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Essay: Which is the better analytical tool – VRIO or SWOT?

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  • Published: 8 October 2022*
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Organization’s Strategic Resources and Capabilities

Every organization has resources and capabilities, which is used by organizations to obtain a competitive advantage within a market. Strategic Resources can be defined as the assets that the organization has. There are three types of resources, which are known as Financial Resources (tangible), Enterprise Knowledge (intangible) and Company workforce (Human Resources). (Duff, n.d) (MBAskool, n.d.)

Strategic Capability is defined as the organization’s ability to use the resources and skills to gain a competitive advantage, which allows the organization to compete in the market and establish a long-term on-going concern.

(Hartman & Thompson, 2019)

The purpose of identifying and evaluating the strategic resources and capabilities is to gain a competitive advantage. When the resources and capabilities are combined, this provides an advantage over the competitors for the organization. This provides two different types of competitive advantages, namely: price-based or differentiation-based. (Duff, n.d)

VRIO Framework

What is the VRIO Framework?

The VRIO analysis is a framework, which is used to identify and evaluate the resources within an organization. VRIO is an abbreviation, which stands for: Value, Rarity, Inimitability, and Organizational Support. Jay B Barney created this VRIO framework. (Management Mania, 2016) (VComply Editorial, 2017)

What is the purpose of the VRIO Framework and how is it used?

This frame is used to identify and evaluate the organization’s resources because once the resources and known then it is easier to realize either the competitive advantages or even weaknesses in the organization. This framework is mainly used to evaluate the internal environment of the company. In the bullet points below, each initial of the abbreviation is explained. (Management Mania, 2016)

  • Value: Are the resources and capabilities valued by the consumers and the market and allow the organization to respond to the opportunities and threats within the market?
  • Rarity: Are the resources and capabilities, which exist, rare and is it easily accessible?
  • Inimitability: Is difficult and costly for the competitors to imitate the resources and capabilities?
  • Organizational Support: Can the organization be able to exploit the resources and capabilities?

By answering these questions, the organization can determine if the resources and capabilities within the organization can be used to gain a competitive advantage. (Management Mania, 2016) When the questions are answered, the following can be seen:

  1. If the resources and capabilities are not valued, then it should be outsourced
  2. If the resource is valued but not rare, then the company is in a state of competitive conformity, which means that the organization is on par with the other competitors
  3. If the resource is valued and rare, but it is not costly enough for competitors to imitate the resource, the organization has a temporary competitive advantage as competition can be able to still imitate the resource for a reasonable price
  4. Even if the resource is valuable, rare and is costly to imitate for competition but the organization is not able to exploit the resource effectively, this makes the resource too costly for the company as it is unnecessary costs
  5. If all of these are controlled and managed by the organization, this resource can provide a permanent competitive advantage.

(Management Mania, 2016)

SWOT Analysis

What is the SWOT Analysis?

SWOT analysis is a framework in which the management analyses the internal and external factors, which could influence the organization’s performance in the future. SWOT comprises of strengths, weaknesses, opportunities, and threats. Strengths and weaknesses combine to make up the internal factors while opportunities and threats combine to make up the external factors. (Hill & Seidel, 2019)

A matrix is usually created with the strengths, weaknesses, opportunities and threats. This provides management with an overview of the 4 aspects of the business and which parts can be leveraged for growth and which aspects need more planning to avoid threats to the company. (Slovak, n.d.)

Advantages of SWOT Analysis

  1. SWOT Analysis combines financial and non-financial information about the organization or objective and enhances decision-making. (Nordmeyer & Thompson, 2019)
  2. This framework is simple to use and requires no specific training or skills as long as someone does it who has knowledge about the objective. It only requires a brainstorming time period. (Nordmeyer & Thompson, 2019)

Disadvantages of SWOT Analysis

  1. There is no weight factors which means that the importance of a specific strength, weakness, opportunity or threat is not known and this may affect the object as the decisions made are not based on priority. (Nordmeyer & Thompson, 2019)
  2. This framework categorizes each factor was only one dimension within the matrix which however may not be the case as a strength may also be a weakness. (Nordmeyer & Thompson, 2019)

Comparison between VRIO Framework and SWOT Analysis

As seen in the information provided above, SWOT analyses the internal environment of the organization by how it operates within the current market. SWOT looks at the strengths, weaknesses, opportunities and threats, which influences the performance of the company. VRIO Framework looks at the internal strategic capabilities and resources within the company and firstly to do the VRIO analysis, the value of the resource has to be decided which takes the customer’s perspective into consideration. Secondly, SWOT analyses the company as a whole while VRIO analyses each resource individually. This shows that VRIO is clearer and enables the organization that uses the framework to gain a better understanding. (Study Moose, 2016)

Conclusion

In conclusion, the result of this research has shown that the VRIO Framework is a better analytical tool due to the two main reasons that VRIO is clearer as well as it provides a more detailed perspective into each resource rather than the organization as whole. To summarize the report, strategic resources are the assets of the organization while strategic capability is how the organization uses the resources of the organization to obtain a competitive advantage. VRIO Framework analyses each resource individually looking at the Value, the Rarity, the Inimitability, and the Organizational Support. The SWOT Framework looks at the organization as a whole and looks at the strengths, weaknesses, opportunities and threats, which can affect the organization. This can then provide an overview for the company to focus on the strongest aspects of the business.

See more strategic management tools here.

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