Can You Use VRIO Framework to Analyze The Human Resource?

    VRIO is an acronym for a four-question framework focusing on value, rarity, imitability, and organization, the criteria used to evaluate an organization’s resources and capabilities (Jurevicius, 2021). In modern economic theory, employees are treated as a most significant resource, so in this blog, I’m trying to understand how applicable the VRIO framework is to assess human resources. VRIO framework was developed by Barney (Barney)

Figure 1. Components of VRIO Framework (Goggin)

What it does do? 

    Application of the VRIO framework should provide an answer to the question: Whether the company’s resources, including human resources, can be considered a strength or weakness?

Value - is the resource valuable in terms of neutralizing the threats and exploiting the opportunities from the environment, 

Rarity - is the resource rarely present among existing and potential competitors, 

Inimitability - is the resource expensive or impossible to imitate, 

Organization - is the resource used by the company, or is the company organized in a way that allows efficient usage of the resource? (Pesic et al., 2012)

According to Pesic et al, they state that if human resources are valuable, they may provide competitive equality. If they are also rare, they may provide a current competitive advantage. If they are hard to imitate, they may provide a sustainable competitive advantage, but only within the context that supports their effective and efficient usage (Pesic et al., 2012). In general, a company has a competitive advantage when it is able to create more economic value than its competitors.

How to implement the VRIO framework in your company

Value - Human resource managers must be able to realize current, as well as future core competencies of the company, the need for appropriate profiles of employees, the state of competition, and plan the activities related to human resources needed by the company now and in the future

Rarity – Evaluation of the uniqueness of your employees. If the competitors have the employees with same characteristics as your company, then these features cannot form the basis for competitive advantage for any company.

Inimitability - Valuable and rare employee features provide an opportunity for the company to achieve above-average profitability in the short term. However, if competitors can imitate the characteristics of employees to gain a competitive advantage, then this will, over time, be a basis for competitive equality, but not for competitive advantage.

Organization – if the company is well-organized HR can be a resource of competitive advantage. The company should have procedures and systems that enable full utilization of human resources potential. Companies should bring up procedures to continuously improve their employees and appropriately provide incentives to encourage them. 

A Real-life VRIO Example: Google

    According to the article written by Michael Goggin who is an Associate Consultant at ClearPoint, he points out that Google’s success is due to sustained competitive advantage in human capital management (Goggin). If we were to break down Google’s VRIO framework from the HR perspective, it might look something like this:

• Value: Use human capital management data to hire and retain innovative, productive employees. These employees consistently create some of the most popular consumer products and services in the world.

• Rarity: No other companies are using data-based employee management so extensively.

• Imitability: Data-based human capital management is both costly and difficult to imitate, at least in the near future. Companies have to build the software and invest in training their HR staff on the new technology and strategy.

• Organization: Google is organized to capture value from this capability. The IT department has the skills to collect and maintain the data, while HR and team leaders are trained on how to use the data to hire, promote, manage, and improve the performance of employees.

Another Example: Both General Motors and Ford recruit assembly line workers from the same basic labor market. But Ford has been more successful at developing a cooperative, team-based culture than General Motors. Clearly the HR function, through either directly controlling or strongly influencing the characteristics of human resources in organizations plays an important role in developing and maintaining a firm’s competitive advantage.

Conclusion

    The VRIO framework enables the business to transform the HR function into a contributor to the company’s performance rather than a drain on firm resources.

References

1. BARNEY, J. 2001. Is the Resource-Based Theory a Useful Perspective for Strategic Management Research? Yes. Academy of Management Review, 26, 41–56.

   
   
2. GOGGIN, M. Explaining The VRIO Framework (With A Real-Life Example) [Online]. Clear point strategy Available: https://www.clearpointstrategy.com/vrio-framework/ [Accessed 3/29/2022 2022].
   
   
3. JUREVICIUS, O. 2021. VRIO Framework Explained [Online]. Strategic Management Insight. Available: https://strategicmanagementinsight.com/tools/vrio/ [Accessed 3/29/2022 2022].
   
   
4. PESIC, M. A., MILIC, V. J. & STANKOVIC, J. APPLICATION OF VRIO FRAMEWORK FOR ANALYZING HUMAN RESOURCES’ ROLE IN PROVIDING COMPETITIVE ADVANTAGE.  Tourism and Management Studies International Conference Algarve, 2012. ESGHT-University of the Algarve, Portugal.