In our post last week, we discussed business strategy. Businesses establish strategies to create competitive advantages. The concept of competitive advantages is simple but to succeed at creating one is a different story. According to the Lexico dictionary, a competitive advantage is a condition or circumstance that puts a company in a favorable or superior business position.
We often mistype different resources or organizational capabilities as competitive advantages. To contribute to a competitive advantage, your capability or resource must meet the VRIO framework requirements. The VRIO framework stands for Valuable, Rare, Inimitable, and Organization. You must answer yes to each part of the VRIO framework.
Valuable – Is your resource or capability valuable? Does it benefit the organization?
Rare – Is your resource or capability rare? How easy is it to access this resource or capability?
Inimitable – Is your resource or capability inimitable? Can another competitor imitate it? Your resources and capabilities establish your competitive advantage. If others copy what you do, it no longer meets the requirements of a competitive advantage.
Organization – Is your organization organized to use the resource or capability? Is your organization poised to use your valuable, rare, inimitable resource or capability to create a competitive advantage? Do you have the infrastructure and culture necessary to create a competitive advantage using your resource or capability?
These questions determine whether your capabilities and resources qualify as a competitive advantage. A competitive advantage positions your company to meet customers’ needs uniquely. The most common misconceived competitive advantage is operational efficiency. Business owners think that becoming more efficient in operations counts as a competitive advantage. Let’s analyze the capability, operational efficiency, with the VRIO framework
Valuable – Yes. Operational efficiency delivers value to the company because it reduces costs and sales cycles.
Rare – No. All companies use operational efficiency to improve their business’s functionality.
Inimitable – No. Any business can use operational efficiency or follow the same steps as your business to become more efficient.
Organization – Yes. Your company has the infrastructure needed to become more operationally efficient.
Since we answered no to at least one of the questions, we conclude that operational efficiency does not qualify as a competitive advantage. Considering this, analyze your current resources and capabilities. Do they meet the VRIO framework for an established competitive advantage? If not, how can you create a competitive advantage for your business? Establishing a competitive advantage provides you with security and profitability in your industry.
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