Resources and capabilities have been considered as one of the biggest factors that aids and assists the business entity in performing and executing the varied range of operations and functionalities. Moreover, the business corporation should utilize various mechanisms for stimulating the resources and capabilities of the enterprise. VRIO analysis will be proven very much beneficial for any business entity while analyzing the internal sources and capabilities of the enterprise. It has been noted down that Jay B Barney introduced the framework of VRIO in 1991. This tool was introduced in his work ‘Firm Resources and Sustained Competitive Advantage’.
- Valuable: Resources and capabilities minimize the impacts of threats and moreover, the stakeholders determine whether or not the resources are beneficial to the company or not. The resources are proven very much beneficial for the business in various areas, internally and externally and thus will assist in the firm’s development process.
- Rare: The business resources and capabilities possessed by the business firm are required to be rare and limited. This is also considered as one of an empirical factor for gaining a position of competitive advantage in the market.
- Imitability: According to this factor the business entity is required to have resources and capabilities that are hard to imitate or developing alternatives for them will be tough.
- Organization: On the basis of the research it has been inferred that the organization and the available resources and capabilities are required to maintain effectively and equally so as to attain desired outcomes such as competitive advantage. If the business corporation is capable of managing the available resources and capabilities then it leads the firm to enjoy the number of benefits on different grounds.
VRIO analysis has been considered as one of the contemporary means that can be used by any of the business entity for analyzing the resources and capabilities and can also manipulate them for attaining competitive advantage. One of the biggest advantages of this approach that it releases the real value of the available resources and capabilities of the firm and through which the business entity will be able in developing further strategies and plans. Another biggest advantage of this approach is that the business entity will be getting aware of the available resources and capabilities of the firm and that will aid them in developing future plans accordingly. And through this, the business organization will be able to allocate the resources that are in surplus in other directions and manage the deficit. Due to which the business firm will experience an increase in the effectiveness of the delivery of services and through which they will have a pool of satisfied customers. That will ensure a high goodwill and widening of market share.
Moreover, the available resources and capabilities that are in surplus can be utilized appropriately for aiding the workforce and their well-being. Through this step, the employees will feel valued and motivated and an enhancement in their productivity and efficiency will be observed. Apart from this, one of the biggest advantages of adopting this approach is that it enables the business firm in attaining a sustainable position of competitive advantage. The business corporation can make use of resources and capabilities in the process of development of strategies and plans for tackling with the competitors. Building a distinct image in the market is also possible if the business entity is appropriately making use of the mentioned mechanism. Increase in the customer base, brand loyalty and enhanced market share are the common benefits that will be attained by the adoption of the VRIO analysis.
Apart from the number of advantages, there are some disadvantages of this approach such as if the business entity is failing in managing and maintaining the resources and capabilities in an appropriate manner then the entity will be exposed to fierce competition.