VRIO Analysis

VRIO Analysis:

1. Introduction

In the resource-based theory, the superior performance and competitive advantage of an organization are driven by the strategic resources and capabilities. The VRIO framework is an internal analysis framework that is a part of this resource-based approach, requiring the categorization of resources and capabilities (Hamel & Prahalad, 1993). It is a set of strategic evaluation tool that is designed to help a firm identify and safeguard its capabilities and resources that provide competitive advantage in the long term. VRIO is an acronym that represents value, rarity, imitability, and organization. These are elements that represent the sustainability of an organization by providing a long term ability to compete with other firms in the same industry or sector. The advantages and differentiators identified determine an organization’s approach to the marketplace. The VRIO framework, through the capabilities and resources identified, informs strategic decisions and decision-making that shape the direction of a company. Google, one of this century’s organizational giants, has attained remarkable success through its sustained competitive advantage in different areas of its resources and capabilities. In this report, the company’s VRIO framework is broken down with an intention of identifying the key resources and capabilities that have helped it to gain industry dominance.

2. VRIO Framework

In the framework, the first element is value. The first question that firms are needed to answer if whether resources add value through the enabling of exploitation of opportunities or defending against all threats (De Witt & Meyer, 2004). When the answer is yes, the particular resource is termed as valuable. In short, the resource must gain some level of value for an organization. The second element is rarity. A resource that is available only to a handful of organizations is regarded as rare (Hitt, Ireland, and Hoskisson, 2016). Combining value and rarity, a resources gives temporary competitive advantage to a firm. When a resource is valuable but not rare, then competitive parity is the result. In the third element, imitability describes resources that are costly to copy. Inimitable resources are those that are difficult to imitate, substitute, or buy at reasonable prices (Martin, 2015). Imitation occurs through duplication of a resource or substitution using comparable products. When the above three elements (value, rarity, and imitability) are all present, then an organization might achieve long-term competitive advantage. The fourth element, organization, requires that even where resources are suitably valuable rare, and imitable, organizations must exploit the full potential of the resources and capabilities through a strategic organizational culture and structure (De Witt & Meyer, 2004). Organization demands that firms consolidate its policies, organizational culture, structure, management systems, and processes. When these four elements align, then an organization is able to attain sustained competitive advantage.

3. Google

While the scope of this paper does not include an in-depth look into Google, it is important to provide a brief description of the company in relation to its industry with the purpose of identifying its major resources and capabilities. Google is a global giant operating in the tech industry, including the cloud computing sector, the computer and mobile software sector, advertising sector, and artificial intelligence sector, among other notable global industries. The company has amassed large amounts of the global market share and capital as a result of its success in the aforementioned fields. Its technology infrastructure is hard to match for any other player in the industry. Its database centres and many servers, capital advantage, and global presence separates the organization from the rest in its category (Google, 2021). The table below shows some of the core competencies at Google summarized and tabulated to enable one to see how VRIO analysis has helped the organization to identify, isolate, and use the resources and capabilities for the benefit of the organization.

Core Competency/ Resource Value Rarity Imitability Organization Competitive Advantage?

Financial Position Yes Yes No Yes Temporary

Brand Image Yes Yes Yes Yes Sustainable

R&D Yes Yes No Yes Temporary

Superior Customer Experience Yes Yes Yes Yes Sustainable

Product and Service Ranges Yes Yes Yes Yes Sustainable

Dominant Market Position Yes Yes Yes Yes Sustainable

Customer loyalty Yes No No Yes Temporary

Human Resource Management Yes Yes No Yes Temporary

3.1 Value

Google has a number of resources and capabilities that add a lot of value, enabling the firm to exploit opportunities and defend/thwart all threats. Its financial muscle is one of the most important resources for the company. Financial strength enables the company to invest into any opportunities that arise and helps the organization to fight threats. For example, the company is able to acquire innovative up-and-coming organizations that are a threat to its competitive power, thus utilizing an opportunity and thwarting a threat at the same time. Another major core competency that the company has is its brand image. The perception of a brand by the consumer and external stakeholders is important in creating a competitive advantage. Brand image is a decisive factor in influencing the choice of products from a consumer’s perspective. Brand image adds value to Google because it raises the cost for new entrants. Not many companies are able to compete with Google over this resource. Another major valuable core competency is the company’s R&D (research and development). With the intense level of competition, R&D is a key resource that helps an organization to establish and maintain market dominance. A focus on innovation is attained through R&D and Google has this resource in plenty. Other notable sources of value include customer experience, product range, market position, customer loyalty, and its human resource management.

3.2 Rarity

Likewise, Google’s financial strength is rare in the industry. Only a few other large global firms like Amazon and Facebook are able match up to Google’s financial strength. As a core competency Google’s brand image is also rare. Similarly, the company’s R&D resource is rare. The customer experience, product range, market position, customer loyalty, and its human resource management also provide rarity because they are not available to other firms and gaining them is costly.

3.3 Imitability

In terms of imitability, Google’s financial strength is imitable. It does not provide an advantage. Other large global firms like Amazon and Facebook can duplicate Google’s financial strength. As a core competency Google’s brand image is imitable. It cannot be copied or substituted with similar resources. However, the company’s R&D resource is imitable. Companies like Amazon and Facebook have already established similar R&D resources to compete better in the tech world. The customer experience, product range, and market position are also imitable and other organizations do not have the right resources to duplicate or substitute this core competence. However, customer loyalty and its HRM function can all be copied.

3.4 Organization

Google consolidates its policies, organizational culture, structure, management systems, and processes to create a competitive advantage that is sustainable in the long term. Its financial muscle, brand image, the company’s R&D, customer experience, product range, market position, customer loyalty, and its human resource management, are all well organized to ensure the company is able to reap the benefits of a sustainable competitive advantage.

4. Summary

In this report, the company’s VRIO framework is broken down with an intention of identifying the key resources and capabilities that have helped it to gain industry dominance. The VRIO framework is an internal analysis framework that is a part of this resource-based approach, requiring the categorization of resources and capabilities. It is a set of strategic evaluation tool that is designed to help a firm identify and safeguard its capabilities and resources that provide competitive advantage in the long term. Google is a global giant operating in the tech industry, including the cloud computing sector, the computer and mobile software sector, advertising sector, and artificial intelligence sector, among other notable global industries. The company has amassed large amounts of the global market share and capital as a result of its success in the aforementioned fields. Google consolidates its policies, organizational culture, structure, management systems, and processes to create a competitive advantage that is sustainable in the long term. Its financial muscle, brand image, the company’s R&D, customer experience, product range, market position, customer loyalty, and its human resource management, are all well organized to ensure the company is able to reap the benefits of a sustainable competitive advantage, through value, rarity, imitability, and organization where applicable.

References

De Witt & Meyer (2004) Strategy: process, content, context: an international perspective (Chapter 5, Business level strategy / pp 231- 296)

Hamel, G. & Prahalad, C.K. (1993) Strategy as Stretch and Leverage, Harvard Business Review.Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., (2016). Strategic management: Concepts and cases: Competitiveness and globalization. Cengage Learning. Chapter 1: The Internal Organisation

Martin, R.L. (2015).Strategy is about both resources and positioning. Harvard Business Review.