Framework library · Strategic planning
VRIO framework
VRIO asks four questions of each resource in turn: does it let you earn more or spend less, do few rivals have it, would it be costly for them to build or buy, and is the business organised to use it. Only a resource that passes all four gives a sustained advantage, and the first question a resource fails tells you what kind of advantage, if any, it gives.
Use it when
- You need to know which of your assets and capabilities set you apart before building a strategy on them.
- A strategy assumes an advantage, such as a site portfolio or a licence, and you want to test whether rivals could match it.
- You are deciding which capabilities to invest in, protect or stop funding.
- You are carrying out due diligence on a business whose value rests on a few assets.
Avoid it when
- The question is about the market rather than the firm. Use Porter's Five Forces or a PESTLE for the outside view.
- Your resources are written generically ("our people", "our brand"). The test only works on specific resources, so break them down first.
- You need to compare options or rank investments. VRIO classifies resources. Use a weighted decision matrix to choose between moves.
How to run it
List specific resources and capabilities
Assets, rights, data, relationships and things you do well: "ground leases on 1,900 sites with 20 years or more remaining", not "real estate".
Ask whether each is valuable
Does it let you earn more or spend less than you otherwise would, in a way the accounts or customers would show? If not, it is a cost, and the test stops there.
Ask whether it is rare
Do few current or likely rivals have it? Answer for the rivals the customer would actually consider.
Ask whether it is costly to imitate
Would a rival face a large cost or a long wait to build, buy or find a substitute for it? History, scarce sites or rights, and the need to combine many things make imitation hard.
Ask whether you are organised to use it
Do your processes, prices, incentives and structure put it to work? A resource that passes the first three but not this one needs an organisational fix.
Read the implication and act on it
Protect and build on sustained advantages, use temporary ones quickly, run parity resources at low cost, and fix the organisation around unused ones.
Work through it
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Mistakes to avoid
- Answering yes to everything. If every resource is rare and hard to copy, the rivals have not been taken seriously.
- Forgetting substitutes. A rival may not copy your sites but may make them less needed, as small cells and satellite can for rural towers.
- Treating the result as permanent. Technology and regulation change what is rare and what is costly to imitate.
- Stopping at the labels. The work starts in the "What to do" column.
Where it comes from
Jay B. Barney, "Firm Resources and Sustained Competitive Advantage", Journal of Management 17(1), 1991, which proposed value, rarity, imperfect imitability and non-substitutability (VRIN) as the conditions for sustained advantage. Barney restated the test as VRIO, adding organisation, in "Looking Inside for Competitive Advantage", Academy of Management Executive 9(4), 1995. Source.
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Further reading
Work through it with us
The frameworks here are free to use as they stand. If you would rather work through the question behind this one with us, these are the ways an engagement starts.