Applying the VRIO Framework to Amazon

After reading Chapter 5 and learning the detailed framework of VRIO, it was very fascinating to me to apply this very framework to Amazon.  It was fascinating to me because, when broken down into the compartments that make up VRIO, it is clear that while Amazon may not have developed a revolutionary idea or product, what they did do was ensure they were the best that did it by exploiting their resources and capabilities.  Let’s take a look at each component of the VRIO framework when applied to Amazon and decide which defines their sustained competitive advantage.

The first component of the VRIO framework is the question of “value.”  Does Amazon’s resources and capabilities enable them to respond to environmental threats or opportunities?  Currently, I think that is a resounding “yes.”  While it may not have started out this way, Amazon has built their resources and capabilities to be some of the best in the competitive landscape so that they are able to identify and minimize external threats.  Conversely, they are also able to exploit these resources and capabilities in order to identify an opportunity and expand upon that opportunity so that their customer benefits from its value.  For example, once their customer began to respond incredibly positively to the two day prime shipping Amazon offered, they further exploited their logistical expertise and resources to further expand the prime shipping capability that gave them a sustained competitive advantage over other similar retailers. 

The next component of the VRIO framework is the question of “rarity.”  How many competing firms already possess resources and capabilities similar to those of Amazon’s?  This question is a little more difficult to answer in Amazon’s favor.  While there might be slight differences within more detailed resources and capabilities, Amazon’s basic operation and capabilities can be seen as very similar to those of competing firms.  From a general perspective, Amazon offers a wide variety of categories and products to their customer at an economical price.  The same could be said for competing retailers like Wal Mart, eBay, Target, Overstock.com and numerous others.  Given this competitive landscape, I would believe the answer to the rarity question would be “many others for Amazon, meaning their general resources and capabilities are not comparatively rare.  Despite their lack of rarity, we will discuss in other components how Amazon is able to overcome this and sustain the competitive advantage they have today.

The third component in the VRIO framework is the question of “imitability.”  Do other firms face a cost disadvantage when attempting to possess the resources and capabilities possessed by Amazon?  In my opinion, the answer to this question would be “yes.”  It has been said before that Amazon themselves faced significant financial difficulties when building and establishing their own capabilities, specifically those that are related to the free two day shipping capability that they rely so heavily on.  If Amazon faced this financial challenge first hand, I would be believe it is safe to say that competing firms are at a cost disadvantage when attempting to imitate this capability as well.  To not only offer free shipping, but then to absorb the significant cost that would come with a two day shipping option would leave a lot of firms at a disadvantage, however due to Amazon’s first mover strategy they established this as one of their sustained competitive advantages and have made it very difficult to imitate.

The last component of the VRIO framework is the question of the “organization” itself.  Is Amazon organized to exploit the full competitive potential of its resources and capabilities?  To me, this is not only a “yes” for Amazon, it is also the strongest component when applying the VRIO framework to their resources and capabilities.  As I eluded to earlier, while Amazon’s general offering and operation is not rare, it is the way in which they are organized that is incredibly rare.  When complementary resources like their logistical expertise, customer relationship management along with their innovative and creative marketing all work together then they are able to generate and strengthen their competitive advantage.  In isolation, these resources and capabilities might not achieve much, however when they are executed flawlessly as a combination, it is then that Amazon is able to realize its full competitive advantage potential.

In summary, in applying the VRIO framework to Amazon, it further proves that while the overall idea or operation may not be rare, what is not rare is the way in which Amazon organizes itself and executes is strategy day in and day out.  Amazon should remain an inspiring example that just because your idea doesn’t seem revolutionary, it doesn’t mean you can’t change the world.