Agile Approach To The Competitive Analysis: VRIO-A
What is VRIO-A?
According to research conducted by Statista in 2018, the number of e-commerce websites in France is regularly increasing. The graph below shows that every year a non-ignorable number of players are getting into the game and day by day the competition becomes more intense.
In 2017 the study methodology has been changed.
Most companies’ main purpose is obviously to attain their vision with successful results profit-wise and to make their investors happy. Continous competitive advantage is the key element to attain these goals and sustain the situation. VRIO, a well-known business analysis tool, moves in right at this point.
VRIO is an acronym of “Value-Rare-Imitable-Organized”. It aims to analyze the competitive advantage level of a capability or resource. External factors are not in the scope of VRIO. It was designed at the beginning of the 1990s by Jay B. Barney to evaluate the resource and capabilities of an organization.
What can VRIO do?
VRIO can help in analyzing an organization’s situation in the competition from the view of capabilities and resources. It is placed between the vision definition and strategic management. The outcomes of VRIO are competitive advantages and disadvantages. Resources or capabilities can be an employee, the customer care process, a product like CDN progressive or image compression, the capitalization of knowledge, employee rights, turnover rates, a supplier, etc. all the components creating a company except the external factors.
What means Valuable-Rare-Imitable-Organized?
- Valuable – Is this resources or capability generate a value that makes the customer or the organization happy?
- Rare – Is this resource or capability rare to find for the competitors?
- Imitable – Is the duplication of this resource or capability hard and/or expensive?
- Organized – Does the organization have the processes, rules, arrangements, structures to generate value by exploiting this resource or capability systematically and properly and support it?
How does the VRIO Framework work?
Response to the questions is a simple “Yes” or “No”, and the order of the analysis is Valuable → Rare → Imitable → Organized. If at one of the steps the response is “No”, the analysis stops for the resource or capability which is analyzed, and the next questions are not responded. See below the table of synthesis regarding responses of VRIO.
Let’s try to understand each Competitive Implication result.
- The “Competitive Disadvantage – not valuable” means that we can not create value using this resource/capability, so it should be reconsidered because it brings no value to us.
- The “Competitive Parity- valuable but not rare” means that the resource or capability brings us value but equal with our competitors’, not worse or better.
- The “Temporary Competitive Advantage – valuable rare but imitable” means that the resource or capability can not be found easily at the competitors but duplicating is not hard or expensive. Competitors can easily try to imitate it and they will in the near future.
- The “Unexploited Competitive Advantage – valuable rare imitable but not organized” means that resource or capability generates a rare value in the market and it’s hard to imitate. Despite these advantages generating this value is expensive in terms of money, effort, plan, organize, lead and control
- The “Sustained Competitive Advantage – valuable rare imitable organized” means that the value brought by the resource or capability generates a permanent advantage at the market for the company.
When to use and where it is positioned?
VRIO can be used anytime a resource or capability needs to be analyzed for competitive advantage.
To reach the vision, companies need to set a strategy and this is a decision-making process that needs concrete inputs. VRIO is a good candidate to generate these inputs for the strategy formulation.
What can VRIO not do?
Despite all of the advantages of VRIO, it has also the following limitations:
- It does not give the advantage or disadvantage details of questioned resource or capability.
- It focuses on the internal factors, not externals like supplier’s situation, economic, political, technological, social, marketplace demand change, etc. factors. PESTLE analysis or SWOT can be used after the VRIO and while the strategic analysis.
- It does not generate goals to run with. Balanced Score Card or OKR systems can be used to complete strategic planning.
- It is not questioning the impact of the resource or capability on the competition. ICE is a candidate to fill this gap.
- The framework does not consider agility and change compatibility, so the result is valid until the circumstances are changed. In the paragraph, an extension is proposed to overcome this lack with a small extension.
An Extension to VRIO
As listed in the previous paragraph, agility and change compatibility are not considered in VRIO, but the ability to adapt to the change (called agility) is the indispensable dimension of competitive advantage in today’s uncertain, dynamic and turbulent times.
To be able to analyze the agile compatibility of resources or capabilities, I add the Agile as the fifth dimension and rename VRIO as VRIO-A.
Agile dimension permits to ask the question “Does the resource or capability is compatible and has the ability to adapt changes”? And the table above is updated to:
Now, we have to change the explanation of the last competitive implication category “Sustained competitive advantage” and create a new category “Agile competitive advantage”.
- The “Sustained Competitive Advantage – valuable rare imitable organized but not agile” means that the value brought by the resource or capability generates a permanent advantage at the market for the company for a period until the market changes but is not ready to adapt to the changes.
- The “Agile Competitive Advantage – valuable rare imitable organized agile” means that the resource or capability creates value with a permanent advantage and it has also the ability to adapt to the changes when needed.
A real life-example
Enriching a framework, hypothesis, a formula, etc. with the real-life example is very important to understand and demonstrate the value. Let’s take Human Resources – Recruitment as an example.
|Valuable||Are my recruitment policies, processes, skills creating value for the company?||Yes|
|Rare||Is my recruitment process rare among my rivals?||Yes|
|Imitable||Can rivals easily and cheaply imitate my recruitment process?||No|
|Organized||Is my company organized to generate value from the recruitment process?|
|Agile||Can the recruitment process easily and quickly adapt to the changes in case of need?|
The example above has “Yes” for Valuable and Rare, “No” for Imitable. Once the first “No” comes out, the analysis stops. The competitive implication result of VRIO-A analysis of the recruitment example is “Temporary Competitive Advantage”.
VRIO-A in action at Medianova
At Medianova, our main focus is to create value for our customers and evaluate our services creating value to improve them continually. To concretize the efficiency of the framework let’s have a look at several real use cases of Medianova.
The first one is our web acceleration products Aksela (Html and API Caching). “Aksela aims to speed up the performance of your website by caching your static content and API responses in a distributed manner and serving them to your end-users from the closest locations. It can also optimize codes, compresses static files, and deliver these static files or contents as well as dynamic content from CDN nodes”. VRIO-A helps us to analyze and improve the value we create for our customers in a sustainable way.
The second one would be the customer excellence program. It is a good example as it is the most important and indispensable service that every individual and every company seeks after a purchase. At Medianova, we pay much attention to our customers and are actively listening to them. With the aid of VRIO-A analysis, we discovered that a more fluid customer excellence program is required to improve the service quality. The outcome was increasing the importance of “support over Slack”, and now the communication between us and our customers is more efficient and our customers are satisfied with Medianova’s new approach to “support over Slack”.
Through this blog post, I tried to explain VRIO with its advantages and disadvantages by making an update to adapt it to today’s world’s requirements of competitive advantage. This analysis method can be applied to a specific resource or ability as well as to the whole company. As final words, I am also proud to say that at Medianova we always concentrate to create a valuable and unique experience by adapting to the latest changes and VRIO-A is one of our strongest tools of strategy formulation of customer satisfaction.
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