The VRIO Framework: An Overview
1
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:
1. 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.
Tangible Resources
Financial
Firm’s cash and cash equivalents
Firm’s capacity to raise equity
Firm’s borrowing capacity
Physical
Modern plant and facilities
Favorable manufacturing locations
State-of-the-art machinery and equipment
Technological
Trade secrets
Innovative production processes
Patents, copyrights, trademarks
Organizational
Effective strategic planning process
Excellent evaluation and control systems
Intangible Resources
Human
Experience and capabilities of employees
Trust
Managerial skills
Firm-specific practices and procedures
Innovation and Creativity
Technical and scientific skills
Innovation capacities
Reputation
Brand name
Reputation with customers for quality and reliability
Reputation with suppliers for fairness, non-zero-sum relationships
Organizational Capabilities
Firm competences or skills the firm employs to transfer inputs to outputs
Capacity to combine tangible and intangible resources, using firm processes to attain desired end.
Examples
Outstanding customer service
Excellent product development capabilities
Innovativeness or products and services
Ability to hire, motivate, and retain human capital
1
Note that the material presented in this handout are adapted from J.B. Barney, “Firm resources and sustained
competitive advantage,” Journal of Management 17 (1991), p. 101; R.M. Grand, Comtemporary Strategy Analysis
(Cambridge, England: Blackwell Business, 1991), pp. 100-102; M.A. Hitt, R.D. Ireland, and R.E. Hoskisson,
Strategic Management: Competitiveness and Globalization, 4th ed. (Cincinnati, OH: South-Western College
Publishing, 2001); G.G. Dess, G.T. Lumpkin, M.L. Taylor, A.A. Thompson, and A.J. Strickland III, Strategic
Management (Boston, McGraw Hill, 2004) pp. 141-148.
