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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment

Ananya Textiles has a large, skilled weaving workforce, patented dyeing technology and a well-known brand. Management wants to find which of these can give it a lasting advantage over rivals. Which test is correct for treating a resource as a source of sustainable competitive advantage under the VRIO framework?

A resource gives sustainable competitive advantage when it is valuable, rare, costly to imitate, and the organisation is set up to exploit it. Resources that are common, easily copied or merely tangible and recorded in the books cannot sustain an edge over competitors.

  1. AIt is valuable, rare, costly to imitate and exploited by the organisation's structure and processesCorrect
  2. BIt is valuable, readily available, inexpensive and used by most competitors
  3. CIt is large in quantity, recently acquired and fully recorded in the balance sheet
  4. DIt is tangible, owned outright and easy to value in monetary terms

Explanation

VRIO asks whether a resource is Valuable, Rare, hard to Imitate and supported by Organisation to capture value. Options with common or easily available resources cannot give lasting advantage, and being tangible or on the balance sheet is irrelevant.

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