To be successful in product development, it’s important to exploit every possible resource to its fullest potential. VRIO is a framework that can help you do just that. VRIO stands for Value, Rarity, Imitability and Organization – four factors that can help you determine how best to use a given resource. Let’s take a closer look at each element:
- Value: How valuable is the resource?
- Rarity: How rare is the help?
- Imitability: How hard is it to imitate the resource?
- Organisation: How well is the organisation exploiting the resource?
Value and rarity are pretty self-explanatory – the more valuable and rare a resource is, the more likely it will give you an advantage. Imitability is a bit more nuanced. A resource may be valuable and rare, but if your competitor can easily imitate it, it will not do you much good. The fourth factor, organisation, is essential because it’s no use having a valuable, rare and imitable resource if you don’t know how to exploit it.
VRIO can be a helpful framework for thinking about how to best use resources. Still, it’s important to remember that not all resources need to be rare and valuable to be exploited effectively. Sometimes, the best way to exploit a resource is to use it in a way that is unique to your organisation.
How do I determine the value of a resource?
To understand the value of a resource, you need to think about how you can use it to create value for your organisation. A resource can be either direct or indirect. Natural resources are things like raw materials, while indirect resources are relationships and knowledge. Indirect resources are often more valuable than direct resources because you can use them differently.
Let’s look at a few examples:
A manufacturing company might have a lot of raw materials. Still, suppose it doesn’t have the relationships or knowledge to turn those raw materials into finished products. In that case, they’re not going to be much use.
On the other hand, a software company might not have direct resources. Still, if it has the right relationships and knowledge, it can create value.
So, when you’re thinking about the value of a resource, it’s essential to consider both its direct and indirect uses.
How do I determine the rarity of a resource?
The rarity of a resource is determined by how many other organisations have access to it. If a resource is available to everyone, it will not be very rare. If a resource is only available to a few organisations, it will be rare.
There are two main ways to increase the rarity of a resource:
- Making it more difficult for other organisations to access the resource. You can do this by keeping the resource secret or making it physically hard to get.
- Making it more difficult for other organizations to imitate the resource. You can do this by making it hard to reverse-engineer or hard to replicate.
How do I determine the imitability of a resource?
The imitability of a resource is determined by how easy it is for other organisations to copy or replace it. If a resource can be easily copied or replaced, it will not be very hard to imitate. Conversely, if a resource is difficult to copy or replace, it will be hard to imitate.
There are two main ways to increase the imitability of a resource:
- It makes it more difficult for other organisations to copy the resource; You can do this by making it unique or hard to replicate.
- Making it more difficult for other organisations to replace the resource. You can do this by making it essential to the operation of your organisation or by making it hard to find a substitute.
How well is the organisation exploiting the resource?
The final VRIO factor is organisation; this is important because it’s no use having a valuable, rare and imitable resource if you don’t know how to exploit it.
There are two main ways to increase the exploitation of a resource:
- Internal development involves training employees to use the resource effectively or investing in new technologies or processes to make better use of the resource.
- External development involves partnering with other organisations with complementary resources or licensing the resource to other organisations.
Both internal and external development requires time and money, so it’s important to consider whether the potential benefits are worth the investment.
Can VRIO help me even if I don’t have rare resources?
Yes! Even if you don’t have any rare resources, VRIO can still help identify opportunities for improvement. By understanding the value, rarity and imitability of your resources, you can make better decisions about using them.
So, there you have it: a brief introduction to VRIO and how you can use it in product development.