Is the resource or capability difficult or costly to imitate?
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Capabilities are costly to imitate when other companies are unable to develop them except at a cost disadvantage relative to companies that already have them. This usually is a result of one or a combination of three conditions: Show
Unique historical conditions: such as establishing facilities in a key location that preempts competition when no other locations have the same or similar value related characteristics or developing a unique organisational culture in the early stages of the company’s life that cannot be duplicated by cultures developed at different times. A unique culture can not only serve as a source of competitive advantage, but also may be a source of competitive disadvantage. The latter may be the case when a company’s culture prevents it from recognizing or successfully adapting to changes in a turbulent environment. At the same time, a unique culture may be a source of sustainable competitive advantage. Causal ambiguity: also may prevent competitors from perfectly imitating a competency if the link between a company’s resources, capabilities, and core competencies is not identified or understood. Also, competitors may not be able to identify or determine how a company uses its competencies to achieve a sustainable competitive advantage. Social complexity: means that a company’s capabilities are the product of complex social phenomena such as interpersonal relationships within the company or between The Company and Its Customers and Suppliers. Non-substitutable A company’s capabilities are no substitutable when they do not have strategic equivalents. In addition, if capabilities are invisible, it is even more difficult for competitors to identify viable substitutes. Examples of capabilities that can be difficult to identify or to find suitable substitutes for include company specific knowledge and trust based working relation- ships. The relationship between the characteristics of company capabilities, the sustainability of competitive advantage, and performance implications Valuable RareCostly to ImitateNon- substitutableCompetitive Consequences Performance ImplicationsYes /NoNoNoCompetitive DisadvantageBelow Average ReturnsYes /NoNoYes/NoCompetitive ParityAverage ReturnsYes / YesNoYes/NoTemporary Competitive AdvantageAverage / Above Average ReturnsYes /YesYesYesSustainable Competitive AdvantageAbove Average ReturnsMajor Inferences that you can Draw Resources and capabilities that are neither valuable, rare, costly to imitate, nor non substitutable mean that the company will be at a competitive disadvantage and will earn below average returns Resources and capabilities that are neither valuable, rare, costly to imitate, nor non-substitutable mean that the company will be at a competitive disadvantage and will earn below average returns. Resources and capabilities that are valuable, but are neither rare nor costly to imitate and may or may not be non substitutable mean that the company can achieve competitive parity and earn average returns Resources and capabilities that are both valuable and rare, but are not costly to imitate and may or may not be non-substitutable, may enable the company to achieve a temporary competitive advantage and will earn above average to average returns. CompanyCountry of OriginOriginal core BusinessKey skillsGrowth pathHondaJapanMotor cyclesPiston engine design and developmentCars, Lownmowers, small generatorsGilletteUSAShaving productsAdvertising effectivenessOther toiletries, e.g. deodorantsHansonUKTextilesFinancial control; acquisition evaluationPost-acquisition cash maximization in low technology businessesMcDonald’ SUSAHamburger restaurantsSite selection; Quality standardizationExtension of opening hours to include breakfast; product innovation (fish, pizza, salads)Marks & SpencerUKClothes retailingSupplier management; value-for- money brandingDiversification into food, furniture, flowersSonyJapanTransistor radiosProduction innovation; evaluation of future customer desiresBroad consumer electronics; TV cameras; computer componentsBecause they are generally knowledge based, capabilities that are company’s core competencies become more valuable as they are used over time. For example: Sharing knowledge, across people, jobs and organizational functions, may result in an increase in the value of that knowledge in ways that are competitively relevant. Core competencies can also become core rigidities (or core in competencies). Core competencies must be strategically relevant, which means that companies must continually strive to develop new competencies. the VRIO framework is a tool for identifying the competitive advantages of an organization (if they have any).In this article, we explain
There are countless strategy frameworks out there, and we have already covered a few key frameworks which we think are extremely flexible and battle-tested over the years:
VRIO Framework stands for?The acronym VRIO stands for value, rarity, imitability, and organization. This is the four-question framework used to evaluate the resources and capabilities of an organization. Now, what is VRIO Analysis? What is VRIO Analysis?VRIO Analysis is an internal analysis tool, used by organizations to categorize their resources based on whether they hold certain traits outlined in the framework. This categorization then allows organizations to identify the company resources that provide a competitive advantage. The VRIO Analysis is an Internal Analysis tool. The VRIO Model:
We'll go into more detail about each of the dimensions in a moment. First, we would like to explain why the VRIO analysis is such a popular tool. Jay B Barney conceived the VRIO analysis in 1991. Though we should mention, Barney originally conceptualized the framework as VRIN, the last dimension in the framework was refined over the years and the N in VRIN became an O. The framework is simple to understand, easy to use, and can provide enormous value for organizations looking to stay ahead of competitors. This has made the tool an obvious choice for many companies looking to analyze their internal environment. The premise of identifying a firm's resource as a competitive advantage is whether it passes through the dimensions of the framework. The VRIO Framework ExplainedValuableWhen a resource is valuable, it's providing the organization with some sort of benefit. However, a resource that is valuable and doesn't fit into any of the other dimensions of the framework, is not a competitive advantage. An organization can only achieve competitive parity with a resource that is valuable and neither rare nor hard to imitate. RareA resource that is uncommon and not possessed by most organizations is rare. When a resource is both valuable and rare, you have a resource that gives you a competitive advantage. The competitive advantage achieved from a resource that is both valuable and rare is usually short lived though. Competitors will quickly realize and can imitate the resource without too much trouble. Therefore it's only a temporary competitive advantage. Hard to ImitateResources are hard to imitate if they are extremely expensive for another organization to acquire them. A resource may also be hard for an organization to imitate if it's protected by legal means, such as patents or trademarks. Resources are considered a competitive advantage if they're valuable, rare, and hard to imitate. However, organizations that aren't organized to fully take advantage of the resource, may mean the resource is an unused competitive advantage. Organized to Capture ValueAn organization's resource is organized to capture value only if it is supported by the processes, structure, and culture of the company. A resource that is valuable, rare, hard to imitate, and organized to capture value is a long-term competitive advantage. A resource can not confer any advantage for a company if it’s not organized to capture the value. Only a firm that is capable to exploit valuable, rare, and imitable resources can achieve sustained competitive advantage. VRIO Analysis ExampleTo use the framework, you'll need to first define your resources. Resources may be tangible or intangible in nature and generally fall into one of the following categories: Financial Resources such as money, shares, bonds, and debentures. Human resources such as the skills of your people and the knowledge of your people. Material resources such as raw materials, facilities, machinery, and equipment. Non-material resources such as patents, brand names, and intellectual property. Once you've defined all your resources, take each resource through the VRIO framework and categorize each based on the traits it holds. Categorize resources into one of the following groups: competitive parity, temporary competitive advantage, unused competitive advantage, or long-term competitive advantage. The framework below should help you visualize the process. Once you've categorized your resources into the four categories, you should have a good understanding of where your competitive advantages lie, and whether they'll be short or long-term advantages. VRIO ResourcesWith your resources categorized through the VRIO framework, you can now start to analyze each.
The aim is to find the resources that have the potential to move from their current category into a higher one. For example, an organization may have a resource that is valuable and rare, such as a certain invention they created. They deem their invention a Temporary Competitive Advantage as per the VRIO analysis. The organization comes to this conclusion because they decide it wouldn't be difficult or expensive for a competitor to imitate the invention if they wanted to. Upon analysis, the organization sees an opportunity to move their Temporary Competitive Advantage to a higher category. After some analysis, they come to the conclusion that if they can obtain a patent for their invention, the resource would then become very difficult for competitors to imitate. The resource would then enter a higher category, as it is valuable, rare, and hard to imitate. The process of analyzing your internal environment is extremely important in the strategic planning process. While this post has only focused on the VRIO framework, there are many other internal analysis tools that can be used by organizations to assist them when strategic planning. We should also mention that an external analysis is just as crucial in the strategic planning process. VRIO Analysis for a sustainable competitive advantageAs previously mentioned, a resource that is a competitive advantage is not a guarantee of value provided to the organization, the resource may be unused by the organization, or it may be only a temporary advantage. What organizations really need to create is a sustainable competitive advantage. However, creating this is much easier said than done. So now that we've categorized our resources and analyzed those with potential, where to next? The category that usually poses the biggest potential for improvement is the Unused Competitive Advantage Category. The resources are already competitive advantages, they only lack the organization required to fully utilize them and gain value from them. This is where your strategic plan comes into play. As mentioned, resources in the Unused Competitive Advantage category don't have the support, processes, and culture in place to completely utilize their value. Developing a strategic plan that takes these unused competitive advantages into account and works to support these resources through strategic management will allow companies to transform their resources into sustained competitive advantages. A strategic plan will align the processes, people, and structure needed to support these resources and turn them into sustainable competitive advantages. By no means is this an easy or quick solution. Developing a good strategic plan that exploits your unused competitive advantages is only the beginning, the organization then needs to manage and track the strategy to ensure its successful execution. Luckily, we've already created articles that will help you on your next part of the journey, creating your strategic plan: How to Write a Strategic Plan: The Cascade Model. What makes a resource hard to imitate?DIFFICULT-TO-IMITATE resources often involve legally protected intellectual property such as trademarks, patents, or copyrights. Other difficult-to-imitate resources, such as brand names, usually need time to develop fully. Southwest's culture arose from its very humble beginnings and has evolved across decades.
What are the hardest resources and capabilities to imitate?Note: Intangible resources tend to be the most difficult to imitate. As such, a valuable and rare resource will only allow for the creation of a sustainable competitive advantage if other firms are not able to acquire the resource or some viable substitute for the resource. Thus, inimitability is essential.
Why it might be costly for one firm to imitate the resources and capabilities of another firm?Because businesses mimicking a company's resources and capabilities might not be aware of the link between a firm's control over those resources and capabilities and its competitive edge, those resources and capabilities could be costlier to replicate.
What is resource imitation?“Resource limitation” is generally associated with reductions in rates of resource uptake, biomass production, or population growth that are caused by low availability of energy and materials such as carbon, water, and other essential elements (nutrients).
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