What is VRIO model?
What are its applications?
Why VRIO analysis is important to organizations?
To answer these questions, specific knowledge is required and in addition, the experience of using this model can increase the quality of content of the answer as well.
What is VRIO model?
There are numerous titles for VRIO including a model, a frame, a method, an analysis, a structure, etc. but it is commonly mentioned as VRIO analysis or model in web searches. Here we aim to get familiar with its model and applications.
VRIO is a model of studying resources of organizations and businesses that are used for data analysis and process improvement.
This model contains 4 principles by which we are able to evaluate organizations and businesses, improve weak points and strengthen strong points by derived data by analysts (or produced platforms to analyze data).
The explanation of VRIO:
To put it simply, when applying this model managers (and analysts) are to answer 4 questions to gather the required data for this analysis. These questions are the mentioned principles including Valuablity, Rarity, Imitability, and Organization.
V stands for “value” which here means the value of an organization or business. The question of value can be asked in various situations. For instance, managers ask themselves, “how valuable are the sources we have access to?” or “what is the value of our organization?”. Although these questions seem general, we shall consider the resources of the organization to answer them. For one, “the value of our organization is our human capital.” or “the produced product has no competitive value.
A business may find its value in its products and another company consider its after-sales service a valuable feature. In these cases, analysts purposefully answer the question of value by categorizing resources and current processes in companies and businesses to make managers aware of the strengths and weaknesses of their organizations.
Here, R refers to the “rarity” of a resource or resources. The question which may be more appealing is how costly or difficult it is for others to access these resources.
The rate of rarity of the resources you have makes you lead the market in a short time. For example, the credit of an online shop or brand can be a rare resource that is derived from data analysis. Thus, it is possible to dig out these valuable resources by precise analysis and apply them in appropriate situations.
I is the abbreviation of “Inimitable” which means being unique or unrivaled and in VRIO it is used for resources in organizations that have no equivalence. The question raised here is “if rivals are able to make or repeat this feature?”
Or from another point of view, “how costly or arduous would it be to do so?”
Take a particular recipe in a restaurant for example. It is an unrivaled resource that makes the restaurant stand out among the rest. Now it should be checked if this recipe is imitable or exclusive. The answer to this question and using it properly exactly form the pillar of marketing, sales, and in the next levels, guarantees the success of an organization.
O is the short form of “organization” which can be defined as a group or a process. Our aim to analyse organization in the VRIO model is the atmosphere and main processes of an organization which together with resources are considered the pillars of growth or failure of a group. Having only the resources is not enough for success, but appropriate plans and analysis are required to create a process to use resources and strong points the best and cover up shortcomings. This organizability causes personnel, plans, and products to be in their right place and progress together efficiently.
Occasionally, a group or business may choose a method based on primary information about their resources and move on by following its rules and standards; but this selection might change over time or even be replaced with another method. The main point is that if the standards of progress are defined properly, organizability will assist the increase of growth and development. That is the reason why using managers’ experience is the best method to develop processes in any group or business since they can consider the highest quality and function for resources by specializing methods according to data and experience.
What is VRIO model?
Now that we have gotten familiar with VRIO, it is much easier to answer the questions mentioned first above. VRIO is a model to access possessions and limits which provides managers and analysts with valuable information by raising questions and precise analysis.
This model can be used to create a roadmap, plan a strategy, study a function, and evaluate the strong and weak points of businesses.
The importance of VRIO model is only understood by managers when they need to improve and develop their business or organization or prepare for a more successful rivalry in the market.