VRIO Framework

Learning about the VRIO Framework in business studies changed my world.

Knowing how to undertake a VRIO analysis and applying that knowledge is as essential to Risk Management as SWOT’s PESTEL’s and other tools for strategic planning. Unfortunately, these tools are sometimes dismissed too quickly because we don’t take the time to apply findings to our business plan, BUT THIS DATA IS ESSENTIAL. (Further reading on this can be found in my articles SWOTs PESTELs and Risk Management and You better Think.)

What is a VRIO Framework?

VRIO stands for valuable, rare, inimitable and organised. The basic principle is that assets should be measured by these attributes to determine their worth.

Valuable - Based on the monetary worth of an asset, which can be useful when taking advantage of an external opportunity or neutralizing an external threat. Cash in bank is the obvious example of a valuable asset.

Rare - That which you possess that others don’t possess. Property in prime location could be an example but it is not only assets that can come under this attribute. Heritage, loyalty, intellectual property and other intangibles could be included. It is important that these assets be appropriately measured though, and not just wishful thinking.

Inimitable - A word that is not used much but worth remembering if you want to remember and explain VRIO. It basically means unique. Something that is impossible, difficult or costly to imitate. Something that really gives you that competitive edge.

Organised - This is so often overlooked, but one that resonates with me as a person who has studied information management. I once attended a seminar where it was said that there are so many wild camels in the Northern Territory which could be worth a fortune, if there were only some way of organizing them as an industry. This is a great example of why resources should be organised to be able to be accessed and be of benefit, and why I spend so much of my time cataloguing and organizing information.

VRIO analysis is one of my first steps in risk assessment when approaching just about any business analysis. I start with the financial statement to see what the monetary assets are of an organisation, and then move on to intangibles.

Let’s start with the obvious example of money. Yes, it is valuable and yes it can be easily organised, but it is not necessarily rare or inimitable. Property can be valuable, rare and inimitable if it is in a prime location and is fit for purpose, but it can also fall outside of these categories. Heritage properties can be quite a challenge in working out their worth with a VRIO analysis.

Having spent a lot of time in ‘For Purpose’ (also known as ‘Not For Profit’) organisations, I have learnt the importance of people as assets. Many NFP’s are cash poor and people rich and need to learn how to value their people better, especially volunteers.

The other assets that are not always identified are: - intellectual property, rich cultural awareness, unicorn employees, information technology, history or tradition, and the list goes on. While the process of identifying your assets can be quick, there is merit in workshopping this, to capture them all and to add some objectivity, rather than wishful thinking. It is too easy to think that those things that we have invested so much time money and energy in, are more valuable that we think.

Remember, a resource is a strength and a core competency if it is valuable, rare, costly to imitate, and the firm is organized to capture at least part of the economic value created.

Once you have identified the real assets, you can shape your risk framework to ensure your assets are protected. Not all assets need to make it on to your strategic risk register, and a VRIO analysis will help you determine what should. Risk framework templates can be easily found on the internet, but if you want to build a fit for purpose risk framework, you need to start with informed data. That is why we shouldn’t be too quick to dismiss our SWOT’s,

PESTEL’s or VRIO’s , but also need to take the time to process the data and build it into our Risk frameworks.

What assets do you have that are valuable, rare, costly to imitate and organised in such a way that they can be easily accessed?