VRIO analysis is
a framework
for analyzing the strengths and weaknesses of a company based on the four resources it has: human resources, materials, funds, and information. Also, VRIO is an abbreviation for the following four elements.
- Economic value: Do the management resources you own influence sales?
- Rarity: Are the management resources you own rare in the market?
- Imitability: Whether competitors can easily imitate your company’s management resources.
- Organization: Whether the necessary organizations and mechanisms exist to utilize management resources.
VRIO analysis identifies what companies need to maintain and improve their competitive advantage by performing the above four analyses. VRIO analysis takes a lot of time, and it is important to perform repeated analyzes and constantly monitor your company’s situation. Although it takes time and effort, properly performing VRIO analysis will help you accurately understand your company’s strengths and weaknesses, clarify your competitive advantage, and clarify your management guidelines.
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VRIO analysis method
When performing VRIO analysis, it is important to first clarify the purpose of performing VRIO analysis. This is because the level of depth of analysis that should be conducted depends on the purpose. Once the purpose has been clarified, decide on the scope of analysis. The scope of analysis here refers to the people targeted for analysis. It is important to decide the target of the analysis, such as whether to analyze the entire company or each division.
Once the scope of analysis is determined, we begin by understanding the value chain. Value chain refers to the value added to a product or service before it reaches the consumer. The value chain includes not only manufacturing, transportation, and sales, but also related personnel and
PR
.
Once you have completed understanding the value chain, let’s evaluate the four elements of VRIO analysis. Departments that meet the four elements of VRIO analysis are considered strengths in a company. By considering the direction of management based on the results of VRIO analysis, it is possible to enhance the company’s strengths while reinforcing its weaknesses.
Points to note in VRIO analysis
When performing VRIO analysis, be careful to always evaluate in the order of “V → R → I → O”. This is because a company’s value becomes important in this order, and if weaknesses are found, it is necessary to improve them in this order. If you analyze your business in this order, and even if you think there are weaknesses, you can strengthen your company’s competitive advantage by taking countermeasures in this order.
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