Chapter 13: VRIO & Core Competencies

Chapter 13: VRIO and Core Competencies

Building Strategy Around What the Organisation Can Uniquely Do

Video Resources

Core Competencies: The Most Underused Tool in Case Competitions

Competitive Landscape Maps Visually Show Where Your Client Stands and Where It’s Going

Learning Objectives

By the end of this chapter, you should be able to:

• distinguish resources, capabilities, competencies, and core competencies;

• identify the resources and capabilities most relevant to a strategic decision;

• evaluate resources and capabilities using the VRIO framework;

• explain why some capabilities are difficult for competitors to imitate;

• determine whether an organisation is prepared to capture the value of a capability;

• distinguish competitive parity, temporary advantage, and sustained advantage;

• compare the capabilities an organisation has with those its strategy requires;

• evaluate whether missing capabilities should be built, bought, borrowed, or accessed through partnership;

• use competitive landscape maps to connect organisational capabilities with market position; and

• develop recommendations that fit the organisation rather than merely the opportunity.

Why This Matters

One of the most common weaknesses in case competitions is a recommendation that could have been given to almost any organisation:

• invest in digital;

• improve marketing;

• expand internationally;

• launch a premium product;

• develop a loyalty program;

• enter a growing market; or

• form a strategic partnership.

These recommendations may sound reasonable. But they leave an important question unanswered:

Why is this organisation positioned to succeed?

A market may be growing, but the organisation may lack the capabilities required to enter it. A strategy may be attractive, but competitors may be able to copy it immediately. A company may possess valuable resources, but lack the systems, leadership, or structure needed to use them effectively.

The strongest strategy does more than pursue an attractive opportunity. It connects that opportunity to what the organisation can do especially well.

Core competency analysis helps case teams understand:

• what the organisation possesses;

• what it can do;

• what it can do better than competitors;

• which capabilities customers value;

• which capabilities competitors will struggle to replicate; and

• how those capabilities should influence the recommendation.

VRIO provides a structured way to evaluate whether a resource or capability can contribute to competitive advantage.

Discover Your MAD Skills Principle

The best strategy fits the organisation—not just the opportunity.

An opportunity may exist for many organisations. The strategic question is why this organisation should pursue it and how it can win.

Instead of recommending:

Enter the premium market because it is growing.

A stronger recommendation might be:

Enter the premium institutional market because the organisation’s trusted brand, specialised product-development capability, and long-standing distributor relationships provide a credible and defensible route to that customer segment.

The second recommendation connects the opportunity to the organisation.

A useful capability-based argument follows this progression:

Strategic opportunity → Relevant capability → Competitive advantage → Organisation-specific recommendation

Where VRIO Fits in the Case-Solving Process

VRIO is primarily an internal strategic analysis tool.

It is particularly valuable when a case asks:

• What should this organisation do?

• Where should it compete?

• How can it win?

• What creates its competitive advantage?

• Is its current advantage sustainable?

• Which capabilities should it protect or strengthen?

• What capabilities does the proposed strategy require?

• Should the organisation build, acquire, outsource, or partner for a capability?

• Is the organisation ready to pursue the recommendation?

• Can competitors easily copy the strategy?

VRIO is most useful after the team has developed some understanding of:

• the customer;

• the external environment;

• the industry;

• the organisation’s activities;

• its financial position; and

• the strategic decision.

For example:

• PESTLE may identify an external opportunity.

• Five Forces may reveal the pressures affecting the industry.

• Value Chain Analysis may identify where the organisation creates value.

• VRIO can then test whether those activities or capabilities provide a defensible advantage.

VRIO should not be used to produce an inventory of everything the organisation owns. It should evaluate the resources and capabilities most relevant to the decision.

Understanding Resources, Capabilities, and Competencies

These terms are related, but they are not interchangeable.

Resources: What the Organisation Has

Resources are the assets available to the organisation.

They may be tangible or intangible.

Tangible Resources

These include physical or financial assets such as:

• cash;

• facilities;

• equipment;

• inventory;

• land;

• distribution infrastructure;

• production capacity; and

• access to financing.

Intangible Resources

These include non-physical assets such as:

• brand reputation;

• patents;

• proprietary data;

• customer relationships;

• supplier relationships;

• organisational culture;

• specialised knowledge;

• intellectual property;

• licences; and

• trust.

A resource may be useful, but owning it does not automatically create competitive advantage.

Two companies may own similar technology but use it very differently.

Capabilities: What the Organisation Can Do

Capabilities are the organisation’s ability to use and coordinate resources to perform an activity or achieve an outcome.

Examples include the ability to:

• launch products quickly;

• forecast demand accurately;

• deliver consistently;

• use customer data effectively;

• develop trusted supplier partnerships;

• manage regulatory approval;

• integrate acquisitions;

• personalise customer experiences;

• innovate repeatedly; or

• operate at a lower cost than competitors.

Capabilities usually involve combinations of:

• people;

• knowledge;

• routines;

• systems;

• leadership;

• technology;

• relationships; and

• experience.

A delivery network is a resource. The ability to use that network to deliver faster and more reliably than competitors is a capability.

Customer data is a resource. The ability to turn that data into better decisions and personalised experiences is a capability.

Competencies: What the Organisation Does Well

A competency is a capability the organisation performs effectively.

Examples might include:

• efficient large-scale production;

• rapid product development;

• strong institutional selling;

• reliable customer service;

• effective partner management; or

• sophisticated risk assessment.

Not every competency is strategically important. An organisation may perform an activity well without creating meaningful customer value or competitive differentiation.

Core Competencies: What Helps the Organisation Win

A core competency is a strategically important capability—or system of capabilities—that:

• creates meaningful customer value;

• contributes to differentiation or lower cost;

• is difficult for competitors to reproduce;

• can support the organisation’s success; and

• may be applicable across products, services, segments, or markets.

A core competency is rarely a broad claim such as:

• good customer service;

• innovative employees;

• strong leadership; or

• advanced technology.

Those statements require evidence and explanation.

A stronger core competency might be:

The organisation’s ability to combine proprietary customer data, rapid product testing, and a flexible supplier network to launch targeted products faster than competitors.

The advantage comes from the connected system—not simply from owning data or having suppliers.

A Practical Distinction

Concept	Central question	Example
Resource	What does the organisation have?	Customer-purchase data
Capability	What can it do with what it has?	Identify changes in customer demand
Competency	What can it do well?	Use demand insights to improve product decisions
Core competency	What can it do exceptionally well that helps it win?	Combine data, rapid development, and supplier flexibility to launch products faster than competitors

This progression moves the analysis from assets to strategic advantage.

Understanding VRIO

VRIO evaluates resources and capabilities through four questions:

1. Is it Valuable?

2. Is it Rare?

3. Is it difficult or costly to Imitate?

4. Is the organisation Organised to capture its value?

The framework is sequential.

A resource that is not valuable does not become strategically important simply because it is rare. A valuable and rare capability may create only a temporary advantage if competitors can copy it. A difficult-to-imitate capability will still underperform if the organisation is not designed to use it.

Valuable

A resource or capability is valuable when it helps the organisation:

• exploit an opportunity;

• reduce or respond to a threat;

• lower costs;

• increase revenue;

• improve customer value;

• strengthen quality;

• increase speed or reliability;

• reduce risk;

• improve flexibility; or

• strengthen strategic positioning.

The question is not whether the resource has value in a general sense.

The question is:

Does it help the organisation compete or execute the proposed strategy?

A large retail network may be valuable for a physical distribution strategy but less valuable if customers are rapidly moving to digital channels.

A recognised brand may be valuable in one customer segment but irrelevant in another.

Value depends on the situation and the strategy.

Questions to Ask

• Does the capability improve something customers value?

• Does it reduce cost or increase willingness to pay?

• Does it help capture an opportunity?

• Does it help manage a threat?

• Does it improve feasibility or reduce risk?

• Is it relevant to the proposed strategy?

• Is its value likely to continue?

Rare

A resource or capability is rare when relatively few current or potential competitors possess it at a comparable level.

Rare does not necessarily mean unique. A capability may be strategically meaningful if only a small number of competitors possess it.

The relevant question is:

How many competitors can access or perform this capability well enough to neutralise the advantage?

If every serious competitor has the same capability, it may be necessary to compete but will not differentiate the organisation.

For example:

• having a website is not rare in most industries;

• having customer data may not be rare;

• using proprietary data to predict customer needs more accurately than competitors may be rare.

Questions to Ask

• How many competitors possess a similar resource?

• How many competitors can perform the capability at the same level?

• Can the resource be purchased easily?

• Is the capability rare in the entire industry or only within a segment?

• Are competitors developing comparable capabilities?

• How long is the capability likely to remain rare?

Difficult to Imitate

A valuable and rare capability creates a stronger advantage when competitors would find it difficult, expensive, or time-consuming to reproduce.

Some resources can be purchased quickly. Others develop through years of experience, relationships, learning, and organisational development.

A capability may be difficult to imitate because of:

Historical Development

The capability developed through a unique sequence of decisions or experiences.

This is sometimes called path dependence.

For example, a company may have spent decades building trust with a specialised customer group. A competitor cannot immediately reproduce that history.

Causal Ambiguity

Competitors can observe the result but cannot clearly identify what causes it.

For example, they may see strong customer retention but not understand whether it comes from the culture, data, service routines, employee discretion, product design, or the interaction among them.

Social Complexity

The capability depends on relationships, culture, trust, teamwork, reputation, or informal coordination.

These systems are difficult to purchase or reproduce.

Proprietary Protection

The capability relies on patents, contracts, licences, trade secrets, data, or other legally or practically protected resources.

Interconnected Activities

The advantage comes from a system of activities rather than one asset.

Competitors may be able to copy one activity but struggle to reproduce the entire system.

Time Compression

Competitors may understand what must be built but cannot develop it quickly.

Experience, trust, brand reputation, data, and organisational learning may require time.

Questions to Ask

• Can competitors buy the resource?

• Can they hire people with the required knowledge?

• How long would replication take?

• What investment would be required?

• Does the capability depend on culture, trust, or relationships?

• Is the source of advantage visible?

• Could competitors copy part of the system but not the whole?

• Could technology or market change make imitation easier?

Organised to Capture Value

The final question asks whether the organisation is able to use the resource or capability effectively.

A company may possess a valuable, rare, and difficult-to-imitate capability but fail to benefit from it because:

• responsibilities are unclear;

• systems do not support it;

• employees lack authority;

• incentives discourage its use;

• leadership does not prioritise it;

• information is fragmented;

• complementary resources are missing;

• the organisational structure creates barriers; or

• the capability is not integrated into the strategy.

The “Organised” question examines whether the organisation has the necessary:

• structure;

• processes;

• systems;

• policies;

• leadership;

• incentives;

• talent;

• culture;

• governance;

• funding; and

• complementary resources.

For example:

A retailer may possess valuable customer data, but if marketing, merchandising, and operations use separate systems, the organisation may be unable to turn that data into better decisions.

The resource exists. The organisation is not capturing its full value.

Questions to Ask

• Who owns the capability?

• Is it connected to the organisation’s strategy?

• Are decision rights clear?

• Do employees have the skills and authority to use it?

• Do systems provide the required information?

• Are incentives aligned?

• Is sufficient funding available?

• Are complementary resources in place?

• Can the organisation scale the capability?

• Is leadership committed to using and protecting it?

From VRIO to Competitive Implications

The four questions lead to different competitive outcomes.

Valuable?	Rare?	Difficult to imitate?	Organised?	Likely implication
No	—	—	—	Competitive disadvantage
Yes	No	—	—	Competitive parity
Yes	Yes	No	—	Temporary competitive advantage
Yes	Yes	Yes	No	Unused or unrealised advantage
Yes	Yes	Yes	Yes	Potential sustained competitive advantage

Competitive Disadvantage

A resource or capability that is not valuable may increase cost, slow the organisation, or distract from the strategy.

The organisation may need to:

• eliminate it;

• reduce investment;

• redesign it; or

• redirect resources elsewhere.

Competitive Parity

A valuable but common capability allows the organisation to compete but does not create differentiation.

Examples might include:

• standard accounting systems;

• basic online ordering;

• regulatory compliance; or

• widely available production technology.

These capabilities may still be essential. Competitive parity does not mean unimportant.

The organisation must maintain them because falling below the industry standard could create a disadvantage.

Temporary Competitive Advantage

A valuable and rare capability may provide an advantage, but competitors can eventually copy or acquire it.

The organisation should consider:

• moving quickly;

• capturing value before imitation;

• continuing to innovate;

• strengthening complementary capabilities; or

• creating barriers that make imitation more difficult.

Unrealised Advantage

A resource may be valuable, rare, and difficult to imitate, but the organisation is not prepared to use it.

This is one of the most valuable findings in case analysis.

The recommendation may need to focus on:

• organisational structure;

• leadership;

• technology;

• incentives;

• processes;

• talent;

• funding; or

• coordination.

The strategic opportunity exists, but the organisation must first become capable of capturing it.

Potential Sustained Competitive Advantage

A capability that satisfies all four criteria may support a sustained advantage.

However, “sustained” does not mean permanent.

Customer preferences, technology, regulation, competitors, and industry conditions can change. A capability that is valuable today may become less valuable in the future.

VRIO analysis should therefore be revisited as the environment changes.

VRIO Requires Evidence

Teams sometimes complete VRIO by marking every box “yes.”

That does not create analysis.

Each conclusion should be supported by evidence.

Instead of:

The company’s brand is valuable, rare, difficult to imitate, and organised.

Explain:

• Valuable: Customers are willing to pay a measurable price premium.

• Rare: Only two brands in the segment have comparable trust and awareness.

• Difficult to imitate: The reputation developed through decades of performance and institutional relationships.

• Organised: Brand standards, employee training, channel strategy, and customer service consistently reinforce the promise.

If the evidence is weak, the conclusion should be cautious.

A team may conclude that a capability is:

• clearly supported;

• reasonably supported;

• uncertain; or

• unsupported.

Recognising uncertainty is better than forcing a “yes.”

Finding Core Competencies

Value Chain Analysis helps identify where the organisation performs important activities well. VRIO tests whether those capabilities could support advantage.

A practical core-competency test asks:

1. Does the capability create meaningful customer value?

2. Does it contribute to lower cost, differentiation, speed, reliability, or reduced risk?

3. Is it stronger than the capabilities of relevant competitors?

4. Would competitors find it difficult to replicate?

5. Is the organisation able to use it consistently?

6. Can it support more than one product, service, segment, or strategic opportunity?

A core competency may sit within one activity, but it often connects several activities.

For example:

A company’s core competency is not simply “product development.” It may be the ability to combine customer insight, rapid prototyping, supplier collaboration, and flexible production to launch products faster than competitors.

The connected system makes the competency strategically powerful.

Don’t Confuse Strengths with Core Competencies

Every core competency is a strength, but not every strength is a core competency.

Strength	Why it may not be a core competency
Large office building	May not create customer value
Modern software	Competitors may purchase the same system
Skilled employees	May be valuable but not rare
Strong cash position	Creates flexibility but may be easy for large competitors to match
Popular product	May reflect temporary demand rather than a difficult-to-copy capability

A factor becomes a possible core competency when it is:

• strategically valuable;

• meaningfully differentiated;

• difficult to reproduce;

• supported by the organisation; and

• capable of influencing future strategic choices.

Existing Capabilities Versus Required Capabilities

One of the most practical applications of capability analysis is comparing:

What the organisation has

with:

What the proposed strategy requires

An attractive strategy may require capabilities the organisation does not currently possess.

For example, international expansion may require:

• knowledge of local customers;

• regulatory expertise;

• local distribution;

• language capability;

• cross-cultural management;

• international supply-chain capacity; and

• sufficient financing.

Digital expansion may require:

• data infrastructure;

• software-development skills;

• cybersecurity;

• digital marketing;

• user-experience design;

• integrated fulfilment; and

• customer-support capability.

A capability-gap analysis might look like this:

Required capability	Current position	Importance	Gap	Response
Local customer knowledge	Limited	High	Significant	Partner with a local organisation
Digital platform	Basic	High	Significant	Build or acquire
Distribution capacity	Strong	High	Minimal	Leverage existing network
Regulatory expertise	Moderate	High	Moderate	Hire specialist talent
Brand credibility	Strong domestically	Medium	Uncertain internationally	Test through a pilot

This analysis improves the recommendation by making implementation needs visible.

Build, Buy, Borrow, Partner, or Outsource

When a capability is missing, the organisation has several options.

Build

Develop the capability internally through:

• hiring;

• training;

• process development;

• technology investment;

• experience; or

• organisational learning.

Build when:

• the capability is strategically important;

• it should remain inside the organisation;

• internal development is feasible; and

• the organisation has time to develop it.

Advantages

• greater control;

• internal learning;

• stronger integration;

• potential long-term differentiation.

Risks

• slow development;

• uncertain results;

• high investment;

• competition for talent.

Buy

Acquire a company, team, technology, intellectual property, or other resource.

Buy when:

• speed is important;

• the capability already exists externally;

• acquisition is financially feasible; and

• integration is manageable.

Advantages

• faster access;

• existing talent and systems;

• possible access to customers or technology.

Risks

• high acquisition cost;

• cultural conflict;

• integration failure;

• loss of key employees;

• overestimating what is actually being acquired.

Borrow

Access a capability through licensing, contracting, platforms, temporary talent, or another limited arrangement.

Borrow when:

• the capability is needed quickly;

• ownership is unnecessary;

• demand is uncertain; or

• the organisation wants to test the strategy.

Advantages

• flexibility;

• lower initial investment;

• faster access.

Risks

• dependency;

• limited control;

• knowledge may remain external;

• the capability may also be available to competitors.

Partner

Combine complementary capabilities with another organisation.

Partner when:

• both organisations contribute meaningful value;

• the capability is difficult to develop independently;

• market knowledge or access is important; or

• risk and investment should be shared.

Advantages

• shared resources and risk;

• faster market access;

• complementary expertise;

• local credibility.

Risks

• conflicting objectives;

• governance complexity;

• knowledge leakage;

• uneven contributions;

• dependence on partner performance.

Outsource

Transfer a defined activity to a specialist provider.

Outsource when:

• the capability is necessary but not strategically differentiating;

• a provider can perform it more efficiently;

• service standards can be clearly defined; and

• the organisation can manage the relationship effectively.

Advantages

• access to specialised expertise;

• lower fixed investment;

• potential cost savings;

• increased management focus.

Risks

• reduced control;

• quality problems;

• coordination costs;

• supplier dependence;

• loss of organisational knowledge.

Protect

Some capabilities should be preserved rather than broadly shared.

Protection may involve:

• patents;

• contracts;

• confidentiality;

• employee retention;

• cybersecurity;

• limited access;

• supplier exclusivity;

• continuous innovation; or

• maintaining the complexity of the system.

A strong recommendation should explain not only how a missing capability will be obtained, but also how an existing advantage will be protected.

Competitive Landscape Maps

A competitive landscape map visually compares how organisations are positioned using two dimensions.

Examples of possible axes include:

• price and quality;

• standardisation and customisation;

• convenience and expertise;

• local reach and national reach;

• product breadth and specialisation;

• accessibility and exclusivity; or

• digital experience and human support.

The map can help a team show:

• where competitors are positioned;

• where the client currently sits;

• which parts of the market are crowded;

• where an apparent gap may exist;

• where the recommendation would move the organisation; and

• whether the desired position fits its capabilities.

Start with the Customer and the Decision

The axes should not be selected because they produce an attractive picture.

Choose dimensions that:

• matter to customers;

• influence competition;

• differentiate the available alternatives; and

• relate directly to the strategic decision.

For example, a map using “innovation” and “quality” may be difficult to defend because both dimensions are vague.

A stronger map might use:

• average customer price; and

• delivery time.

Both can be defined, measured, and connected to customer choice.

Current Position and Desired Position

A landscape map can show both:

• where the organisation is positioned now; and

• where the recommendation intends to move it.

However, the movement must be supported by capability analysis.

If a company intends to move from a low-cost, standardised offering to a premium, customised position, ask:

• Does it have the brand credibility?

• Can operations support customisation?

• Does the workforce have the necessary skills?

• Can the organisation provide premium service?

• Are customers willing to pay?

• What capabilities must be developed?

The map shows the destination. VRIO and capability-gap analysis determine whether the organisation can get there.

A Map Does Not Prove an Opportunity

An empty space on a competitive map is not automatically an attractive market opportunity.

The space may be empty because:

• customers do not value the position;

• the economics are unattractive;

• the required capabilities are difficult to develop;

• regulation creates barriers;

• previous entrants failed; or

• the dimensions do not accurately represent customer decisions.

A competitive map generates questions. It does not independently prove demand, profitability, or feasibility.

Common Mapping Errors

Choosing Weak Axes

Broad labels such as “good” and “bad” or “high innovation” and “low innovation” may be subjective and difficult to support.

Improve it: Use distinct, measurable, strategically meaningful dimensions.

Using Correlated Axes

Price and affordability may measure almost the same thing.

Improve it: Select dimensions that reveal different aspects of positioning.

Placing Competitors Without Evidence

The team may position competitors based on assumptions.

Improve it: Use pricing, customer reviews, product features, service levels, distribution, or other evidence.

Treating the Empty Space as the Answer

A gap does not guarantee customer demand or economic viability.

Improve it: Test the position using customer, financial, competitive, and capability analysis.

Ignoring Organisational Fit

The desired position may require capabilities the organisation does not possess.

Improve it: Connect the map to VRIO and the capability-gap analysis.

A Worked Example

Return to the regional meal-kit company examined in Chapters 11 and 12.

The company is considering selective expansion into other Canadian cities.

Step 1: Identify Relevant Resources

The organisation possesses:

• relationships with regional food producers;

• a recognised local brand;

• customer-purchase and preference data;

• an experienced culinary team;

• a flexible menu-development process; and

• limited financial resources.

Step 2: Translate Resources into Capabilities

These resources support several capabilities:

• sourcing distinctive local ingredients;

• adapting menus to regional preferences;

• developing new meals quickly;

• maintaining strong supplier relationships; and

• providing a credible local-food story.

The company also has weaknesses:

• inconsistent demand forecasting;

• limited technology integration;

• high delivery costs; and

• limited experience outside its existing region.

Step 3: Conduct the VRIO Test

Local Supplier Relationships

Valuable? Yes. They support differentiated ingredients, local credibility, and customer interest.

Rare? Moderately. Some competitors have local suppliers, but the company’s network is broader and more established within its region.

Difficult to imitate? Partly. Competitors can approach the same suppliers, but the company’s trust, history, and collaborative menu-development routines would take time to reproduce.

Organised? Mostly. Procurement and menu development use the relationships effectively, but expansion processes are not yet standardised.

Implication: A regional advantage that may be difficult to transfer automatically to new cities.

Recognised Local Brand

Valuable? Yes within the current market.

Rare? Yes locally, but not in new cities.

Difficult to imitate? The local reputation took time to develop.

Organised? Yes in the current region.

Implication: A meaningful local advantage, but not yet a national capability.

Flexible Menu Development

Valuable? Yes. It allows the company to respond to customer preferences and supplier availability.

Rare? Somewhat. Larger competitors may have more resources but slower processes.

Difficult to imitate? Moderate. The routines can be copied, but the combination of culinary knowledge and supplier collaboration is harder to reproduce.

Organised? Yes, although excessive menu variety sometimes increases operational complexity.

Implication: A potentially important capability that must be balanced with operational discipline.

Customer Data

Valuable? Potentially.

Rare? No. Most competitors collect customer data.

Difficult to imitate? No, unless the company develops unique insights or accumulated learning.

Organised? No. Systems are fragmented, and the data is not used consistently in forecasting or retention.

Implication: An underused resource—not yet a competitive advantage.

Step 4: Identify the Core Competency

The strongest potential competency is not simply “local sourcing.”

It is:

The ability to combine local supplier relationships, culinary expertise, and flexible menu development to create distinctive regional meals quickly.

This capability creates customer value and is more difficult to imitate than any one resource on its own.

Step 5: Examine the Competitive Position

A competitive landscape map uses:

• local product differentiation; and

• delivery convenience.

The company is positioned highly on local differentiation but only moderately on convenience. Large competitors provide greater convenience but less regional distinction.

The desired position is:

High local differentiation with more reliable convenience.

Step 6: Identify the Capability Gap

To achieve that position, the organisation needs:

• stronger demand forecasting;

• integrated order and inventory data;

• more reliable delivery processes;

• a repeatable method for developing supplier networks in new cities; and

• local market knowledge.

Step 7: Shape the Strategy

The analysis supports selective regional expansion rather than immediate national expansion.

The company should:

1. enter cities where regional supplier networks can be developed;

2. partner with local producers and delivery organisations;

3. standardise the process for launching regionally distinctive menus;

4. invest in forecasting and fulfilment technology;

5. begin with a limited pilot; and

6. expand only after meeting delivery, retention, waste, and unit-economics targets.

The recommendation fits the organisation because it builds around an existing competency while addressing the capabilities required to transfer that advantage into a new market.

VRIO Is Not the Recommendation

VRIO identifies the strategic implications of resources and capabilities. It does not independently determine what the organisation should do.

A complete process is:

1. define the strategic decision;

2. identify the resources and capabilities relevant to that decision;

3. distinguish assets from organisational abilities;

4. evaluate the capabilities using VRIO;

5. determine the resulting competitive implications;

6. identify the capability or system that may create advantage;

7. compare existing capabilities with those required by the strategy;

8. determine how capability gaps will be addressed;

9. evaluate the alternatives financially and operationally; and

10. develop an implementation and capability-development plan.

VRIO should shape the strategy—not replace customer, industry, financial, risk, or implementation analysis.

Turning Capabilities into Strategic Action

A capability-based recommendation should answer five questions.

1. Which Capability Will We Leverage?

Identify the specific capability supporting the recommendation.

2. Why Does It Matter?

Explain how it creates customer value, reduces cost, manages risk, or supports differentiation.

3. Why Is It Defensible?

Explain why competitors would find it difficult, expensive, or time-consuming to replicate.

4. What Is Missing?

Identify the additional capabilities required to implement the strategy.

5. How Will We Obtain and Protect Them?

Explain what will be built, bought, borrowed, partnered for, outsourced, or protected.

This creates a complete strategic chain:

Opportunity → Existing advantage → Capability gap → Development approach → Recommendation

Winning the Room: Presenting VRIO Effectively

A VRIO table containing ten resources and four columns of check marks is rarely persuasive.

Judges do not need to see every resource the team considered. They need to understand:

• which capability matters most;

• why it creates value;

• why competitors cannot easily reproduce it;

• whether the organisation is prepared to use it; and

• how it supports the recommendation.

Lead with the Capability

For example:

The company’s strongest capability is its ability to combine regional supplier relationships and culinary expertise to develop locally differentiated meals faster than national competitors.

Explain the Evidence

Then support the conclusion:

This capability creates value because customers prefer local ingredients, is relatively rare among national meal-kit providers, and depends on relationships and routines built over time.

Acknowledge the Organisational Gap

Do not hide the weakness:

However, the company lacks the forecasting and fulfilment systems needed to transfer this advantage into new markets reliably.

Connect It to the Recommendation

Complete the argument:

We therefore recommend a partnership-led regional pilot that uses the company’s menu-development capability while building the operational systems required for broader expansion.

The presentation chain becomes:

Capability → Evidence of advantage → Organisational gap → Strategic response

Use the Competitive Map Selectively

If a landscape map helps explain the strategy, show:

• the current position;

• the desired position;

• the most relevant competitors; and

• the capability required to make the move credible.

Do not add a map simply because it looks strategic. It must clarify why the recommendation creates a more defensible position.

Coach’s Lens

This is one of the easiest ways to make a generic recommendation feel tailored.

Instead of saying:

We recommend entering the premium market.

Say:

We recommend entering the premium institutional market because the company’s distribution network, trusted brand, and institutional relationships provide capabilities that reduce entry risk and would take competitors years to reproduce.

Now the recommendation belongs to the organisation.

I often ask teams two questions:

What does this organisation do exceptionally well?

And:

What must it be able to do for this strategy to succeed?

The first identifies the advantage. The second identifies the gap.

A strong strategy builds on the first while creating a credible plan to address the second.

Common Mistakes

1. Confusing Resources with Capabilities

Owning an asset does not automatically create an advantage.

Improve it: Explain what the organisation can do with the resource.

2. Treating Every Strength as a Core Competency

A strength may not be valuable to customers, rare, or difficult to imitate.

Improve it: Apply the VRIO test and connect the capability to the strategic decision.

3. Using Broad Capability Claims

“Strong brand,” “innovation,” and “good employees” are too vague.

Improve it: Define the specific organisational ability and support it with evidence.

4. Marking Every VRIO Category “Yes”

A table full of check marks usually signals unsupported conclusions.

Improve it: Explain the evidence behind every assessment and acknowledge uncertainty.

5. Ignoring the Organised Question

A capability creates little value if the organisation cannot use it effectively.

Improve it: Examine structure, systems, incentives, leadership, talent, and complementary resources.

6. Assuming Sustained Means Permanent

Technology, customer preferences, and competitors can reduce the value or rarity of a capability.

Improve it: Evaluate whether the advantage is strengthening, weakening, or at risk.

7. Evaluating Capabilities Without a Strategic Context

A resource may be valuable for one strategy but irrelevant to another.

Improve it: Evaluate capabilities against the opportunity and proposed recommendation.

8. Mentioning Competencies Without Using Them

Teams sometimes identify a competency and then recommend a strategy unrelated to it.

Improve it: Show precisely how the competency supports the recommendation.

9. Ignoring Capability Gaps

An organisation may have one relevant strength but lack several capabilities required for implementation.

Improve it: Compare what the organisation has with what the strategy requires.

10. Recommending “Build” Without Considering Alternatives

Internal development may be too slow or expensive.

Improve it: Evaluate build, buy, borrow, partner, and outsource options.

11. Assuming an Empty Map Position Is an Opportunity

An unoccupied space may be unattractive or infeasible.

Improve it: Test customer demand, economics, competition, and capability fit.

12. Choosing Weak Competitive-Map Axes

Subjective or highly correlated axes produce misleading conclusions.

Improve it: Use distinct dimensions that matter to customers and can be supported with evidence.

Mad Skills Drill: From Capability to Strategy

Choose an organisation and a strategic decision it faces.

Step 1: Identify Resources

Identify five relevant tangible or intangible resources.

Step 2: Convert Resources into Capabilities

For each resource, ask:

What can the organisation do because it possesses this resource?

Step 3: Conduct the VRIO Test

For each important capability, ask:

• Is it valuable?

• Is it rare?

• Is it difficult or costly to imitate?

• Is the organisation prepared to capture its value?

Support every answer with evidence.

Step 4: Determine the Competitive Implication

Classify each capability as:

• competitive disadvantage;

• competitive parity;

• temporary advantage;

• unrealised advantage; or

• potential sustained advantage.

Step 5: Identify the Core Competency

Select the one capability—or connected system of capabilities—that should most influence the strategy.

Explain:

• how it creates customer value;

• how it helps the organisation compete;

• why competitors would struggle to replicate it; and

• how the organisation uses it.

Step 6: Identify Required Capabilities

List the capabilities the proposed strategy requires.

Classify each as:

• currently strong;

• present but underdeveloped; or

• missing.

Step 7: Address the Gaps

For each important gap, choose whether the organisation should:

• build;

• buy;

• borrow;

• partner;

• outsource; or

• reconsider the strategy.

Step 8: Create a Competitive Landscape Map

Choose two evidence-based dimensions that matter to customers.

Plot:

• the organisation;

• its most relevant competitors;

• its current position; and

• its desired position.

Explain which capability makes the desired movement credible.

Step 9: Deliver the Insight

Prepare a 60-second explanation answering:

1. What is the organisation’s most important capability?

2. Why is it valuable?

3. Why is it difficult to replicate?

4. How does it influence the recommendation?

5. What capability must still be developed or accessed?

Do not read the entire VRIO table. Present the capability that changes the strategy.

Chapter Summary

Core competencies connect:

What the organisation has

to:

What the organisation should do.

Resources are what an organisation possesses. Capabilities are what it can do with those resources. Competencies are capabilities it performs well. Core competencies are strategically important capabilities—or connected systems of capabilities—that create customer value and help the organisation compete.

VRIO evaluates whether those resources and capabilities are:

• valuable;

• rare;

• difficult to imitate; and

• supported by the organisation.

Strong capability analysis follows this progression:

Resources → Capabilities → VRIO test → Competitive implication → Capability gap → Organisation-specific strategy

VRIO can reveal competitive parity, temporary advantage, unrealised potential, or possible sustained advantage. Its most practical use is not simply identifying what the organisation does well. It is determining which capabilities should shape the strategy and what additional capabilities must be developed for the strategy to succeed.

A weak recommendation pursues an attractive opportunity.

A strong recommendation explains why this organisation is positioned to capture it.

Key Takeaways

✓ Resources are what an organisation possesses; capabilities are what it can do with those resources.

✓ Competencies are capabilities the organisation performs well, while core competencies are strategically important capabilities that help it compete.

✓ Evaluate resources and capabilities in the context of the specific customer, opportunity, threat, and proposed strategy.

✓ A capability must be valuable before rarity or imitability becomes strategically meaningful.

✓ Rare capabilities can differentiate the organisation, but they may provide only temporary advantage if competitors can reproduce them.

✓ Capabilities may be difficult to imitate because of historical development, causal ambiguity, social complexity, legal protection, time, or interconnected activities.

✓ A resource creates limited advantage if the organisation lacks the structure, systems, processes, talent, incentives, leadership, or complementary resources needed to use it.

✓ VRIO can identify competitive disadvantage, competitive parity, temporary advantage, unrealised advantage, and potential sustained advantage.

✓ “Sustained” does not mean permanent. Capabilities must continue to evolve as customer needs, technology, industries, and competitors change.

✓ Compare existing capabilities with the capabilities required by the proposed strategy.

✓ Address important capability gaps by deciding whether to build, buy, borrow, partner, outsource, or reconsider the strategic approach.

✓ Use competitive landscape maps to clarify current and desired positioning, but do not assume an empty position represents an attractive opportunity.

✓ A competitive position is credible only when the organisation possesses—or can develop—the capabilities required to occupy it.

✓ In the presentation, focus on the capability that changed the recommendation rather than displaying a large VRIO table.

Looking Ahead

PESTLE examined the external environment. Five Forces examined the industry. Value Chain Analysis examined the organisation’s activities. VRIO examined its resources, capabilities, and potential sources of advantage.

The next step is to bring those elements together and ask:

How does the entire business create, deliver, and capture value?

The next chapter introduces the Business Model Canvas, which helps teams understand how the organisation’s customers, value proposition, activities, resources, partners, channels, revenues, and costs fit together.