Why do some companies perform better than others in the same industry? A large portion of the answer lies in understanding what sets businesses apart from each other by looking at their resources and capabilities. Being able to identify how businesses that offer similar products or services are different, allows for consumers to distinguish and choose the business that fits their preferences. One way that businesses can do this is by evaluating their internal abilities using a tool that examines the value, rarity and inimitability (VRI) of each operation.
A resource that is valuable to the company is key because it needs to be a capital producing operation that adds value for the customer. A procedure that is performed better than competition will not only be noticeable by customers but will also provide a competitive advantage. Identifying value adding resources and capabilities allows for a business to look for opportunities and weaknesses within each procedure.
Rarity refers to the uniqueness of the capability within the industry. If a company is able to perform an activity unlike any other within the industry, then they can be considered rare. For example, many companies apply common marketing techniques such as television commercials, ads in the newspaper, or direct to consumer mail. However, if a company was to take one of these techniques and put a unique spin on it, such as writing hand written thank you letters to their customers, they obtain a key differentiating factor that is rare in the industry.
Inimitability is the difficulty of a competitor to match the resource or capability of a business. Take the hand written thank you notes as an example. This is more feasible for a small business that can write letters to one hundred customers than for a large business that may have to write hundreds of thousands of letters. In this sense, a smaller business is able to have a rare and somewhat inimitable marketing technique. This technique then becomes the differentiating factor for the small business that customers notice and remember.
The VRI analysis helps business owners to detail important processes that provide value to the customers and understand if the processes can be differentiated in any way. Identifying the key points of differentiation through the VRI is important because it helps businesses to see where and how it set’s itself apart from competition.
(Source: Rachel Alpaugh, Business Advisor, UGA SBDC at Savannah)