Salesforce: Applying the VRIO Framework

According to the VRIO framework, a firm's competitive potential can be determined by how it answers four questions:

• Value - Do a firm's resources and capabilities enable the firm to respond to environmental threats or opportunities?
• Rarity - How many competing firms already possess particular valuable resources or capabilities?
• Imitability - Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it?
• Organization - Is a firm organized to exploit the full competitive potential of its resources and capabilities?

Let's attempt to answer those questions in regards to Salesforce's capabilities as a cloud-based CRM, since the firm uses that capability to differentiate itself from its competitors.

• Value - Yes. Because Salesforce's software is cloud-based as opposed to software installed on-premises, the software can be updated more frequently to fix bugs and install new features, making it more nimble than competitors like SAP.
• Rarity - No. Although SAP is installed on-premises, there is an increasing number of new entrants that are cloud-based, such as SageCRM and Microsoft Dynamics CRM, which has some web-based services.
• Imitability - No. Salesforce touts that, because it is cloud-based, it scales easily. The reason it scales easily, is because the software is less complicated to engineer than on-premises software.
• Organization - Yes. As mentioned in a previous post, what gives Salesforce a potentially sustainable competitive advantage is its decision to open up the platform for third-party developers to build apps providing additional functionality and customization to the software. 

Because Salesforce's cloud-based CRM is valuable but not rare, one might say that only provides the firm with competitive parity. 

Although the VRIO framework is a decent analytical tool, it is fairly limited since it doesn't take into account environmental changes or managerial influences. It also has a very narrow focus on resources and capabilities and ignores advantages and disadvantages on the firm level.