Our meet the VRIO criteria. While tangible resources allow

Our textbook indicates that the
resource-based view is “a model that sees certain types of resources as key to
superior firm performance” (Rothaermel, 2017, pg. 111). According to this resource-based
view of the firm, a competitive advantage is embedded in developing vital
resources that are valuable, rare, costly to imitate, and are organized to
capture value (VRIO framework). The VRIO framework is “a theoretical framework
that explains and predicts firm-level competitive advantage” (Rothaermel, 2017,
pg. 113). Resources that meet the VRIO criteria predict a firm’s competitive
advantage and whether or not that competitive advantage will be sustainable.

Most firms have resources that are both tangible and intangible, but few of
those resources will meet the VRIO criteria. While tangible resources allow the
firm to execute successful business practices, the intangible resources are
more likely to serve as sources for sustained competitive advantage.

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“A valuable resource is one that
enables the firm to exploit an external opportunity or offset an external
threat” (Rothaermel, 2017, pg. 114). These valuable resources are defined in
economic terms when they generate above normal returns by exploiting
opportunities and neutralize threats in the environment. Resources not easily
acquired by other firms are rare. “A resource is rare if the number of firms
that possess it is less than the number of firms it would require to reach a
state of perfect competition” (Rothaermel, 2017, pg. 114). Ordinary resources that
are present in other firms are not sources of competitive advantage; however,
rare resources can offer temporary competitive advantages and are seen as
strengths of the firm. Rareness, then, is necessary but not the only
characteristic of a competitive advantage. Valuable and rare resources both
contribute to a firm’s efficiency and success.

 

“A resource is costly to imitate
if firms that do not possess the resource are unable to develop or buy the
resource at a comparable cost” (Rothaermel, 2017, pg. 114). If resources can be
easily copied, a firm stands to only achieve competitive parity through value
and rareness. When resources are costly to imitate, firms protect their
resources so that competitors cannot easily copy them. Consequently, resources
that are valuable, rare and costly to imitate can be a core competency. Being
organized to capture value is described as, “The characteristic of having in
place an effective organizational structure, processes, and systems to fully
exploit the competitive potential of the firm’s resources, capabilities and
competencies” (Rothaermel, 2017, pg. 116). If the firm is organized to capture
the value of its valuable, rare, and costly to imitate resources, the firm’s
other policies and procedures will be organized to support the exploitation of
these resources, putting them at a competitive advantage.

 

If the resources, capabilities or
core competencies of a firm together don’t produce a competitive advantage,
then they are working independently of each other and may produce competitive
parity or a temporary competitive advantage. For example, if a resource is only
valuable, it leads to competitive parity. If a resource is both valuable and
rare, this leads to a temporary competitive advantage. If resources possess value,
rarity, and aren’t easily imitated and the firm is organized to capture that value,
the firm will develop a competitive advantage and sustain it. In the last
scenario, all 4 of the VRIO criteria work together interdependently. Managerial
leadership should make decisions that support the development of these key
resources in terms of how they are created and sustained. Thus, managers
wanting to create a sustainable competitive advantage should use the resource-based
model and knowledge-based practices gained from using the VRIO theoretical
framework to achieve their organizational goals and deliver superior products
or services.