VRIO is an acronym of Value, Rarity, Inimitable and Organisation. It is a framework of business analysis developed by Jay Barney in 1991 in his work Firm Resources and Sustainable Competitive Advantage.

In this framework, competitive advantage is explained. An organisation which is able to differentiate its product from its competitors, it is said to have its competitive advantage. At the root of this advantage is the differential value as against the competitors. This is conveyed to the desired target audience.

The components of VRIO model are discussed here.

Value (V) : Value is determined by an organisation’s ability to use resources and capability to exploit opportunities. It is to be seen whether it can ward off threats in the market. Further, whether these put together become the strength or the company. If the organisation fails to cash on opportunities and ward off threats, it could become its weakness. This varies from industry to industry. An organisation has to exploit change — technological, demographic cultural and economic. It has to adapt to the organisation’s environment.

There are five threats which are to be addressed — the threat of buyers, the threat of suppliers, the threat of new entrants, the threat of rivalry and the threat of substitutes. Michael Porter has explained these in his Five Forces model.

Rarity ( R ) : If an organisation has an exceptional capability it can lead to a competitive advantage. An organisation can have a valuable resource or capability, that is unique. An organisation’s resources and capabilities must have short supply and persistence over a period of time. It ensures circulation cycle and constant demand.

Imitability ( I ) : The ultimate object by having valuable and rare resources is to prevent imitation of an organisation’s products by others. It makes an organisation a leader, a pioneer, and gives it a first mover advantage. That constitutes a competitive advantage. An organisation gains when its products are difficult to copy. Even the time taken to imitate and cost of imitation matter.

Organisation (O) : Efficient resource management supposes timely availability of resources and that too economically. This includes all resources — financial resources, production resources. IT and natural resources. After attaining, value, rarity and imitability, it is time to consider systematisation of resources. It sustains the competitive advantage. Management control, reporting system and compensation policy play a vital role here.