Evaluating Netflix's Strengths & Weaknesses: Applying the VRIO Framework

The questions of value, rarity, imitability, and organization make up the VRIO framework. This framework can be used to understand the return potential associated with a firm's resources or capabilities. 

If a resource or capability is determined to be not valuable, that resource will not permit a firm to apply strategies that exploit environmental opportunities or neutralize environmental threats. If a firm chooses to exploit a particular resource, either a firm's costs will increase or the amount customers are willing to pay will decrease. These resources are deemed weaknesses. Valuable resources that are not rare are considered organizational strengths. 

When a resource or capability is both valuable and rare but not costly to imitate, a company should exploit this resource in order to gain a temporary competitive advantage. This firm will have a first-mover advantage. In order to obtain a sustained competitive advantage, a firm must exploit a resource that is valuable, rare, and costly to imitate. This puts competitors at a deficit because they cannot imitate the firm's strategies. Organization serves as an adjustment factor in the VRIO framework. 

The VRIO can be applied to Netflix. When looking at Netflix's growth over the past several years, the firm's biggest opportunity was the ability to stream movies over the internet on various electronic devices. One can see that the capability is valuable, rare, and costly to imitate. Netflix chose to exploit this opportunity and gained a first-mover advantage. Despite these facts, firms such as Hulu and Amazon have now entered the market of live stream via the internet. 

Source: Jay B. Barney's Gaining and Sustaining Competitive Advantage