The relationship between resource heterogeneity and immobility; value, rarity, imitability, and organization; and sustained competitive advantage is summarized in Figure 3.2. This has been developed into a frame- work that can be applied in analyzing the potential of a broad range of ﬁrm resources to be sources of sustained competitive advantage. These analyses not only specify the theoretical conditions under which sus- tained competitive advantage might exist, they also suggest speciﬁc empir- ical questions that need to be addressed before the relationship between a particular ﬁrm resource and sustained competitive advantage can be understood.
The VRIO framework expresses the four key parameters for resource- based analysis as a series of questions about the business activities of the ﬁrm:
Figure 3.2. The relationship between resource heterogeneity and immobility, value, rareness, imperfect imitability, and organization, and sustained compet- itive advantage
- The question of Value: Do a ﬁrm’s resources and capabilities enable the ﬁrm to respond to environmental threats or opportunities?
- The question of Rarity: Is a resource currently controlled by only a small number of competing ﬁrms?
- The question of Imitability: Do ﬁrms without a resource face a cost disadvantage in obtaining or developing it?
- The question of Organization: Are a ﬁrm’s other policies and proce- dures organized to support the exploitation of its valuable, rare, and costly to imitate resources?
Bringing these questions of value, rarity, imitability, and organization together provides a single framework to understand the return potential associated with exploiting any of a ﬁrm’s resources or capabilities. This framework is summarized in Table 3.1.
If a resource or capability controlled by a ﬁrm is not valuable, then that resource will not enable a ﬁrm to choose or implement strategies that exploit environmental opportunities or neutralize threats. Organizing to exploit this resource will increase a ﬁrm’s costs or decrease its revenues. These types of resources are weaknesses. Firms will either have to ﬁx these weaknesses or avoid using them when choosing and implementing strate-gies. If ﬁrms do exploit these kinds of resources or capabilities, they can expect to put themselves at a competitive disadvantage compared to ﬁrms that either do not possess these nonvaluable resources or do not use them in conceiving and implementing strategies.
Table 3.1. The VRIO framework
If a resource or capability is valuable but not rare, exploiting this resource in conceiving and implementing strategies will generate compet- itive parity. Exploiting these valuable but not rare resources will generally not create competitive advantages for a ﬁrm, but failure to exploit them can put a ﬁrm at a competitive disadvantage. In this sense, valuable-but- not-rare resources can be thought of as organizational strengths.
If a resource or capability is valuable and rare but not costly to imitate, exploiting this resource will generate a temporary competitive advantage for a ﬁrm. A ﬁrm that exploits this kind of resource is, in an important sense, gaining a ﬁrst-mover advantage, because it is the ﬁrst ﬁrm that is able to exploit a particular resource. However, once competing ﬁrms observe this competitive advantage, they will be able to acquire or develop the resources needed to implement this strategy through direct duplica- tion or substitution at no cost disadvantage compared to the ﬁrst-moving ﬁrm. Over time, any competitive advantage that the ﬁrst mover obtained would be competed away as other ﬁrms imitate the resources needed to compete. However, between the time a ﬁrm gains a competitive advantage by exploiting a valuable and rare but imitable resource or capability and the time that competitive advantage is competed away through imita- tion, the ﬁrst-moving ﬁrm can earn above-normal economic performance. Consequently, this type of resource or capability can be thought of as an organizational strength and distinctive competence.
If a resource or capability is valuable, rare, and costly to imitate, exploit- ing this resource will generate a sustained competitive advantage. In this case, competing ﬁrms face a signiﬁcant cost disadvantage in directly dupli- cating a successful ﬁrm’s resources and capabilities and no easy to duplicate substitutes for these resources exist. As suggested earlier in this chapter, this disadvantage may reﬂect the unique history of the successful ﬁrm, causal ambiguity about which resources to imitate, or the socially complex nature of these resources and capabilities. In any case, attempts to compete away the advantages of ﬁrms that exploit these resources will not generate competitive advantages for imitating ﬁrms. Even if these ﬁrms were able to acquire or develop the resources or capabilities in question, the very high costs of doing so would put them at a competitive disadvantage compared to the ﬁrm that already possessed the valuable, rare, and costly to imi- tate resources. These kinds of resources and capabilities are organizational strengths and sustainable distinctive competencies.
The question of organization operates as an adjustment factor in the VRIO framework. For example, if a ﬁrm has a valuable, rare, and costly to imitate resource and capability but fails to organize itself to take full advan- tage of this resource, some of its potential competitive advantage could be lost (as in the Xerox example). Extremely poor organization, in this case, could actually lead a ﬁrm that has the potential for competitive advantage to obtain only competitive parity or even competitive disadvantages.
Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.