Question

The four tests of a resource's competitive power are often referred to as the:

Answer 1

Answer:

a. VRIN test, which asks if a resource is valuable, rare, inimitable, and non-substitutable.

Explanation:

Applying Barney's (1991) VRIN framework can determine if a resource is a source of competitive power. To serve as a basis for sustainable competitive advantage, resources must be:

valuable: meaning that they must be a source of greater value, in terms of relative costs and benefits, than similar resources in competing firms. When resources are able to bring value to the firm they can be a source of competitive power.

rare: rareness implies that the resource must be rare in the sense that it is scarce relative to demand for its use or what it produces. Resources have to deliver a unique strategy to provide a competitive advantage to the firm as compared to the competing firms. Consider the case where a resource is valuable but it exists in the competitor firms as well. Such a resource is not rare to provide competitive power.

inimitable: it is difficult to imitate.  Resources can be sources of sustained competitive power if competing firms cannot obtain them. Consider the case where a resource is valuable and rare but the competing organizations can copy them easily. Such resources also cannot be sources of competitive power.

non-substitutable: other different types of resources cannot be functional substitutes. Resources should not be able to be replaced by any other strategically equivalent valuable resources. If two resources can be utilized separately to implement the same strategy then they are strategically equivalent. Such resources are substitutable and so are not sources of sustained competitive power.

The criteria of the VRIN Framework clearly rules out best practices as a source of competitive advantage. If other firms can easily understand and copy a capability, it is not a source of competitive power.