, or competency Valuable, Rare, Costly to Imitate; and is the firm Organized to capture value?) An arrow from Valuable that says Yes leads to Rare, and an arrow from Rare that says Yes leads to Costly to Imitate, and so on. Arrows that say No lead from all four questions to outcomes. If the answers to all four questions are yes, that leads to a box that says Sustainable Competitive Advantage. But each “No” answer leads to a problem: Competitive Disadvantage, Competitive Parity, or only Temporary Competitive Advantage.

V: The Question of Value

  1. Is your company able to exploit an opportunity or neutralize a threat with the resource/ability?

R: The Question of Rarity

  1. Is control of the ability or resource in the hands of few?

I: The Question of Imitability

  1. Is the resource or ability difficult to imitate? Would a company that was trying to imitate it face a cost disadvantage?

O: The Question of Organization

  1. Is the firm organized and ready to be able to take advantage of the resource or ability?

 

PESTLE: Political, Economic, Social, Technological, Environmental, Legal

The PESTLE method is a way to analyze the external factors that affect a company. Each category represents a different kind of threat or opportunity that might have an impact on the way a company does business.

Use the PESTLE method to write an analysis of the company you chose.

PESTLE Diagram

As you can see in the diagram, a circle in the center represents the firm. That circle is inside a square, the Strategic Group the firm belongs in. Both of these are within a larger circle, which represents the industry both operate in. Around that larger circle are six other circles that represent the Political, Economic, Sociocultural, Technological, Legal, and Ecological factors — threats or opportunities — that might affect the company, but also might affect the Strategic Group and the Industry the company operates in.

 

Political

  1. What political factors might affect your company related to the actions or priorities of government or elected officials?

Economic

  1. What economic factors related to the economy might affect your company?

Social

  1. What social factors related to the demographic environment in which your company operates might affect your company?

Technological

  1. What is the impact of new methods of doing things, such as producing products more efficiently, distributing them more quickly, or communicating about them in a more targeted fashion?

Legal

  1. What are potential problems your company might face for violating laws or incurring liability for its actions?

Environmental

  1. What is the impact of choices related to the physical environment in which your company operates? (The air or water near the company’s facility, or the impact of extracting raw materials the company needs.)

 

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