Appendix 5: VRIO Analysis Instrument

Identify the industry, market, and market segment.

1. Identify the industry, market, and market segment under analysis.
2. Place this in the instrument.

Analyze data about the internal environment of the firm.

Analysis is the process and result of examining all the data available for the case and identifying and classifying all the data for each category in a strategic management framework.

1. Methodically and thoroughly examine all the data available from the case about the internal environment.
2. Identify resources, capabilities, and core competencies of the company.
3. Place them in the instrument below in the lefthand column titled “Resource, capability, or core competency.”
4. Analyze whether each resource, capability, or core competency is valuable, rare, costly to imitate, and organized to capture value.
   1. Complete the table from left to right for each resource, capability, or core competency listed.
   2. Remember that the VRIO framework is a flowchart.
   3. Stop your assessment when the resource, capability, or core competency is not valuable, not rare, or not costly to imitate. Once you have answered “no,” move on to the next.
   4. Place your analysis for each resource, capability, or core competency in the instrument below.
5. When you have completed the analysis of whether each resource, capability, or competency is valuable, rare, costly to imitate, and organized to capture value, determine the competitive implication for the firm.
   1. Competitive disadvantage (Not valuable → STOP)
   2. Competitive parity (Valuable → Not rare → STOP)
   3. Temporary competitive advantage (Valuable → Rare → Not costly to imitate → STOP)
   4. Unused competitive advantage (Valuable → Rare → Costly to imitate → Not organized to capture value → STOP)
   5. Sustainable competitive advantage (Valuable → Rare → Costly → Organized to capture value)
6. Place the correct level of competitive advantage in the final column on the right titled “Competitive implication.”

Interpret the analysis.

Interpretation is the process and result of examining the analysis to identify and explain relationships in the analysis and underlying root causes of the situation. Interpretation is not found in the case or company research. Interpretation applies critical thinking to the analysis conducted so far. Answer only those questions that add value to the overall process of working with the VRIO to analyze the internal environment of the firm. Interpretation begins to narrow the focus.

1. Examine the analysis of resources, capabilities, and core competencies.
2. Identify and explain whether, how, and in what ways the information in the analysis is related.
3. Identify and explain underlying root cause(s) of the situation.
   1. What may be causing the information identified in the analysis?
4. Place the interpretation in the instrument below in the section titled “Interpretation.”

Evaluate the analysis and interpretation.

Evaluation is the process and result of examining the analysis and interpretation to identify and explain the meaning of the information to the company by considering its impact, relevance, and importance to the company and by identifying the company’s current, potential, or needed assets, organizational capacity, and managerial ability that may support or mitigate the areas of highest impact, importance, and relevance for the firm. Like interpretation, evaluation is not found in the case or company research. Evaluation applies critical thinking to the analysis and interpretation conducted so far. Answer only those questions that add value to the overall process of working with the VRIO to analyze the internal environment of the firm. Evaluation continues to narrow the focus.

1. Examine the analysis and interpretation.
2. Identify and explain whether, how, and in what ways the information in the analysis and interpretation impacts the company.
3. Identify and explain whether, how, and in what ways the information in the analysis and interpretation is relevant to the company.
4. Determine in what ways the information in the analysis and interpretation is important to the company.
5. Determine the company’s current, potential, or needed assets, organizational capacity, and managerial ability that may support or mitigate the areas of highest impact, relevance, and importance for the firm.
6. Place the interpretation in the instrument below in the section titled “Interpretation.”

Recommend action to the firm.

1. Make recommendations to the company to leverage strengths identified in the VRIO analysis.
2. Make recommendations to the company to build its strategy around resources, capabilities, or core competencies that provide a sustainable competitive advantage.
3. Place the recommendations in the instrument below in the section titled “Recommendations.”

Analysis Instrument