![]() ![]() “How easy is it for competitors to obtain this exact same resource?” The second question to ask when analyzing a resource or capability is: However, should you deem a resource to be valuable, it moves on to the next stage of VRIO analysis – rarity. It should come as no surprise to you that if a business is doing (or using) something that provides no value to customers, it puts them at a competitive disadvantage. This formula essentially determines whether the amount invested in “X” resource is lower than the expected future cash flows discounted back in time. The first criterion or question to ask is:Ī resource is considered valuable if it helps a business implement strategies that increase effectiveness or improve efficiency.Īlternatively, you could use Net Present Value (NPV) when assessing internal resources and capabilities. In fact, some may even hinder it!īut by conducting a VRIO analysis you’ll be able to uncover which firm resources allow you to deploy a unique, value-creating strategy not used or duplicable by your competitors.įor companies to be able to transform these resources into a sustained competitive advantage, they must meet the four requirements of the VRIO Framework: Now clearly, not all firm resources are going to have a positive strategic impact on your business. It can also include an organization’s geographic location as well as its access to specific raw materials. Physical capital resources can refer to the physical technology a company uses, operating plants, factories, and equipment. Organizational capital resources include a firm’s internal reporting structure, formal and informal planning, controlling, and coordinating systems, as well as both internal and external relationships. Human capital resources include employee training and development, individual managers’ judgment, experience, and industry knowledge/insight. To provide further clarity, this innumerable list of resources can be broken down into 3 categories: controlled by a firm that enables them to conceive and implement strategies that improve its efficiency and effectiveness.” “All assets, capabilities, organizational processes, information, knowledge, etc. In his paper, Barney defines firm resources as: ![]()
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