Strategy and Performance: Competing through Competences 052175030X, 9780521750301, 9780511066559

Table of contents :
Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Preface......Page 9
Acknowledgements......Page 11
Changing your business boundaries......Page 13
Disaster is at hand......Page 14
Fresh insights on how to improve......Page 16
An aside for small companies and start-ups......Page 17
How to use this book......Page 19
1.1 What is a competence?......Page 21
1.2 Categories of competence......Page 24
1.3 Resource and competence architecture......Page 26
Superlative Delivered Quality Inc. (SDQ)......Page 27
1.4 What is a resource?......Page 31
1.5 What makes a resource important?......Page 33
Is it valuable?......Page 34
Is that value sustainable?......Page 35
Is it versatile?......Page 36
1.7 Summary......Page 38
1.8 Further reading......Page 39
2 Awareness – what does success look like?......Page 41
2.1 The need......Page 42
2.2 The approach......Page 44
2.4 Toolkit......Page 46
2.4.1 Awareness......Page 47
Case example: Anonimo Inc.......Page 49
2.5 Summary......Page 50
2.6 Process review......Page 51
3 Matching problems to analysis methods......Page 53
3.1 Boundary change decisions, disaster and sustainable advantage......Page 54
3.2 ‘Top-down’ versus ‘bottom-up’ processes......Page 57
3.3 The level of detail required......Page 58
3.4 Insight......Page 60
3.6 Further reading......Page 62
4.1 Deciding the focus......Page 63
4.3 Issues......Page 65
4.4 Toolkit......Page 66
E 1: A service competence......Page 67
E 2: Research unit competence......Page 69
4.6 Process review......Page 71
5.1 The need......Page 73
5.2 Identification – a new angle......Page 74
5.3 Toolkit......Page 78
5.3.1 Pictorial histories - preparation......Page 79
5.3.2 Pictorial histories – picture generation......Page 80
5.3.3 Extract, list and categorise the underlying resources.......Page 81
Extracting resources – examples......Page 82
5.4 Summary......Page 85
5.5 Process review......Page 86
6.1 What’s the problem?......Page 87
6.2 Issues in practice......Page 89
Is It Valuable?......Page 91
Is that value sustainable?......Page 92
6.3 Outcomes......Page 94
6.4.1 Evaluation context......Page 95
6.4.2 Resource Evaluation......Page 96
Worked examples......Page 98
6.6 Process review......Page 103
6.7 Further reading......Page 104
7 Building a resource and competence base......Page 105
7.1 Evolution, incubation and acquisition compared......Page 107
7.2 Resource and competence architecture revisited......Page 109
7.3.1 Increasing value......Page 111
7.3.3 Increasing versatility......Page 114
7.3.4 Resistance......Page 116
7.4.1 Macro co-ordination......Page 118
The United States Navy......Page 119
Toyota......Page 122
7.4.3 Enablers of micro co-ordination......Page 126
7.5.1 Socially supportive......Page 129
7.5.2 Technically supportive......Page 130
7.6 Toolkit......Page 131
7.6.2 Which improvement mechanisms should be used?......Page 132
7.6.3 Implementation advice......Page 136
7.8 Process review......Page 138
For more on micro co-ordination:......Page 139
8.1 Why should we measure resource and competence development?......Page 141
8.1.1. Balancing short and long term......Page 142
8.1.2 Moving from achievement to improvement......Page 143
8.2 A competence-based performance measurement framework......Page 145
8.2.1 A competence performance framework......Page 147
8.2.2 A Resource measurement framework......Page 148
8.3 Using the competence and resource measurement frameworks......Page 149
Case 1. Measuring an order winning competence......Page 150
Case 2. Measuring support processes – recruitment and development......Page 155
Case 3. Measuring the order fulfilment competence......Page 160
8.4 Measurement or assessment......Page 162
8.5.1 Designing resource measures......Page 164
8.6 Summary......Page 167
8.8 Further reading......Page 168
9.1.1 Over-exercising a competence......Page 169
9.1.2 Appropriability......Page 171
9.1.3 Other risks from resource and competence analysis......Page 172
9.2.1 The interaction of market and resource perspectives......Page 173
9.2.2 The relative importance of resource and market perspectives......Page 174
9.3.1 A historical perspective......Page 178
9.3.2 General Electric......Page 180
9.3.3 Summary......Page 183
9.4 What’s next?......Page 184
9.5 Summary......Page 187
9.6 Further reading......Page 188
Index......Page 189

Citation preview

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ST R AT EGY A N D P E R FO R M A N C E Competing through competences

ST R AT EGY A N D P E R FO R M A N C E

Competing through competences John Mills Ken Platts Michael Bourne Huw Richards

   Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge  , United Kingdom Published in the United States by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521750301 © Cambridge University Press 2002 This book is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2002 ISBN-13 978-0-511-06868-3 eBook (EBL) ISBN-10 0-511-06868-9 eBook (EBL) ISBN-13 978-0-521-75030-1 paperback ISBN-10 0-521-75030-X paperback

Cambridge University Press has no responsibility for the persistence or accuracy of s for external or third-party internet websites referred to in this book, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

Contents

Preface Acknowledgements When to use this book How to use this book

vii ix 1 7

Chapter 1

Practical competence and resource frameworks

Chapter 2

Awareness – what does success look like?

29

Chapter 3

Matching problems to analysis methods

41

Chapter 4

Insight – what focus and scope is appropriate?

51

Chapter 5

Insight – where are these resources?

61

Chapter 6

Insight – how important are these resources?

75

Chapter 7

Building a resource and competence base

93

Chapter 8

Measuring competence and resource development

129

Chapter 9

Closing thoughts

157

Index

177

v

9

Preface

This book is designed to help company managers and directors make their business more profitable and longer lived. Why longer lived? Customers are fickle and markets can change very quickly. So for a company to have long life it must be able to survive unexpected and severe knocks from markets. From our experience in helping many firms to develop their strategy those that concentrate solely on market/customer perspectives tend to produce business objectives of no more than one to two years duration. Firms that use a resource-based and a market/customer perspective produce similar plans but they also produce longer-lived objectives for building resources and strengths often applicable to a wider range of markets than those currently being exploited. They seem more aware of the fundamental drivers of business performance in any market and so are better prepared to face crises in their current markets. Practically all firms base their business objectives on satisfying their customer needs. This is a valuable initial approach for aligning products, services and objectives with existing markets. It is based on the opportunities and threats half of a SWOT1 analysis. However, most firms neglect the other half of the analysis. They do not identify the sources of their strengths and weaknesses. You know the achievement of any of your business objectives is dependent on your strengths and weaknesses. For example, all firms in a market may wish to reduce their new product leadtimes but one will do so more quickly and reliably than others. Why is that? Is it because of the market? No – it is to do with the resources each company can access (cash, knowledge, equipment, values, reward systems, etc.) and the effectiveness of the management of those resources towards reducing leadtime. Why do firms neglect to analyse their strengths and weaknesses? Partly because it is much easier to analyse markets that are, so to speak, ‘out there’ than to speak about strengths and weaknesses which are ‘in here, in you, round this table and just outside that door’. It is also because there are few pragmatic methods to help managers and because those that do exist do little to reduce the inherent subjectivity in managers looking at themselves.

1

vii

SWOT – strengths, weaknesses, opportunities and threats.

viii

Preface

The two processes we describe aim to redress this imbalance by concentrating on the analysis of your firm’s strengths and weaknesses. The issues here are less to do with the markets your firm is in and more to do with the company itself. What are you good at and not so good at? What are the important differences between you and your competitors? We believe that every firm, including yours, is unique. And it is on the peculiarities that make your firm unique that sustainable competitive advantages can be based. The processes help you to understand your potential and actual strengths and weaknesses. They show how you can build a more sustainable competitive advantage by revealing the unique resources that underlie your firm’s strengths and weaknesses. Improving these resources and managing them more effectively will reinforce your strengths and ameliorate your weaknesses and thereby improve your competitive position.

Acknowledgements

We must first thank those who funded our research for without them we could not have begun. The Engineering and Physical Sciences Research Council provided the first rolling grant in this area and Rolls-Royce Aerospace, Domino Printing Sciences, Ai Qualitek Ltd, Leica Lithographic Systems, The Thomas Group, T & N Technology (now part of Federal Mogul) and BAE Systems have all provided significant support for the research. Many other companies and organisations in addition to the above have supported the research with their valuable time, providing a testing ground for refining and validating our methods. Individuals in these companies have sometimes become researchers themselves, reflecting on our joint experiences and adding their insight to ours, we thank them all but particularly David Deakin, Dr Rick Mitchell and Dr David Adams. We value the encouragement of colleagues and especially Professor Mike Gregory whose interest in making resource-based theory available to managers began the Institute’s work in this area and to Dr Michael Lewis of Warwick Business School whose PhD studies formed a solid basis for our efforts.

ix

When to use this book

There are five general circumstances 1.

When you are considering changing the boundaries of your business, for example: • By acquisition or divestment • Entering joint ventures or other partnership arrangements • Considering Make versus Buy alternatives • Entering new markets • Taking on new technologies

2. 3. 4. 5.

When disaster is at hand When you are trying to build a more sustainable competitive advantage When you need fresh perspectives on how to improve your business When you wish to take account of your resources in plans to achieve your objectives Taking each in turn:

Changing your business boundaries There are large and small ways of altering your business boundaries but each can be strategically critical. It may be very tempting to stop manufacturing some of your components and buy them from specialists but will this be wise in the long run? Make versus buy decisions need information and insight into the current and potential long-term value of the resources that will be lost. Down this road can lie over-dependence on suppliers and eventual ‘hollowing out’.

RCA RCA began out-sourcing the metal parts for the electron guns in TV tubes because it cost less, then they out-sourced the gun assembly for the same reason, But with it their capability to design electron guns slid away. Their cheap supplier was Sony, who actively built on knowledge supplied by RCA and invented the Trinitron system – the rest is history.

1

2

When to use this book

IBM Even more dramatic examples were IBM’s decisions to outsource their PC operating system to a firm called Microsoft and to out-source the microprocessor design to Intel.

A smaller way of changing your boundary is in the creation of dealerships to break into new, foreign markets. How would you choose between alternatives? The quick advice is choose a firm that is like you, that values the same things you do because they will be developing your reputation and brand in that country, see the experience of Anon Inc.

Anon Inc.* A firm set up a number of distributors in different parts of the world to sell and service its products. A key customer segment was food and drink manufacturers, a sector dominated by multi-national giants. Unfortunately two of the distributors were much more interested in selling products than servicing. Their service departments had poor facilities and it was difficult to convince the distributors’ owners that good service could make money. They were only interested in the chase for the next order. Inevitably that attitude created problems for the firm’s service reputation in those countries. Unfortunately that reputation propagated through a key multi-national customer and affected sales in countries that were actually being serviced well.

Larger boundary changes take place during acquisitions and divestments. Here it is critical to assess the strengths and weaknesses of the target, your organisation and the resulting combination. In divestment decisions, just like make versus buy decisions, it is crucial to make sure a valuable resource is not being discarded along with low-value resources.

Disaster is at hand It could be that prospects in your current markets and/or current technologies look bleak, there is little growth and competition is intensifying. Entry into new markets and/or adopting new technologies appear to be the only ways forward. But this can be a dangerous strategy, how can you minimise the risks? There is a saying that when disaster strikes an individual they are ‘thrown back on their resources’. This is also true for companies:

• • • •

What are the resources that underlay your past strengths? Can they be configured to provide value in another market? Is some of your knowledge of technology X transferable to technology Y? Can your knowledge of particular customers be used to create a particular niche based on a set of customer needs that you can meet? *Companies that have been given fictitious names are identified by an asterisk throughout the book.

3

When to use this book

Apple Computer Apple's recovery from near disaster in 1997 is a remarkable story. From net revenues of $11bn in 1995 the forecast for 1997 was $7bn. Losses were mounting; staff layoffs climbing and factories were sold off. Pundits forecast the end of Apple – there would be new owners or it would be killed off. What were Apple's key resources? First was its distinctive operating system (Mac OS), still superior to Microsoft Windows in feel and friendliness, yet somehow having lost its way in development terms and importantly the Mac OS was no longer exclusively available to Apple. Earlier it had been licensed to a set of 'clone' manufacturers, the most significant being Motorola, Power Computing and Apus. The idea was that a wider range of manufacturers would grow the total market for Mac OS-based computers. Unfortunately the evidence was that the clone makers were taking business from Apple rather more than increasing the total market. The second resource was the most fanatically loyal customer base in the electronics world. If you owned a Mac you stayed with it, they were superior to any WIntel PC. You had the OS of choice in better looking, well made, robust designs with low ownership costs. Third were its design-related resources and fourth was the brand, known worldwide and giving that user base the feeling that they were special, somehow different to the crowd. When Steve Jobs succeeded Gil Amelio in Autumn 1997, there was plenty of evidence that Jobs understood these resources. At MacWorld, Boston, he emphasised Apple would need to exploit its strongest assets more and defined them as the brand, 'as recognisable as Nike or Coca Cola' and the Mac OS. ‘Apple is about the Mac OS ... We are going to invest a lot more in it.’ What next? First the OS and the customer base; Jobs quickly hiked the license cost for the new Mac OS 8 and bought up one of the largest clone makers, Power Computing. This signalled a reverse in licensing policy. To Jobs the Mac OS was Apple – it was an asset (or resource) Apple needed exclusively. If parts of Apple’s previously loyal customer base had abandoned Apple hardware to follow the Mac OS onto Motorola and other clone hardware – surely this proved licensing was a route to disaster. By the end of 1998 all licensing agreements had collapsed, the clone makers had gone and the Mac OS was available on Apple hardware exclusively. Not only that, between Autumn 1997 and Autumn 1999, four significant upgrades to the Mac OS had been released. These were just what the customer base liked, instead of infrequent blockbuster upgrades Jobs, it seems, had gone for regular incremental releases, each of which had a group of ‘must have’ developments. What about the brand? Most brand positioning copy focused on the exclusivity angle. – The ‘think different’ campaign associated Apple buyers with independent minds of the past, from John Lennon to Ghandi to Einstein. Jobs refusal to take a salary for almost two years could also be regarded as thinking different at the core of Apple. (Though a grateful board put that right with the gift of a jet plane in early 2000.) Perhaps more risky was the abandonment of the characteristic rainbow Apple logo for a silver Apple. But the embodiment of the brand was the product and those distinctive design resources were also exploited to the full. The iMac and iBook changed the look of desktop and portable computers. Apple then had the hardware of choice for computers in TV programmes and advertisements. These products also contained a series of technological firsts from faster interfaces and the death of the integrated floppy disk drive to the first desktop computer cooled by convection rather than a fan.

4

When to use this book

Building a more sustainable advantage Managers face a consistent drive to improve on performance metrics like delivery leadtime and quality, delivery reliability, rate of cost reduction and so on. Many of the means of improving are, to a degree, generic best practices that all firms pursue. This can become like a treadmill with little relief. Your competitors are improving by incorporating the same improvements you are. In contrast resource-based analysis concentrates on finding the differences between firms, especially those differences that it is difficult for competitors to copy. The aim is to base a competitive advantage around those differences so the advantages generated last longer, they are more sustainable. The Apple computer example shows how a firm with unique resources in its market that were difficult and expensive to copy can survive and prosper in a fast-moving market. The trick seems to be that you have to understand and remember what those resources are and continue to exploit them. One of Apple’s founders, Steve Jobs, remembered them very well – he would wouldn’t he? He was the one who borrowed the graphical user interface from Xerox’s PARC laboratory and had it designed into the first Mac OS.

Fresh insights on how to improve Resource-based thinking offers you a new perspective on your business, a new way of looking at your firm. In our experience it is inevitable that with that fresh view a group of important improvement ideas are crystallised. This tends to happen early in the analysis at the point where your resources are first identified.

Abacus* A worldwide supplier of industrial measuring equipment, Abacus, had already decided to gain an advantage over competitors through improving the competence of its service activities. This included installation, service and repair, consumables supply, customer training, advice and maintenance contract negotiation. Their first improvements were to product training, defining service engineer toolkits and indeed defining what good service was from health and safety issues to dress code, all were documented in a service standard. The standard was audited yearly within fully owned and third party sales and service organisations. Standards were improving, metrics showing service response times were also improving – what else should be done? A resource analysis revealed some areas that had not been tackled. One example was the central role of the service engineer to offering good service. Competent service engineers can solve technical problems and some of the social problems caused if a machine breaks down. Customers can get frustrated and annoyed and it is difficult to recruit staff that can handle these two aspects of the job. But Abacus had no way of testing how competent new recruits or experienced staff actually were at these skills. An engineer

5

When to use this book

would be recruited because s/he did well in the interview and had passed relevant exams. Following that s/he would receive product training either locally or at the factory - there were no exams to show how well the training had been understood and little motivation for colleagues to expose an engineer who was failing. During the time it takes for the underperforming engineer to be discovered or to leave, much damage can be done. In response a set of technical competency tests were designed and psychological tests were used routinely during interviews to test basic technical understanding and to identify traits useful for dealing with customers. The technical tests are used throughout the world, while outlets have the freedom to use more culturally coherent psychological tests where available. The resource analysis also showed that in wholly owned service centres if an engineer settled in the chances were s/he would stay on average seven years, rather higher than usual in these positions. Recruiting better engineers could therefore pay off for a considerable time.

Taking account of your resources in the decisions to achieve your objectives Not many managers consciously build their firm’s resources, resources like a large manufacturing plant are regarded as means not ends. They are needed to achieve business objectives like growth, low leadtimes, continually falling prices. It is, however, well worth thinking about the resources you’ll have when your objectives are achieved. Are these resources in a better state than when you set out to achieve your objectives? Any manager has a duty to shareholders to steward a firm’s resources, to leave them in a better state than he received them as well as to exploit those resources to generate cash for dividends and share price growth. There is significant evidence that many US companies have been placing too much emphasis on current shareholder benefits to the long-term detriment of their companies. We shall return to this theme in Chapter 9. All these circumstances benefit greatly from an understanding of the resources that underlie your firm’s strengths and weaknesses. Not only that, changing your firm’s boundaries, developing new markets or taking on new technologies and facing up to potentially catastrophic market changes are strategic with a capital S. They are amongst the most difficult, risky and potentially rewarding decisions you will take.

An aside for small companies and start-ups If you are in a small or start-up company you may be assuming that this book is meant for medium to large companies. If so, you are wrong. (Although sizable companies that have not taken a close look at their resources recently are almost sure of surprises.)

6

When to use this book

For the start-up and small companies the issue is lack of resources, of a need to grow your firm’s resource and competence base and especially to grow the resource of management. Start-ups, in particular, are practically by definition focused on their resources and competences. For it is these that differentiate them from competitors – the new idea, perspective and knowledge that others do not possess, the ability to move faster and to more proactively address the implications of new ideas without the encumbrances of a past history. These are the resources and competences that make your firm useful and valuable to larger firms. They are your firm. Your challenge is to exploit them most effectively and that is a matter of management, the resource of management. This book and the resource analysis approaches it suggests are certainly valuable for organisations short of resources – they are the ones who arguably need to understand their resources and resource development needs the most.

How to use this book

This book is designed with two aims in mind:

• •

First to make the ideas of resource-based strategy available to you Second to help you use these ideas in your businesses to improve your competitive position and your firm’s longevity This is not a text-book full of dry theory. It is a document built from the experience of applying resource-based theory in a variety of industrial settings. For that reason it contains many insights from practice – what happens when you apply these ideas – alongside a supportive theoretical base. As Kurt Lewin put it, ‘There’s nothing so practical as a good theory’ and resource-based theory is a very good one. We have tried hard to cover any necessary theory in a pragmatic and jargon-free manner and have assumed you are quite unfamiliar with resourcebased ideas. The book contains many case study examples at a rather more detailed, yet pragmatic, level than most books on the subject. In particular there are tools we have developed and tested that enable you to use the ideas. Chapter 1 is devoted to explaining resource-based ideas and the definitions we use. To understand later chapters, Chapter 1 is essential even if you believe you are familiar with the ideas. Chapter 2 takes a top-down excursion into resource and competence analysis describing a method suitable for management teams. We have called this approach ‘Awareness’ because it provides you with a practical understanding of resource and competence ideas. It is especially helpful for making resource-aware choices in plans to achieve your business objectives. In Chapter 3 we review the pros and cons of the Awareness method and explain the need for a more detailed bottom-up method capable of making a detailed evaluation of the resources your firm uses. Which are the most important? Which hold you back? Which can take you forward? We have called this second approach ‘Insight’ because it gives a more in-depth understanding of your resource base. It is intended for project teams sponsored by board directors. Chapters 4 to 6 describe the three steps of the Insight approach. This method provides an analysis of your current resources and practical insight into gaining a sustainable advantage and the issues surrounding make versus buy, acquisition, divestment, new market entry, taking on new technologies and facing large unfavourable dislocations in your markets.

7

8

How to use this book

Each of chapters 4 to 6 poses a question; provides tools to address that question; supplies case and other illustrative examples; and is accompanied by the thinking and experience that have shaped those tools. In these chapters the book (as in Chapter 2) can be used as a working document alongside a project to apply resource-based approaches to improve your company’s position. Chapter 7 covers alternative means of improving the resource and competence base uncovered in previous chapters. It too contains examples, tools and insights from real experience. Chapter 8 is concerned with the measurement of resources and competences. This is a subject that has yet to be fully addressed either by managers or academics. Its importance is related to the attention competence and resource-building investments receive around management and board room tables. It is only relatively recently that attention to non-financial measures like delivery leadtime have become of central interest alongside the dominant financial data. Measuring resources and competences is a further step along the route to measuring causes rather than outcomes. How might you measure the improvement in the resources underlying your delivery leadtime competence? We offer examples and some insight into what is involved in placing tangible measures of resource and competence development next to last month’s actual figures and the rest of the year’s financial forecast. Chapter 9 summarises and discusses four topics. The first is a set of health warnings on using competence- and resource-based ideas, the second is a discussion on the relationship between market- and resource-based strategy-making that points to the contingencies that make resource-based strategy particularly relevant and valuable. Third is a discussion on ‘shareholder value’, and its relevance to resourcebased ideas and finally thoughts on other recent developments in strategy-making and the future role of resource-based ideas.

Practical competence and resource frameworks

1

What is a competence? Are there different types? How do competences and resources relate to one another? What makes a resource important? This chapter provides you with a pragmatic background to resource and competence ideas. The structure is as follows:

• • • • • •

What is a competence? Competence categories Resource and competence architecture What is a resource? What makes a resource important? What makes a competence important? The chapter ends with a summary and a background reading list.

1.1 What is a competence? A ‘competence’ is an ability to do something, when applied to companies we say: A company has a strength or a high competence activity if it can out-perform most competitors on a competitive factor that customers value. A company has a weakness or a low competence activity if it under-performs most competitors on a competitive factor that customers value. Competence in this sense is a way of describing how well (or not) your firm performs its necessary activities.

USX, Chaparral and Nucor USX, a large integrated US steel producer has been saddled with organisational cultures, values and management practices that have prevented it from adopting new technologies in a timely and efficient manner. Its low performance (or competence) in this area put USX at a considerable competitive disadvantage compared to mini-mill producers like Chaparral and Nucor. The highly innovative mini-mill producers used cheap scrap steel to produce low-margin rebar steel and continued to climb inexorably up the metallurgical quality scale to produce high-margin structural and sheet steel from cheap scrap.

9

10

Practical competence and resource frameworks

However the word competence is also used to replace ‘high competence activity’. Thus companies having high competence activities in microprocessor design, optics design and precision mechanical design are said to have competences in microelectronics, optics and precision mechanics. We shall use that short hand frequently.

Caterpillar This large construction plant manufacturer, is recognised as having a competence in supporting customers through its worldwide support/maintenance network.

Overall, competence is best thought of as a variable, rather than an attribute. It is not something that a company has, or does not have, but it is something that a company has to a certain degree. We judge that degree by comparing it to the performance of its competitors. Thus a company with a high competence in a particular activity is considered equal to its best competitors in that activity. Using this approach we can develop a measurement ‘scale’ for competence. Table 1.1 shows the terms we use to rate an organisation’s competence with respect to its competitors. Table 1.1 Competence with respect to competitors Below industry

Average

Level with

Indisputable

performance average

average

for industry

the best

leadership

Strength or weakness

Weakness

Neither strength nor weakness

Strength

Significant Strength

Low

Average

High

Very High

Company

Well below industry

Significant weakness

Competence Very Low

What are these activities? One useful model is that based on business processes. Table 1.2, based on the CIM-OSA1 list of business processes illustrates the wide variety of activities most firms carry out. The structure given here is suitable for both manufacturing and service-oriented companies. Different markets impose different needs so we can expect that the areas of high performance and thus high competence necessary to be successful will vary with industrial sector. The examples in this section illustrate this.

1

CIM-OSA is the acronym for Computer-Integrated Manufacturing – Open-Systems Architecture.

11

1.1 What is a competence?

Crown, Cork & Seal (CC & S) Whereas most competitors’ Research and Development (R&D) is independent of specific customer needs, CC&S only does R&D to meet specific customer needs. Much of its financial success (its rates of return have been consistently higher than its competitors) is put down to the firm’s intense customer focus. Especially significant is the very high competence of CC&S’s sales force in aggressively seeking to satisfy customers, searching for ways to reduce customer inventory, develop custom solutions, etc.

Table 1.2 Business process checklist Direction setting Includes all strategic planning activities including the new-product introduction process: • •

market research/product specification and design manufacturing process specification and design

• • •

performance measurement and objective setting networks with relevant legislators and industry bodies

acquisition/mergers/divestment

Order flow – products Begins with the selling of the product and ends with paying in the customer’s cheque: • order receipt and scheduling • raw material purchase • assembly, testing, delivery • • •

invoicing and money receipt for custom products – contractual matters, project management, commissioning building customer relationships

Order flow – services Services provided to the customers include: • • • •

installation, technical support and repair spares and consumables provision warranty management and maintenance contract arrangement customer training

Support processes • Labour The processes for recruiting, training, remunerating, motivating, appraising and retiring employees. • Technology The assessment and development of available technology both within and outside the company. The installation, maintenance and disposal of plant and equipment. • Supplier The establishment and development of relationships with suppliers. Choosing new suppliers and terminating those no longer needed. Includes suppliers of knowledge like consultants and academics. • Financial Attracting investment to the firm and providing returns to investors.

12

Practical competence and resource frameworks

Honda Honda’s competence in the development of high-performance engines and power trains is well known. Their moves from motor cycles into lawnmowers, outboard motors and eventually into automobiles were founded on this technical competence. Honda are also noted for their high competence at managing their dealer networks. This competence had been of critical importance during the massive growth phase of Honda motor-cycles in the US. At the time the existing motor-cycle distributorships were predominantly hobbyist bikers, who had little respect for the under-powered Hondas. So Honda developed a new kind of motor cycle dealership, complete with showrooms, repair bays, finance options and an audited standard of service.

At this point you probably have a few questions in your mind:

• •

How does this fit with core competences? What about capabilities? The next section addresses these questions.

1.2 Categories of competence We could write a lengthy chapter on the many categories of competences that consultants and academics have described. These definitions may be of interest to you but you are likely to be much more interested in identifying your firm’s important resources and competences. From there you need to know how to care for, manage, develop and obtain value from them. For these reasons this book only distinguishes between the two types shown in Table 1.3. Table 1.3 Simplified competence categories Ordinary resources and competences

Those currently on a par with competitors’ resources and competences, there is nothing special about them that can be identified right now.

Important resources Those which are currently a source of actual or potential and competences

sustainable competitive advantage or disadvantage to your firm.

Table 1.4 gives some definitions of competence categories you will and won’t have heard of. The one definition we would advise you to look at carefully is the shaded one – Dynamic capability.

13

1.2 Categories of competence

Table 1.4 Competence categories Competence category

Description

Core competence

Usually refers to high competence activities important at a firm’s corporate level which are key to the firm’s survival and are central to its strategy.

Distinctive

Refers to high competence activities that customers recognise as

competence

differentiating your firm from competitors and that therefore provide a competitive advantage.

Organisational or business unit

The small number of key activities, usually between or three and six, expected from each business unit in a company.

competences Supportive

An activity that is valuable in supporting a range of other activities.

(or meta) competences

For example, a competence for building and working productively in teams can have a major impact on the speed and quality of many activities in the company.

Dynamic

The capability of a firm to adapt its competences over time.

capability

Closely related to resources important for change.

Until now we have not used the word ‘capability’ since we consider the words competence and capability to be interchangeable, thus we have just used one – ‘competence’. Dynamic capability is an exception – it is the competence that determines the adaptation of all competences or activities over time and is therefore worthy of a different name. Firms with a well-developed dynamic capability are aware of the need to question and adapt their competences. This is not easy, human beings in general like to relax, to operate in their ‘comfort zone’. This is not the destiny of aware managers in fast-moving industries. As Lewis Platt of Hewlett Packard put it: We have to be willing to cannibalize what we’re doing today in order to ensure our leadership in the future. It’s counter to human nature but you have to kill your business while it’s still working. Lewis Platt, Chairman and CEO, Hewlett Packard, 1994

Reading this book is one way of sensitising you to the need for a dynamic capability in your firm, using this book will improve the performance and structure of your firm’s dynamic capability. There are more competence notions in the human resources and education literatures where the emphasis is on individual competency and competencies (rather than competence and competences). This book focuses on analysing resources and competences at a more global, organisational level. Clearly, however, improvements to these competences will need improvements to the competencies of individual sales

14

Practical competence and resource frameworks

staff, engineers, managers and operators in terms of what they do and how they do it both individually and collectively. We provide linkages to this individual resource level throughout the book. Undoubtedly this section has raised more questions in your mind:

• • •

How are competences and resources related? How do competences emerge? What does the degree of competence depend on? The next section addresses these questions.

1.3 Resource and competence architecture Any activity or competence draws on a set of building blocks called ‘resources’. Consider Figure 1.1, the triangle represents the boundary of an activity, within that are the resources on which that activity depends. As indicated by the arrows on the sides of the triangle, these resources are co-ordinated in a particular way.

Resource A

Resource B

Resource C

Figure 1.1 A representation of a competence.

This representation of the relationship between resources and competences will be used in the following case to develop a basic resource and competence architecture. The analysis of Superlative Delivered Quality Inc.’s delivered quality competence shows how resources combine to build a high-performing competence.

15

1.3 Resource and competence architecture

Superlative Delivered Quality Inc. (SDQ)* SDQ is a supplier to car and truck OEMs (original equipment manufacturers); it has a very good reputation for the delivered quality of its products, in the last three years only one batch has been returned by a customer. Figure 1.2 shows the primary resources that underlie its competence at delivering quality product:

• • • • •

• •

A set of beliefs at top management level that delivered quality is a key differentiator in the market A performance measurement and reward system that valued delivered quality highly Statistical process control (SPC) knowledge and expertise built over several years Rigorous ISO 9001-based quality systems, with effective concentration on correcting root causes An increasing customer focus value within the workforce, built over many years and driven by extensive training, visits to customers’ production lines, and ongoing contact with peers on customer production lines. (Operators know why it is important to pack products in a particular way because they have seen how they need to be loaded onto the customer’s production line) A reliable manufacturing system Neglecting those leaving within six months of joining, the average length of service is approximately 12 years, hence another resource was loyal and experienced staff

o e: ity pr nc l ete qua mp g Co iverin l de

Strong belief that quality is key

ct

Performance measurement and reward system

du

Loyal and experienced staff SPC knowledge Rigorous and skills ISO 9001

procedures Customer focus a strong value

Figure 1.2 Primary resources underlying the delivered quality competence.

16

Practical competence and resource frameworks

Reliable manufacturing system

Skills in using DFM procedure •

Customer focus a strong value

nd e: uct a ess nc c ete rod pro mp of p g Co sign cturin de nufa ma

Design for manufacture procedure

ct

Loyal and SPC experienced knowledge staff and skills Rigorous Performance ISO 9001 measurement • procedures and reward system

du

o e: lity pr nc ete qua mp g Co liverin de

Strong belief that quality is key

In-house automation and design knowledge

Figure 1.3 The role of the product and process design competence.

But that does not explain all of their performance, Figure 1.3 shows that their product and manufacturing process design is also performing at a high-competence level necessary to maintain the reliability of the manufacturing system, and this further underpins the quality performance. Underlying that competence we find another set of resources:

• •

A design for manufacture (DFM) procedure optimised for their products

•

A large production engineering group with automation design knowledge

Skills and experience built from practicing the DFM procedure (seven or eight new products per year)

Is the high-performing quality competence fully explained? Not yet, there is one more step. A further high-performance competence feeds both the quality competence and the design of product and manufacturing process competence. That competence, shown in Figure 1.4, is in building and working productively in teams, the resources that underlie this competence are:

17

1.3 Resource and competence architecture

o e: ity pr l nc ete qu a mp g Co liverin de

Strong belief that quality is key

Reliable manufacturing system

ct

and skills Performance measurement and reward system

du

Loyal and experienced SPC knowledge staff

Rigorous ISO 9001 procedures Customer focus a strong value

Co mp ete nc e: for mi ng an

nd e: uct a ess nc c ete rod ro mp of p g p Co sign cturin de nufa ma

Design for manufacture procedure

do pe tea

Multi-disciplinary personnel

in ms

Skills in using problem solving methods

ng

In-house automation and design knowledge

ti ra

Skills in using DFM procedure

Structured problem solving methods

Appraisal system values teamwork

Figure 1.4 The Architecture of SDQ’s competence at delivering quality products.

• • • •

An appraisal system that values an individual’s ability to work in teams Structured techniques for problem solving acquired through regular training Problem solving skills developed through application of these techniques Multi-disciplinary personnel. (This depended on a system of job transfer and rotation that meant most engineers and managers had worked in three functions from Quality, Line management, Manufacturing engineering and Logistics.) They could understand one anothers’ problems. So while a competence will always, in the end, be supported by resource building blocks other supportive competences may be

18

Practical competence and resource frameworks

r me sto Cu pe

Resource A

i rce ved pe com Resource C

ces ten

Resource B

or

ive

pp

or t

su

pp

lly

l su

cia

ica

So

hn

Tec Resource X

ec tiv om pe ten ce

e

nc

ete

mp

co Resource Q

Resource Y

Resource P

Resource R

Fig 1.5 Extended competence architecture.

involved. This is particularly so for competences that customers recognise, like rapid new product introduction or, in this case, a competence for delivering high-quality products. These competences are often reliant on supportive competences which lie deeper in the organisation and which are much less obvious to customers. We can therefore extend our competence architecture as in Figure 1.5. In general technical supportive competences support the maintenance and/or development of particular technical resources – in the SDQ example the ‘design of product and manufacturing process competence’ supports the ‘Reliable manufacturing system’ resource. They are therefore drawn with their apex penetrating the triangle immediately under the resource concerned. Socially supportive competences gener-

1.4 What is a resource?

19

ally assist in the coordination of one or more competences. They are therefore drawn with their apex intersecting the co-ordination triangle of those competences they affect. But what determines the performance of a competence? The degree of competence displayed by the activity depends on at least five aspects:

• • • •

The health of the resources

•

The performance of supportive competences

The appropriateness of the resources to the particular activity The way the resources are co-ordinated and managed How often the activity is exercised (practice can make perfect, but not with inappropriate or unhealthy resources)

Note also that the resources in our example are not necessarily tied to these competences alone. The workforce is involved with a multitude of activities, from scheduling batches through the factory to disposing of waste material. They have other deep-rooted values as well as customer focus. For instance the wage bargaining in this company is often a highly contentious matter as the workforce attempt to get their share of the results of the firm’s competitive advantage. So the performance of a competence can often depend on the attention and priority managers give to it compared to other activities in which the same manpower and perhaps different knowledge and expertise are required. This suggests a sixth factor:

•

The priority given to the activity, particularly where shared resources are involved We shall be dealing in much more detail with these ideas in Chapter 7. The SDQ example also shows a wide range of resources, from top management beliefs to the company appraisal system. It is now time to explain what a resource is and to describe the range of possible resources.

1.4 What is a resource? A resource is something your organisation owns or has access to even if that access is temporary. Resources can be either ‘tangible’ or ‘intangible’. Tangible resources are relatively obvious, examples include buildings, plant, equipment, exclusive licenses, patents, stocks, land, debtors, employees – generally tangible resources can be touched or felt, they have a physical shape. Intangible resources are, by definition less easy to recognise. They include skills, experience and knowledge of employees, advisers, suppliers and distributors.

20

Practical competence and resource frameworks

Skills, knowledge and experience can also be held or embodied in systems, in-house databases, personal and organisational networks, brands and reputation. An organisation’s culture and values can be very important resources too, especially, for example, the prevailing attitudes to customers, quality, change and the values and beliefs of influential managers. Although sometimes hard to recognise intangible resources are real and can, to an extent, be valued. One indication of this can be seen in a takeover situation where the market value of a company (its price per share multiplied by the number of issued shares) can be many times the value of the firm’s tangible resources or book value. This difference represents the expectation of an income stream via dividends and capital growth. This financial payback can only be achieved through the firm’s intangible assets – its reputation and market position, its workforce’s knowledge and its other less tangible resources and competences. Note that many of these resources lie within a firm’s ownership, for example stocks and equipment. Many others are not owned but can be accessed, for example the experience and knowledge of suppliers, customers or advisers. Other, often very important, resources are the skills and knowledge of your employees. They are available to the company today but, they can, of course, leave whenever they wish. We can categorise resources in many ways but one of the most useful is shown in Table 1.5. This categorisation is useful for helping to identify resources and to check that a comprehensive range of resources has been captured. It will be re-visited in Chapter 5. Table 1.5 Categories suitable for resource identification Resource category

Description

Tangible resources

Buildings, plant, equipment, employees, exclusive licenses, geographic position, patents, stocks, land, debtors – more or less anything with a physical form.

Knowledge resources, An important set of often unwritten, tacit resources whose skills and experience holders may not even know that they possess. System and A wide range of tangible, documented resources from recruit procedural resources ment and selection systems to performance measurement and reward systems, order processing systems etc. These documents and the computer resources they run on are tangible. But the efficient running of these systems requires intertwined intangible resources like the knowledge and experience of the operators and users of the system. Cultural resources and values

One type of intangible resource often developed over long periods and often dependent on the attitudes of the founder(s) and past events. This category includes memories of cathartic situations as well as values, beliefs, preferred behaviours etc. The beliefs of powerful individuals can be critically important resources.

21

1.5 What makes a resource important?

Table 1.5 Cont. Network resources

Interest groups within the company, networks involving company personnel with suppliers, customers, legislative authorities, or advisers. We include reputation and brand in this category.

Resources important for change

A key resource area related to recognising when valuable resources have become out-dated and need to be changed or even destroyed. Examples here are the beliefs of influential workers and managers, the existence of resources for implementing change (like cash for investment).

Do not make the mistake of thinking that these resource types are separable. That a resource is either tangible or not, or that a resource is knowledge-based or system-based. Resources can be mixtures of knowledge, system and physical hardware that are not easy to separate with neat definitions. Do not ignore yourself here because you, as a manager, are a highly valuable resource that is key to identifying the need for change in your company, assessing the direction of that change and carrying it out. But at the same time you are maintaining the competences on which your competitive position depends through the organisation of your underlying resources. Experienced managers are particularly complex resource bundles. They are typically tangible, part of many networks, are influential holders of cultural resources, have a wide set of knowledge assets and are certainly important for change.

1.5 What makes a resource important? Important resources are, or could be, sources of sustainable competitive advantage or disadvantage to a firm. In order to simplify discussion we shall concentrate on the resources that are sources of advantage. Three metrics are used to assess the importance of resources:

•

Value

The performance made possible by the resource provides a competitive advantage that is valuable to customers

•

Sustainability

This performance advantage must be, to a degree, sustainable or lasting

•

Versatility

The resource should be versatile and therefore useful across many product areas and even in new markets

These metrics will now be described in more detail.

22

Practical competence and resource frameworks

Is it valuable? There are almost as many ways a resource can be valuable as there are different resources:

•

An in-house manufacturing process may deliver product specifications more economically than competitors and thus reduce costs.

•

A strong brand name may increase revenues through its ability to provide premium pricing.

•

Long-lived personal contacts and networks with key suppliers, customers and/or legislative authorities are examples of resources which enable access/influence on customer/legislative requirements or specifications. Even if threats cannot be defused, those with superior networks of this kind have most notice of market change.

•

Scarce resources also tend to be valuable. Examples vary from oil fields to prime locations for retail stores to an intensely customer-focused culture which enables superior access to customer requirements.

Wal-Mart and K-Mart Much of Wal-Mart’s continuing competitive advantage in discount retailing comes from its early entry into rural markets in the southern USA. To make these locations profitable Wal-Mart developed appropriate reporting structure and compensation resources and sophisticated point of sale inventory control systems. The inventory control systems were an important resource, rare amongst its competitors, kept product availability high, inventory costs low and could be used to predict demand. K-mart, a major competitor has been copying these point of sale resources and should overcome their disadvantage in this area. However, it may be more difficult to imitate Wal-Mart’s prime store locations based on early entry to the market. These geographic resources may prove to be a more sustainable competitive advantage for Wal-Mart than point of sale systems. Both retail chains have some thinking to do as more and more goods are bought over the internet. It is feasible that these prime locations will become of less and less value to the stores.

Remember that out of date or otherwise inappropriate resources and capabilities may produce nil or negative value – they are weaknesses or ‘incompetences’ and produce disadvantages for a firm. Xerox’s inability to turn excellent research into products was a case in point.

Xerox At their Palo Alto Research Centre (PARC) Xerox spent the 1960s and early 1970s developing a range of valuable, scarce and difficult to imitate technological resources. The personal computer; desktop ‘mouse’ coupled with an icon-based, easy to use operating system; ethernet and laser printing were all developed at PARC. Unfortunately Xerox failed to exploit these technologies because of other, weaker resources: •

No structure existed to promote these technologies.

23

1.5 What makes a resource important?

• •

Once ‘discovered’ an intensely bureaucratic product introduction process stifled many of them; Those finally developed were poorly exploited because management compensation systems were

based, almost totally, on maximising current revenue. Market development for future sales was almost irrelevant. The funds generated from the virtual monopoly Xerox enjoyed in the copier business enabled PARC to excel in many technologies yet, ironically, also bred a set of resources that frustrated their exploitation.

Is that value sustainable? For a resource to be important its value must also be sustainable. For it to be sustainable:

• •

Competitors should have difficulty in copying the resource

•

The firm itself should not undermine, destroy or otherwise allow resource values to depreciate

Competitors should also have difficulty in finding substitute mechanisms for rivalling the advantages it provides

If the resource is difficult to copy its value may last and there are three reasons why a resource might be difficult to copy:

•

First, it may be difficult because competitors cannot recognise the resource – it is invisible to them.

•

Second, the resource may have been generated by unique historical opportunities that will never be repeated. Caterpillar’s service network is an example.

•

A third source of problems is a lack of understanding, ambiguity or confusion over how the resources actually work as in Mailbox Inc.

Caterpillar re-visited Shortly before the USA entered the Second World War the federal government decided to appoint a single supplier of construction equipment to build and maintain military bases and airfields around the world. Following tenders Caterpillar was chosen and the government agreed to pay equipment prices high enough to enable them to develop a worldwide service and supply network. Unique historical conditions provided the opportunity for Caterpillar to develop this costly and difficult to imitate competence. Caterpillar management took advantage of this opportunity by developing appropriate resources: global reporting structure; global inventory and other control systems; compensation policies to encourage employees to work around the world, etc.

24

Practical competence and resource frameworks

Mailbox Inc. Mailbox Inc. is a simple business – it gathers bulk mail from customers (advertisements, free offers, etc.), sorts it by post-code and then takes it to the post office to be mailed. (The post office charges less for this sort of mailing when it is supplied in delivery rounds and Mailbox Inc. makes money by charging it’s customers a rate in between those offered by the post office for sorted and unsorted mail.) It has enjoyed a major market share advantage in the Dallas–Fort Worth area over a long period. How does it do this? There is no single advantage – it seems that across the company Sales, Operations, Finance and Human resource management – Mailbox’s success derives from doing the thousands of things required to run a bulk mailing organisation well. Each is easy and cheap to imitate but as a whole their operation is costly and difficult to imitate. Managers in Mailbox find their success difficult to explain, what chance do competitors have of understanding what to imitate?

If your competitors can recognise your valuable resources yet face high costs or long time-scales to acquire them they may think twice before trying to copy. If they face high costs and long time-scales your competitors are even less likely to copy, for in the time needed to catch up your performance can improve further and the competitive landscape can always change. However competitors may be able to get round this problem by substitution. Can its advantages be substituted? Some advantages can be undermined by competitors who change the rules of the game. While Caterpillar have promoted their worldwide support competence a significant competitor has still emerged.

Caterpillar and Komatsu Komatsu have competed successfully with Caterpillar by substituting some of the advantages of a global network support competence with equipment that breaks down less frequently. One of their competences is to design very reliable mid-size, construction equipment.

Finally, a firm can destroy its own resources particularly quickly, especially resources that naturally depreciate quickly. The value of some knowledge resources can decline quickly in fast-moving, high-technology industries. In the communications sector an engineer’s knowledge gets out of date as new electronic components and system standards are introduced. This is one example of a host of resources that can decay if left alone unused or unmaintained. The longer a resource can endure without attention the more sustainable it can be.

Is it versatile? A versatile resource can be used in a number of places outside its current application. However some resources are not versatile, there are three potential reasons for this:

25

1.5 What makes a resource important?

•

First, the resource may only be valuable in combination with other resources. For example, a skilled engineer may be much less valuable when divorced from an existing support structure where his/her abilities are allowed to blossom while their weaknesses are compensated by other engineers. This is the idea of complementary resources. If three people each have a third of a safe combination they are truly complementary resources since each alone is next to useless and all three are necessary to rapidly open the safe. In practice it is often the case that the most obvious and valuable resources need to be accompanied by complementary resources if they are to be used outside their current situation.

•

Second, the resource may be tied to its geographic surroundings. For example an expert in a particular technology may not move to your new research laboratory because s/he looks after an aged parent. Natural resources like oil fields or copper mines are similarly tied to particular geographic positions.

•

Third, the resource may take a very long time to replicate or may be virtually impossible to replicate. For example, though you might wish to use a particular Engineering manager for his current role and also in another of your business units our current knowledge of genetics has yet to make that a possibility. If a resource is codified within databases or in-house developed software it is probably well understood. (Note. This may mean it can also be copied or stolen, see above.) Resources embedded in tacit knowledge and skills will be much less understood. The more codified and understood a resource becomes the more versatile it may be. If the resource can be used in new markets its importance is further heightened. Brand image is a good example of a versatile resource. But even a strong brand image can be stretched a little too far.

Virgin One of the latest industries to bear a Virgin logo is the UK West Coast rail line joining London and Glasgow. For the first time Richard Branson did not begin a brand new company, he took over ancient rolling stock running on an under-invested, dilapidated rail infrastructure whose improvement depended on another company – Railtrack. Trains ran late and ran still later while the rolling stock was cosmetically improved. The logo did not bring success. All may be well in a few years time, new rolling stock has been ordered and the network will be improved - but that very improvement will cause considerable disruption to Virgin rail users. In 1997 Virgin trailed their competitors with almost 30% of the 650,000 complaints received by the privatised rail companies. In 1998 it was the same story, Virgin had more complaints than any of the other privatised rail companies. Branson may rue the day he placed the Virgin logo on trains that broke down and were frequently late. One should be more careful with valuable and versatile resources.

26

Practical competence and resource frameworks

1.6 What makes a competence important? There are three basic ways for a competence to become important:

•

The first is simply for it to be underpinned by one or more important resources. It is these important resources, which score well on the value, sustainability and versatility metrics, that are the source of competitive advantage. However, it is the co-ordination and management of those resources in a competence that can be recognised by customers as high performance in a particular competitive dimension. Note that it is perfectly possible for important resources to lie unused and even unrecognised playing no part in a company’s strategic competences, see the Xerox case on page 22.

•

Second, it is feasible, see Mailbox Inc. page 24, that a firm can co-ordinate and configure a large number of individual resources into an important (valuable and sustainable) competence. None of these resources appears important, but together they can form an important competence. In this case the important resource is the coordination itself.

•

Third, a competence can be important because rather than a particular resource being rare and valuable the combination of resources on which the competence draws is rare and valuable. No competitor possesses this range of resources. We end Chapter 1 at this point and will begin to use these ideas to help your business, in the next chapter.

1.7 Summary The major ideas covered in this chapter are:

•

Resources are the building blocks that underpin the activities in a company, they come in many shapes and sizes.

•

A competence is an activity performed at a range of levels, there are a number of different types.

•

Dynamic capability is the ability within a firm to adapt its competences over time.

•

To distinguish between a competence and a resource ask whether the item in question is something the organisation has or has access to? If so it’s a resource and will be best expressed as a noun. Or is it something the organisation does? In which case it’s a competence and will be best expressed as a verb.

•

The performance of a competence is dependent on

• •

the health and appropriateness of its underlying resources on your management of those resources

27

1.8 Further reading

• • •

on their detailed co-ordination,

•

the performance of supportive competences

the frequency of practice the priority given to the activity especially where shared resources are involved,

•

It follows that your competency as a manager is a vital key to the performance of your company’s activities.

•

Resources are evaluated against three metrics: value, sustainability and versatility.

•

Important resources are valuable, but the value they produce should last for a reasonable period (it is sustainable) because competitors find it difficult to copy, imitate or substitute for it. Ideally the resource can be used in more than one product or service context.

•

Important competences

•

•

contain one or more important resources and are, by definition, managed and co-ordinated in an effective manner compared with competitors

•

or involve the outstanding co-ordination of many, otherwise ordinary, resources

•

or are composed of a rare combination of resources

Important resources and competences are sources of actual or potential sustainable competitive advantage or disadvantage to your firm.

1.8 Further reading Barney, J.B. (1996) Gaining and Sustaining Competitive Advantage, AddisonWesley, Reading, MA. Especially chapter 5 ‘Evaluating firm strengths and weaknesses: resources and capabilities’. Grant, R.M. (1991) ‘The resource-based theory of competitive advantage: implications for strategy formulation’, California Management Review, Spring, 114–135. For one of the best overviews of the area. Prahalad, C.K. and Hamel, G. (1990) ‘The core competence of the corporation’ Harvard Business Review, May–June, 79-91 (reprint # 90311). For why managers got excited about the internal analysis of firms. Stevenson, H.H. (1976) ‘Defining corporate strengths and weaknesses’, Sloan Management Review, Spring, 51–68. For the best description of the political and cognitive problems involved in strengths and weaknesses analysis.

28

Practical competence and resource frameworks

Teece, D.J., Pisano, G. and Shuen, A.(1997) ‘Dynamic capabilities and strategic management’, Strategic Management Journal, 18, (7), 509–533. A classic paper which, prior to its publication in 1997, might well have become the most photocopied working paper in the history of strategy research.

2

Awareness – what does success look like? How can we connect your business improvement with resource and competence ideas? The methods described in this chapter take a practical, initial look at resources and competences important for your firm. The aim is to sensitise you to think of improving your firm’s resource base at the same time as achieving the improved performance implicit in your current business objectives. The process is called the ‘Awareness method’ and is suitable for management teams. Awareness is a good introductory route into resource-based thinking. It is a top-down journey, which begins with a firm’s business objectives. The outcomes concentrate on improving, creating and co-ordinating desired resources in order to achieve your business objectives. This route can also focus on the ‘Change competence’ of your organisation in resource terms. Current change and improvement activities

Resource and competence building

New change and improvement activities aimed at competence and resource building

Vision of required resources and competences

Business objectives

Envision the resources underlying the achieved objectives

Existing change and improvement activities with resource and competence objective

Figure 2.1 Awareness.

The starting point, illustrated in Figure 2.1, is a well-articulated set of business objectives1 which have taken care to combine customer requirements (current and expected future) with stakeholder requirements (shareholders, employees, government, customers, community, suppliers, etc.). As Figure 2.1 shows the outputs are a vision of the improved resources and competences on which the achievement of the objectives would depend. They are fed into the resource and competence building process covered in Chapter 7. 1 There are many ways of generating a set of business objectives, see either of the accompanying books, Creating a Winning Business Formula and Getting the Measure of your Business.

29

30

Awareness – what does success look like?

The chapter is organised as follows:

•

The need: it is very easy to damage a firm’s resources, even if you do not intend to

•

The approach: a description of the methods used and the thinking behind them

• •

Outcomes: opinions from managers using the approach Toolkit: tools that help structure the discussion and debate The chapter ends with a summary of the main ideas raised in the chapter and a process review that describes what you will gain from actually using the Awareness method.

2.1 The need There are good reasons for sensitising managers to a resource-based view of their plans, Stable and Enduring Inc. is a case in point.

Stable and Enduring Inc. (SEI)* The performance bonus for achieving a return on investment (ROI) of 28% was a powerful incentive for the newly appointed CEO of SEI. Within the year 29% ROI was achieved but at a price it was difficult to estimate. All capital investment in the manufacturing system had been frozen despite the urgent need to improve productivity to at least the industry average. The CEO’s decision to postpone, without notice, all material orders for two months had reduced material stocks but also cut off the supply of material needed to finish current orders. The resulting rise in work in progress and customer complaints caused a swift turnabout for the CEO – as far as shortage items were concerned. Supplier relations switched from a co-operative exchange of information, especially where new products were concerned, to a position where some key suppliers were actively seeking ways of reducing their business with SEI. The toolroom had also closed and its equipment sold or otherwise written off. This was an unusual decision given 70% of SEI’s sales were customised late in the production process and involved the manufacture of customer specified jigs and fixtures. These were now outsourced and, according to the Operations Director, this put lead times in the hands of suppliers, especially since SEI had no resources to perform late design changes. By the end of the year, across the business, morale had collapsed and many of those with talent were seeking other employment.

SEI is an extreme example of resource insensitive decision-making. More generally it is obvious that resources which can take many years to build can be demolished in a very short time. And at the heart of all strategy making is a trade off between financial performance now and in the future. Rolls-Royce Aerospace chairman, Sir Ralph Robins illustrates the point: 1999 was a successful year for Rolls-Royce in challenging conditions. We again achieved our financial target of double-digit earnings growth and continued to invest in improved efficiency and new products and services

31

2.1 The need

to ensure long-term growth. We have transformed our business over the last decade. During this period Rolls-Royce has invested more than £5 billion in research and development and £1.5 billion in capital expenditure to establish a leading position in civil aerospace, defence, marine and energy. These are growing markets in which we are gaining market share. Rolls-Royce plc Annual Review and Summary Financial Statement (1999), p. 2

Long-term holders of Rolls-Royce shares have made no fortunes from these shares over that ten-year period. Resource aware strategy-making tends to reduce current profit by investing in resource development that supports future profits. This can provide a dull ride for investors at times but Rolls is one of the least risky shares around and one day … Overall our contention is that if a company’s performance improvement actions are assessed for their resource impacts, then:

•

Resource-aware actions can provide improved long-term performance for all stakeholders from an improving resource base

• •

The risk of damaging important resources and competences will be reduced There is a higher chance of innovative strategies being discovered and followed Our experience as managers and researchers suggests we do not go about improving our resources because resources are regarded as means not ends. Rather we go about trying to survive and, when we look up, we try to achieve the objectives set for us and set by us. Some of our personal objectives are related to the firm’s business objectives which are usually about growth, reducing costs, shortening leadtimes, speeding up responses to customer changes and so on. They tend not to be about building a better resource base for the future. We are aware that there are other measures of achievement – the owner of a vineyard aims to pass it on to the next generation in a better condition than when s/he took it on. In modern business life, particularly in the USA and, to a lesser extent, the UK, a more short-term view of share price is demanded. There are problems with this balance of thinking:

• •

It promotes a short-term view (two years at maximum)

•

Resource-insensitive decisions can be made

Resources develop in an ad hoc manner and their well-being can be left to chance

For these reasons, helping managers to become more aware of their resources as they decide how to reach their business objectives is a useful contribution. What is necessary, and illustrated in Figure 2.2, is to view business objectives in resource and competence terms as well as simply measures of performance improvement and thus enable man-

32

Awareness – what does success look like?

agers to visualise the impact of different options on achieving their objectives and on their resource base. Improved performance

"Profit and loss"

Coherent implementation actions

Business objectives

Improved assets/abilities for further performance improvement

"Balance sheet"

Figure 2.2 Actions that improve performance and the resource base.

The analogy used in Figure 2.2 compares the outcome of improved performance (leadtime, growth, etc.) with the yearly profit or loss. An improvement in resources and abilities can be compared with an improvement in the balance sheet but is rather more difficult to measure. We shall return to the measurement issue in Chapter 8. Importantly your future balance sheet, resources and competences are fundamental to the performance improvements you will be able to achieve in the future. We shall also return to the concentration on share price as a measure of company performance in Chapter 9.

2.2 The approach First look at your business objectives for a particular product market group2, then imagine it’s a year or two in the future and you have achieved those objectives. What activities have been necessary to achieve this new performance level? The answer to this question can be viewed in two parts:

• •

Improved operational activities that underlie the higher performance Change activities that underlie the change itself Figure 2.3 illustrates these different kinds of activities and, for both types, we can look at the resources needed to underpin them. We shall be concentrating on the improved operational activities. 2

Most companies have more than one product market group, for example many manufacturing companies have a spares market as well as an original equipment market. Though related, the business objectives of each group will be very different.

33

2.2 The approach

Change activities

What resources underpin these activities?

What activities are required to achieve these business objectives?

Business objectives

Resources

Resources Improved operational activities

What resources underpin these activities?

Figure 2.3 Change activities and more competent activities.

Resources underpinning more competent operational activities can be accessed by the following questions:

•

What new resources have been acquired or accessed?

• • • • •

new engineer recruits? new sales staff? new suppliers or advisors?

Which resources have been improved?

• • • •

new machinery?

staff via training/mentoring? machinery via refurbishment? systems have been improved e.g. by automation or simplification?

How have actions have been better co-ordinated?

• •

by re-organisation by employing a more competent manager?

These questions require you to think about how your firm works in an operational sense. The outcome is a vision of the resources and competences required to support improved performance and provide a further platform from which even better performance can be achieved. Resources underpinning the change activities are more subtle. There are often problems in changing organisations:

•

Planning change needs ‘joined up thinking’. If the teamworking practices within your organisation are poor change may be slowly and minimally achieved.

•

Extra resources are invariably needed for change and initially change

34

Awareness – what does success look like?

usually costs money. If resource availability is very tight, again there will be delays in the act of changing.

•

Consultants are often used to make up for either or both of the above problems. Here change happens but it may not last. An important aspect to note here is that there are socially supportive or unsupportive competences (see Chapter 1). There are competences and resources that can support or provide substantial roadblocks to change, for example:

• • • •

performance measurement and reward systems recruitment and selection systems appraisal systems stories and myths that illustrate the behaviours that are valued in your company It is these systems and the beliefs and values that underlie them that need attention if a firm’s ability to change is to be improved. Your vision of the resources underpinning your improved performance are fed into Chapter 7. In that chapter these aspects are covered in detail, improvement methods are discussed and improvement actions selected.

2.3 Outcomes Our experience with this envisioning approach suggests that:

•

It appeals to most managers – they seem to instinctively value this look at the means (or resources) that underpin their firm’s performance

•

It inserts a longer-term component into their strategy making by suggesting the continuity and improvement of a firm’s resource base

•

It can help to assess whether ‘stretch’ targets might be achieved by building on old resources or developing anew

• •

It can assist managers to make resource-aware decisions Managers find the discussions on their ‘change competence’ valuable

2.4 Toolkit The toolkit consists of:

•

A method called Awareness for creating and organising a resource and competence perspective from a set of business objectives

•

Worksheet examples

35

2.4 Toolkit

2.4.1 Awareness

Aim

To create an understanding of the desirable resources and competences that should underpin the achievement of your business objectives.

Why? How?

To enable you to take resource-aware decisions to achieve your business objectives.

Participation This approach is designed for management teams and for full value the whole team should attend. This is because the method develops a language and understanding of resource-based thinking. A facilitator is a worthwhile investment, so that the whole team can have their say.

Time Depends on the number of business objectives. Two hours would cover up to four objectives. Practice does speed up the process considerably.

Materials Flipcharts, or better, a large electronic whiteboard in the format of Table 2.1.

Table 2.1 Format for resource and activity capture

Activity

Tangible

Knowledge skills and

System and Procedural

Cultural resources

Network

Resources important

resources

Experience

resources

and values

resources

for change

3

CD Forms

3 This

symbol indicates that a copy of the form or table it accompanies is obtained from the CD.

36

Awareness – what does success look like?

The process: Take each objective in turn and

•

Use the format shown in Table 2.1 to list the main activities that will need to improve to achieve the objective

•

Against each activity list the resources that will need to be improved, acquired or better co-ordinated to achieve the objective (use the resource category headings (Table 1.5) to prompt the different kinds of resource) When complete, look for areas of conflict and resolve them. Further analysis normally suggests itself, for example:

• • • •

Draw together all the cultural resource developments Draw together system improvements and prioritise Draw together knowledge needs to suggest appropriate training Compare current improvement plans with the desired resources:

• •

Will these plans deliver these resources? Will some plans undermine needed resources?

Tips: •

Use the sheet as a working document, it will need to be re-formatted and tidied up after the session.

•

Good prompt questions, mentioned earlier are:

•

•

What new resources have been acquired e.g. machinery, engineers, sales staff, suppliers, advisors ...?

• • •

Which resources have been improved e.g. through training or refurbishment?

•

What current problems have been reduced or eliminated and how exactly was this achieved?

Which systems have been improved e.g. by automation or simplification? What actions have been better co-ordinated e.g. by re-organisation or employing a more competent manager?

Get the team to close their eyes and try to visualise what’s different. Are people running about faster? Staying at work longer? Or are tasks being accomplished more effectively?

37

2.4 Toolkit

Case example: Anonimo Inc.* A. Develop and improve relationships with key customers This business objective was one of seven devised by defence subcontractor, Anonimo Inc., in 1999. During a series of changes in ownership, the business had lost some of its skills in this important area. Worryingly the firm had also developed a reputation for being unresponsive, lacking in ideas and being stuck in its ways. The need to change that reputation, both with its customers and sister companies was urgent. An extract from their resource and activity capture form is shown below, in Table 2.2. Table 2.2 Develop and improve relationships with key customers Knowledge

System and

Cultural

Tangible

skills and

Procedural

resources

Network

important

Activity

resources

Experience

resources

and values

resources

for change

Major messages for customers and sister companies being regularly updated

Up to date brochures, standard slides

Contacts database used by all

Provide time at board meetings to review main messages

Increase personal networking for directors and managers

Better influencing skills required

Include in appraisal and objectives system

Needs to be recognised as a very important objective

Major events being used to promote the company

All managers/ directors must understand the order of military ranks

Briefing system prior to major events

Need to be recognised as very important opportunities

Resources

Appoint a business communications manager, overall focus for this objective Measures of networking contacts and database entries

Post-event contact to check on customers’ reactions

B. Improve the co-ordination of the design and build process Anonimo Inc. had reduced the leadtime in its contract division by overlapping its design and build processes, however this had led to major increases in scrap and rework in some areas. An extract from the results is shown Table 2.3.

38

Awareness – what does success look like?

Table 2.3 Improve the co-ordination of the design and build process

Tangible

Knowledge skills and

System and Procedural

Cultural resources

Network

Resources important

Activity

resources

Experience

resources

and values

resources

for change

Improved design process

Design libraries

Better knowledge of product and systems across designers

Robust design reviews

Designs to be owned by originating designer over their whole lifecycle

Visit other contractors to look for new techniques

PRTM consultants

Design quality measures

Careers for graduates cycling between design and manufacturing Improved design/build process

Design for modular build guidelines Early involvement of manufacturing in design process Reward systems adjusted to reflect the importance of teamworking

Preferences for sharing rather than hoarding knowledge Engineer led design and build teams Leadership moving from design to production to commissioning over the project’s lifecycle

Worryingly this analysis identified no internal resources in the ‘Resources important for change’ column except for ‘PRTM consultants’.

2.5 Summary The main ideas in this chapter are:

• • •

It is easy to destroy most resources Often it doesn’t even take much time Regarding resources purely as means and not ends leads to:

• • •

A short-term view Resource development being ad hoc Resource insensitive decisions being made

•

The Awareness method sensitises you to develop your resource base at the same time as achieving your business objectives

•

Resource-aware actions will provide

39

2.6 Process review

•

•

Improved short- and long-term performance from an improving resource base

• •

Reduced chance of a disaster occurring A higher chance of innovative strategies being discovered and followed

The method can also be used to investigate your firm’s ability to change – its ‘change competence’

2.6 Process review At the end of this chapter you will have:

•

Gained a resource- and competence-based perspective of your current business objectives

•

Almost certainly improved the relevance of one or two of your business objectives

• •

Formulated some resource aware plans in your mind, if not on paper Have the information to use Chapter 7 to build your resource and competence base But beware – you are only sensitised to the resources and competences important for achieving this set of business objectives. You have other important resources that have not been documented.

Matching problems to analysis methods

3

The Awareness method is useful:

• •

When you need fresh perspectives on how to improve your business When you wish to take account of your resources in plans to achieve your objectives But how can you tackle the other strategic areas we described earlier? In the section ‘When to use this book’, we described three other areas where resource and competence analyses are vital:

•

When you are considering changing the boundaries of your business, for example:

• • • • • • •

By acquisition or divestment Entering joint ventures or other partnership arrangements Considering make versus buy alternatives Entering new markets Taking on new technologies

When disaster is at hand When you are trying to build a more sustainable competitive advantage For all these areas it is essential to identify your firm’s current resources and to assess their value and sustainability. The Awareness method does not identify your current resources, it helps you to visualise the connection between achieving your business objectives and the resources needed to underpin improved performance. Indeed it sensitises you to protect and develop resources relevant to your current business objectives. You almost certainly have important resources that are not attached to your current objectives. Awareness does not identify them so they are still in danger from your action plans. So while the Awareness method offers a good introduction to resourcebased thinking and can help protect and develop some important resources, a further method is required to tackle the first three areas, above, and to supplement Awareness. In this chapter we develop a second process, called ‘Insight’ which enables us to tackle these other strategic issues.

41

42

Matching problems to analysis methods

This chapter is divided as follows:

•

Boundary change decisions, disaster, and sustainable advantage: what are the requirements for resource analysis?

• •

Top-down versus bottom-up processes: which is most appropriate here?

•

Insight: an overview of the second approach

The level of detail required: achieving a balance which enables actionable outcomes

We conclude with a summary of the main ideas in the chapter and a list of further reading so those interested can study the ideas more deeply.

3.1 Boundary change decisions, disaster and sustainable advantage To tackle these strategic issues any analysis must identify the competences and resources relevant to your particular focus and then assess them for their value, sustainability and versatility, for example: In a make versus buy decision the resources relevant to the particular decision need to be identified and assessed. This is because you need to know whether any of these resources are strategically important.

•

Deciding to buy rather than make usually applies to services and components commonly available where the particular skills and equipment used are neither valuable nor do they offer any sustainable advantage. Examples are commodity components like fastenings, raw plastics and steel plate, and services like payroll, distribution and some training.

•

Deciding to make rather than buy usually applies to services and components designed specifically for your business. If the component concerned plays a fundamental role in providing any important performance attributes of the final product (or service) it is likely to be retained in-house. Some of the design and/or production skills needed may be rare and therefore valuable. Manufacturing skills may be intertwined with product design skills in such a way that design skills ebb away if there is no in-house manufacturing skills to support them.

Apple Computer Apple designs its own hardware and its software operating system (the Mac OS). This, says the CEO, Jobs, enables Apple to be fully in control of the user’s experience. What it also does is enable Apple to provide outstanding innovation – first to provide the fast Universal Serial Bus interface, replacing slower serial and parallel buses; first to provide the digital video ‘Firewire’ interface; first to scrap the integrated floppy disc; and first to provide integral wireless networking. That reputation for innovation is one of Apple’s key

43

3.1 Boundary change decisions, disaster and sustainable advantage

resources and is strongly related to the Apple brand and its loyal user base. Many WIntel PC manufacturers do little more than assemble boards and mouldings from Taiwan, install software from Seattle and then market and distribute their products. They are not in a position to innovate technologically since the majority of the product is out-sourced. Their innovations have been in manufacturing cost reduction and low-cost distribution.

Charles Fine has shown that the implications of buy versus make decisions on the supply chain can have long lived effects which may be very difficult to predict. By outsourcing to Japanese aerospace suppliers (e.g. Mitsubishi), Boeing planted the seeds of various competences that grew under their own power, eventually beyond the ability of Boeing to control them … Boeing’s subcontracts had a positive impact on the size and technological capabilities of the Japanese suppliers, which in turn increased Japanese industry autonomy and ultimately the ability of that industry to demand more critical work. In addition, the suppliers gained in their appeal as subcontractors which, in turn won them more contracts. On the US side, fewer contracts resulted in a shrinking in size and capability, which, in turn reduced the suppliers’ attractiveness and encouraged Boeing to shift even more business away from them in subsequent contracts. Once such a dynamic process is initiated, it can take on a life of its own and evolve far beyond the control of the initiator. In Boeing’s case, this process has unfolded over a period of 25 years or more, far exceeding the duration of any individual Boeing employee’s executive career. Furthermore, although the Boeing–Japan relationship has been fruitful for all the players involved, one must ask whether this relationship constricts Boeing as the company attempts to trade production for sales in the emerging markets of China and India, for example … C.H. Fine, (1998) Clockspeed, Perseus Books, NY, pp 163–4

The key issue here is how companies can retain control over strategic competencies and resources when they have to subcontract large volumes of work. Should they retain a wide sourcing network to limit the learning in any one manufacturer and forgo potential cost savings? Or should they choose a narrow one based on joint ventures or some other solution? Central to any such decision is the identification of those resources and competences that must be retained in-house. The logic for entering a joint venture depends on understanding your own, your partners’ and the joint venture’s resources. Both you and your partners will be trying to access complementary resources in one another. A resource analysis is needed to help assess the value of the partnership’s resources and the potential risks of your partners accessing resources you wish to keep to yourself.

44

Matching problems to analysis methods

Versatile Resources will be the most difficult to protect. When disaster is at hand, perhaps because your product range is being superseded by substitutes using a different technology, one aim would be to assess your ability to take on the new technology and how your existing customer network and other distribution resources might be used to delay the competitor’s progress. Taking the technology on-board may be possible by licensing or even a buy out if the competing firm is willing. It is important not to underestimate the value of your market knowledge and distribution networks in these situations. Failing this, another route is to identify which of your resources are versatile, so that they can be used in adjacent markets or technologies related to the ones currently in difficulty. Perhaps you are just becoming less successful in a highly competitive market. In resource terms there are two common explanations for this:

•

Like Apple you may have forgotten your most vital resources (see above) and have stopped using them to the full. This is most likely when there have been regular changes at the top of the organisation. In the Apple case one of the founders, Jobs, returned to the company knowing exactly what was important. The answer was – get back to your strengths.

•

Unlike Apple you may be leveraging your important resources big time. The trouble is time has moved on and these traditionally valuable resources are not so valuable in the customers eyes as they had been. Other aspects of your product or service package have become important, and you have not reacted to that. Chances are there are a number of people who, sotto voce, have been proposing what to do about these trends but no-one has listened.

Building a sustainable competitive advantage depends on identifying resources that are sustainable (that competitors will find costly or time consuming to copy or substitute for), and then increasing their role in providing performance advantages that customers recognise. It can also involve a level of co-ordination that competitors cannot equal, often this kind of co-ordination is called teamwork. Good teamwork needs clear and significant goals, individuals competent at the relevant skills and at collaborating effectively with one another. Outstanding teamwork also needs members to be unified towards the achievement of the common objective, where individual agendas are put to one side.

Boston Celtics, Yankees, Leeds, Liverpool and Manchester United The most imposing winning skein in sports is owned by the Boston Celtics. From 1957 to 1969, the Celtics won the NBA Championship eleven times, without once having a player among the top three scorers in the

45

3.2 ‘Top-down’ versus ‘bottom-up’ processes

league. It was much the same with the 1949-53 Yankees, who won five World series with players who never led the league in any major batting. Their lineup never was as strong as Boston’s or Cleveland’s, never had the punch of the Dodger teams they beat three times in that span. S. Cohen, (1982) A monkey on the back, a lump in the throat, Inside Sports, 4(4),20 Somehow these teams worked well together. In soccer as in basketball when you have the ball you can shoot or pass. The soccer teams in the UK that have had sustained success – Liverpool, Leeds and, coming on at the millennium, Manchester United have all been passing teams. Co-ordinate until a shot has good odds and then shoot.

Taking these issues into account we need another resource and competence analysis method that provides enough detail in the strategic decision area of interest. It will need to identify relevant resources and assess their value, sustainability and sometimes their versatility. Developing a new method involves choosing between a top-down and a bottom-up process.

3.2 ‘Top-down’ versus ‘bottom-up’ processes In general a resource and competence analysis can be:

• • •

top-down bottom-up both There is plenty of evidence that top-down analysis of a firm’s current resources and competences carried out by senior managers is likely to produce little new data. The output is likely to reinforce the status quo regarding the firm’s strengths and weaknesses; after all analysing your strengths and weaknesses is a political matter. Generally the power and influence around a boardroom table is closely connected to the perceptions of what is important. However, since company boards and management teams can rarely find time for detailed analysis, top-down methods are most appropriate for them to use themselves. Care has to be taken in designing such methods to try to avoid managers falling back on old scripts, arguments and positions.1 Bottom-up approaches have considerable strengths but they are also far from perfect. Table 3.1 summarises the trade offs between the two approaches.

1

Awareness is a top-down method specifically designed not to look at your firm’s current resources. Instead it focuses on resources you can build – a future set of desirable resources that align with achieving your business objectives.

46

Matching problems to analysis methods

Table 3.1 Pros and cons of alternative directions of analysis Direction of

Advantages

Disadvantages

Competences across a

Fed by perceptions of senior managers

analysis Top-down

large, multi-unit organisation may be addressed New corporate directions and opportunities may be

Weaknesses may be ignored in the search for consensus A feel-good exercise may

identified

result where the status quo is

Consensus, overall, may

not questioned

be achieved Bottom-up

Generally more reliable

Becomes time consuming if

data, since those actually

the scope of the unit of analysis is wide and the number of resources is large

involved in the area have to be involved to access the detailed data Firmer basis for further work Capable of identifying unsuspected and potentially valuable resources

Not always understood by those not involved in the process

It is the third option, both top-down and bottom-up that promises most success. Senior managers should be able to identify (top-down) the key competences or decision areas for analysis and the actual analysis is best carried out involving the staff who know the area (bottom-up), assisted by an external facilitator and a sponsoring senior manager.

3.3 The level of detail required Figure 3.1 shows how, with the same input of effort on a project, the detail reached on a resource analysis of the corporation is going to be much lower than on an analysis of a particular activity or business process. Unless you are prepared to spend a great deal of your own time or a lesser amount of your time and a great deal of money on consultants, then an analysis of the core competences of your corporation is likely to yield rather generalised answers. Consider the resource detail given for Canon in Prahalad and Hamel’s HBR2 article ‘The core competence of the corporation’. (May–June, 79–91).

2 This

article, as of April 2000, was the most reprinted article from the Harvard Business Review ever (reprint # 90311).

47

3.3 The level of detail required

High

Detail in the analysis

High

Department?

Business process

The need for business context

Business unit

(for equivalent effort)

Corporation

Low

Low

Wide

Narrow Focus

Figure 3.1 Project scope and level of detail reached.

Canon When Prahalad and Hamel wrote ‘The core competence of the corporation’ they drew attention to the ideas of competence. In their examples they informed us that Canon had core competences in microelectronics, fine optics and precision mechanics. Not only that, Canon also had the competence to mobilise these competences into products across the corporation in its many divisions, from cameras to photocopiers. Remember the Xerox example where strong technological competences existed but could not be mobilised into products. However, it is not difficult to identify the technological competences in Canon, most engineers could do that with a cursory look at Canon’s product range. What is much more interesting and important to understand is the resource base on which those competences are built. What are the resources in the fine optics area? Simulation methods? Glass formulation knowledge? Lens grinding expertise? Input of research from particular universities? And how are these resources configured and managed?

It is important to understand the resources that underlie your important competences and that means a reasonable level of detail has to be uncovered. Thus smaller units of analysis are to be preferred, for they can yield a level of detail that provides actionable outcomes and real insight into how the area chosen actually works. There is, however, a difficult, practical issue met when dealing with a small unit of analysis. As illustrated below the analysis could become very personal.

Anonymous academics* A university research centre, composed of ten researchers, including PhD students, decided to analyse their competences and resources. They used the methods in this book. Over a four year period many resources had been developed, from a frequently visited web site to a comprehensive database of articles in their subject area to an inclusive culture that valued individuals. But it became very clear that the key resources were the individuals involved, some much more so than others.

48

Matching problems to analysis methods

Developing the centre further would be concerned with the competencies of individuals. In so doing the relative competencies of some individuals would be exposed. The centre leader was unwilling to go into these areas in public and perhaps wisely, the facilitator did not force the issue and the project stopped.

So beware of choosing very small or very large areas of interest. The analysis can either become very personal or too general. This implies our new bottom-up method needs to put a boundary around the area of interest in order to achieve the right balance of scope and detail. It now needs three steps – define the problem and draw the boundary, identify the resources and competences, and then assess them. We’ll call this bottom-up process ‘Insight’.

3.4 Insight The Insight method is aimed at providing an understanding of your firm’s current resources which helps to tackle the first group of issues listed earlier – changing boundaries, facing disaster, creating a sustainable advantage or looking for improvement ideas. As well as helping managers to make resource-aware decisions the method provides real insight into how their organisations work and the prospect of more creative strategy-making. The contrast between Insight and Awareness is described in Table 3.3. Table 3.3 Comparing Insight and Awareness Method

Strengths

Weaknesses

Insight

Suitable for those involved in the area chosen. Provides superior insight into resource-based ideas and a basis for more creative strategy-making

Slower route Danger that those not involved will not understand some outcomes

High potential for identifying valuable, yet unsuspected and therefore under-utilised resources High potential for actionable outcomes. Awareness

The faster route, usually Appropriate for management teams Provides a good, practical feel for resource-based ideas Capable of sensitising managers to make resource aware decisions Can be used to examine a firm’s ‘change competence’

Potential for actionable results lower than Insight. Very low chance of identifying under utilised resources or unsuspected valuable resources

49

3.4 Insight

In practice Awareness is a good introductory route into resource-based thinking. It is a top-down journey, which begins with a firm’s business objectives, and does not set out to either identify or assess your current resources. The outcomes concentrate on improving, creating and coordinating desired resources in order to achieve business objectives. This route can also focus on the ‘change competence’ of the organisation in resource terms. The need for Insight for particular areas of improvement can often be identified as a result of carrying out an Awareness analysis. Insight is a more detailed, bottom-up approach that provides increased understanding of resource-based ideas, more actionable outcomes and the prospect of building a sustainable advantage – but at the price of time taken. Figure 3.2 illustrates the Insight process: Step 1 defines the project scope and focus, identifying participants and a project organisation. It is described in Chapter 4. Step 2 takes that focus and scope and identifies the relevant resources. This step starts to build an understanding of resource-based ideas and often provides new perspectives and solutions to current concerns. It is described in Chapter 5. Chapter 7

Current change and improvement activities

Resource and competence building

Existing change and improvement activities with resource and competence objectives New change and improvement activities aimed at competence and resource building

Step 3 (Chapter 6) Alternative scenarios

Valuing resources

Resource assessments Ideas for improvement

Step 2 (Chapter 5)

Identifying resources

Curiosity Achieving a business objective Business decisions

Resource-coloured spectacles List of resources New perspectives on current concerns

Step 1 (Chapter 4)

Defining project scope and focus

Defined focus Participants Project organisation Boundary

Figure 3.2 Insight.

50

Matching problems to analysis methods

Step 3 takes the resource listing and assesses them for value and sustainability against documented scenarios. It is described in Chapter 6. Both Insight and Awareness use the resource and competence building process to review results, test and implement alternative resourceaware actions. It is described in Chapter 7.

3.5 Summary The major points covered in this chapter are:

•

There are two sets of problems which resource-based ideas can help tackle.

•

The first set focuses on resources and competences that will be needed to achieve current business objectives. The Awareness process is suitable for this task

•

Awareness begins with a firm’s business objectives, envisions the resources and competences needed to achieve those objectives and uses this vision to produce resource-aware action plans.

•

The second covers changing boundaries, facing disaster, creating a sustainable advantage or looking for improvement ideas. These issues require an analysis that focuses on existing resources and their assessment. Insight is designed to help tackle these decision areas.

•

There are pitfalls when choosing very large or very small areas of interest – large areas can lead to insufficient detail, small areas can become highly personal.

•

Insight takes a bottom-up approach. (Choosing well-defined problem areas, searching for relevant existing resources, assessing them for value and sustainability and, finally, devising action plans to tackle the particular strategic business issue. These steps are explained and illustrated in detail in the next four chapters.)

3.6 Further reading Fine, C.H. (1998) Clockspeed, Perseus Books, NY. For interesting insights on supply-chain dynamics related to make or buy decisions. Probert, D.R. (1997) Developing a Make or Buy Strategy for Manufacturing Business, The Institution of Electrical Engineers, London. For a process approach to make or buy.

Insight – what focus and scope is appropriate?

4

This is the first step in the Insight method, where the aim is to document the focus and scope of the analysis. The inputs may be a desire to achieve a previously developed business objective, to tackle particular resource- and competence-sensitive decisions or just plain curiosity. As Figure 4.1 shows the outputs are a defined focus; an estimate of the size of the task, measured by the number of participants; a boundary round the analysis; and an organised project. Curiosity Achieving a business objective Business decisions

Defining project scope and focus

Defined focus Participants Project organisation Boundary

Figure 4.1 Deciding the focus and scope of the analysis.

This chapter is structured as follows:

• • • •

Deciding the focus, positioning the problem in a business framework Drawing a boundary, identifying the problem area Project issues, covering external facilitation and reporting frequency Toolkit, tools for defining the focus and scope It concludes with a summary of the main points covered and a process review, describing the outputs if you follow the process.

4.1 Deciding the focus As can be seen in Figure 4.1 the inputs to defining the project’s scope and focus are the need to achieve a particular business objective, particular decisions that need to be made, and plain curiosity. In Chapter 3 the issues that match the Insight method were discussed. Here we examine the degree of focus each issue entails:

51

52

Insight – what focus and scope is appropriate?

Boundary changes: By their nature boundary changes are usually easy to focus upon, taking on a new technology or investigating a particular make versus buy issue are cases in point. Both acquisitions and divestments are also normally easy to focus upon since there has to be considerable clarity on what is to be bought or sold. When disaster is at hand: In contrast here we have an unfocused, open problem. The place to start may be unclear but in the worst case the best start is likely to be identifying the activities that have been strengths:

• •

Are these strengths still valuable in the current market? Are these strengths valuable in other markets?

Building a sustainable advantage: The key here is to find valuable and sustainable resources. In the Abacus case the thought that ‘service provision’ could become a sustainable advantage was suggested by some market data about current advantages and the beliefs of senior managers that ‘service’ was vital.

Abacus Ltd Abacus, suppliers of automatic measuring equipment to the fast moving consumer goods industries had surveyed the sales and servicing performance of its rivals and itself. The results showed a set of small advantages over rivals in the service area. High reliability was a given in their industry but the board believed that from their current position they could differentiate themselves from their competitors on product service. How could they improve their service competence? Firstly by providing a much more supportive infrastructure, including training, a definition of what ‘good’ service was and a service audit system. With new ideas in short supply it was decided to carry out a resource analysis.

Needing a fresh perspective on improvement: Take one of your current business objectives, re-frame it as improving your competence at the activities that underpin achieving that objective. For example, an on-time delivery objective will need to address the order-flow process and the raw material supply processes as a minimum. Here is a clear focus, one that will enable you to understand the resource-based view and produce actionable proposals for improvement. Curiosity: Your management team, maybe even you, are simply curious about resource-based ideas. There may be a proposal that you need to identify your core competences. Such a project can become vast and be carried out at a level of generalisation that is unhelpful and unsatisfactory. One aim of this chapter is to steer you toward smaller units of analysis. In this way actionable outcomes will be achieved in short time-scales and your understanding of resource and competence analysis can be built up. Having improved your knowledge, you will then be able to tackle

53

4.3 Issues

larger units of analysis such as a large business unit or a corporation made up of business units. Of course you do not always have the choice, if you have to tackle a large unit of analysis try the Awareness methodology, described in Chapter 2. You may well find a lack of clear business objectives, if so, attention to this failing would be more valuable than developing a generalised and partial consensus on what constitutes your core competences. A clear focus enables a useful boundary to be drawn round the analysis and in the next section the significant issues in drawing boundaries for resource analysis are described.

4.2 Drawing a boundary Drawing a boundary around the problem is useful for scaling the task and checking who should be involved. It is also vital to make sure the study is not artificially restricted by organisational boundaries. As Chapter 1 makes plain, important resources are often accessed by a business. They can lie outside your organisation, be they with customers, suppliers, head hunters, other advisers or independent distribution channels. Unless your company is organised along business process rather than functional lines, the boundaries on an organisation chart are unlikely to be useful for drawing boundaries in this context. Your focus will be on one or more activities within your company and usually those activities cross functional borders. Drawing a good boundary depends on an understanding of the flows in organisations. The sort of understanding that derives from viewing the firm as a set of business processes is useful for this, see Table 1.2.

Examples A company’s service competence will depend on the ‘serviceability’ designed into its products as well as the competencies of its service engineers. A firm’s perceived on-time delivery competence can be affected as much by the salesman’s reluctance to mislead customers on delivery times as the operations function’s performance. A firm’s ability to consistently design eye-catching products will depend on its recruitment, development and retention of outstanding designers as well as its technical design processes.

4.3 Issues This section discusses the specific resource- and competence-related aspects of the management of the project. In Chapter 2 we suggested the management team as the best group

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Insight – what focus and scope is appropriate?

for carrying out an Awareness study. In contrast the majority of an Insight analysis needs to be done by staff having a detailed knowledge of the areas of interest, ideally led by a senior manager. The very nature of resource analysis generates two further issues:

• •

Facilitation and maintaining objectivity – should an outsider be used? Reporting frequency

Facilitation: An in-company facilitator can be trained to facilitate the methods used in this book. An external facilitator is often preferable to help the analysis in two areas. First to help the team be as objective as possible. Second to help identify some of the taken-for-granted resources that are often hard for insiders to recognise or articulate.

Abacus Ltd Every time the launch of PPk36 was mentioned eyes narrowed and people seemed to look inside themselves. It had been a near disaster – hundreds of products that failed for reasons they did not understand. The company had almost gone bust, everyone had suffered, they had stared into the abyss. The company now had a powerful resource – the shared memory of a disastrous product launch. It was something no competitor would want to imitate but it was there and they could use it to their advantage.

The Abacus example illustrates a resource that was difficult for insiders to articulate let alone use. They did not wish to even speak about it. Reporting frequency: Resource-based analysis provides a different perspective on your company that grows in power and insight over the period of the project. Those outside the project group do not have this experience, ‘resourcecoloured spectacles’ cannot be obtained without detailed experiential work on competence and resource ideas. This means that the reporting frequency needs to be high, senior management need to be taken along with the analysis. During the next few chapters we shall return to this matter and suggest specific means of reporting back to senior management. For now we continue by describing tools for defining the focus and scope of the study.

4.4 Toolkit The toolkit covers methods for defining and putting a boundary round the focus area.

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4.4 Toolkit

Drawing a boundary

Aim

To agree the activities and organisations relevant to the analysis and the participants in the analysis.

Why?

This step helps to ensure that:

• • • How?

the scale of the analysis is understood relevant participants are identified the area of interest is seen in a business context Use the format shown in Table 4.1 to record the activities covered by the competence area, with their organisational and product scope, and finally list those people who need to be interviewed.

Table 4.1 Defining the boundaries What major activities are included in the area of interest? Use the business process checklist, Table 1.2 as a prompt What is the organisational scope: All activities in the organisation? OR a set of activities across a number of business units or organisations? OR all activities within a single business unit or organisation? OR a set of activities within a single business unit or organisation? What third party organisations are involved? List the products involved: The whole product range? A defined product range? Given the above who should be interviewed?

CD Forms

E 1: A service competence Abacus supply automatic measuring equipment for production lines. They intend to make a difference in their market through superior product servicing. The company has three product groups and chooses the largest, the Delta range, as its product focus. The company has a

56

Insight – what focus and scope is appropriate?

mixture of wholly owned subsidiaries and third party distributors who sell and maintain its products worldwide. The organisational scope is chosen to include the central service support activity and district sales support to these distribution channels. One subsidiary, the UK service organisation and one third party distributor will be covered and a range of customers will be surveyed. See Table 4.2. Table 4.2 Defining the boundaries – second attempt – Abacus Organisation Focus

Abacus Ltd Service Competence

What major activities are included in the area of interest? Use the business process checklist,

Date June 1998

Installation, repair and service, technical support, spares and consumables provision, customer training, maintenance contract

Table 1.2, as a prompt.

sales and visits New product introduction. (Recruitment, training and motivating of Service staff, omitted from first attempt)

What is the organisational scope: All activities in the organisation? OR A set of activities across a number of business units or organisations? OR All activities within a single business unit or organisation? OR A set of activities within a single business unit or organisation?

Central Service support District Sales management UK Service organisation One European third party distributor A range of customers

What third party organisations are involved? List the products involved: The whole product range? A defined product range?

The Delta range only

Given the above, who should be interviewed?

The analysis will cover about 15 interviewees and the study will be carried out by a consultant.

In their first attempt at drawing a boundary the major activities relating to the recruitment and training of service personnel were not included. However, these activities are clearly relevant to an analysis of Service competence. Often the main activity focus is on the order flow of products or services (see Table 1.2). But just as important are the support activities, for example recruitment methods, training provision and technology support. In general the labour support activities (see Table 1.2) are always important in a resource and competence analysis. This is certainly so if

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4.4 Toolkit

we consider Service personnel – they have two problems to solve when they arrive to repair a machine. First they need to get the machine going, a technical problem. They also need to tackle the frustration created by the breakdown – a social repair involving the reputation of your company. This could consist of advice on how to maintain the machine – perhaps the customer would like to take out a service contract, perhaps a training session for his plant engineers. Such behaviour requires a wide variety of skills. Can your recruitment methods identify candidates with these skills or capable of learning them? The organisational scope is straightforward, Abacus has no corporate centre, it is a medium sized business with three product groups. The organisational scope has been restricted to the central support group, the wholly owned UK service organisation, a European third party distributor’s service organisation and the District Sales management organisation which co-ordinates all third party distribution. A range of customers will be interviewed by a market research company. The analysis has been further restricted to the largest product group, the Delta range. From this data the number of interviewees can be estimated and it has been agreed to use a consultant to carry out the project.

E 2: Research unit competence NGRM supplies components to truck and automotive OEMs internationally. Much of its research effort is centralised in the UK where a staff of 200 supports the company’s five main product groups. The research centre board returned from a strategy ‘away-day’ with a clutch of five projects. Of these one aimed to identify the ‘core competences’ of the research centre. The boundaries are shown on Table 4.3, the major activities to be covered are all those carried out by the research centre. The organisational scope is the whole research centre plus a representative from each of the five product groups. The product scope covers all product groups. A representative group of six managers led by a Director will be assembled on the main project and data is expected from 30 others. This example illustrates a project that is likely to identify competences within the boundaries of the research laboratory but miss competences lying partly outside its borders, perhaps with particular suppliers or the development departments of certain product groups. These competences could be much more important to the business as a whole than some identified within the research unit. Drawing a boundary too tightly runs the risk of failing to identify important resources and competences.

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Insight – what focus and scope is appropriate?

Table 4.3 Defining the boundaries – NGRM Research Organisation

NGRM Research

Focus

The core competences of the whole research centre

What major activities are included in the area of interest? Use the business process checklist, Table 1.2, as a prompt.

Date November 1999

All activities within the research centre: agreeing projects with their product group customers carrying them out reviewing them giving advice labour support technology support

What is the organisational scope: All activities in the organisation? OR A set of activities across a number of business units or organisations?

The whole of the central research and development unit and one customer per product group

OR All activities within a single business unit or organisation? OR A set of activities within a single business unit or organisation? What third party organisations are involved? List the products involved The whole product range? A defined product range?

All product groups

Given the above, who should be interviewed?

The analysis will involve a core team of six, representing the different parts of the organisation and interviews with 25 more internally and five product group representatives

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4.6 Process review

4.5 Summary The main ideas raised and advice given in this chapter are:

• •

Define the focus carefully at the outset.

•

If in doubt, focus on one or more of your competences at meeting customer performance requirements e.g. low leadtimes, low costs or high product reliability.

•

Do not draw the boundary too tightly – important resources like advisers and suppliers lie outside traditional organisational boundaries.

•

Use an outsider to keep you objective, otherwise you’ll fail to identify some important resources, this is particularly important in the next two parts of Insight (Chapters 5 and 6).

•

Consider the competencies of the people carrying out the activities in the focus area.

•

Consider the systems that select, recruit, and train those people.

Initially, if possible, choose small, but important areas to focus on – develop those resource-coloured spectacles.

4.6 Process review At the end of this chapter you will have:

• • • •

Defined the focus for analysis Identified the activities within that focus Identified the organisational and product/service scope of the analysis Agreed the participants in the analysis, including interviewees and project members

Insight – where are these resources?

5

This is the second step of the Insight method. The aim is to identify and document the resources relevant to the main activities defined in the previous chapter. The inputs will be a defined focus, an organised project, a list of participants and a defined scope, measured by the products and organisations involved. As Figure 5.1 shows, the outputs are a categorised list of resources and the beginning of a set of ‘resource-coloured spectacles’ for those most involved.

Identifying resources

Resource-coloured spectacles List of resources New perspectives on current concerns

Defined focus Participants Project organisation Boundary Figure 5.1 Identifying resources.

This chapter is structured as follows:

•

What’s the problem? Managers often find it very difficult to identify their resources

•

Identification – a new angle, perspectives that help managers to identify their resources

•

Toolkit, tools that help to identify and categorise the resources present The chapter concludes with a summary of the main points covered and a process review, describing the outputs if you follow the process.

5.1 The need Most writers on resource and competence ideas appear to believe that resource identification is a straightforward matter. All you have to do, it 61

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Insight – where are these resources?

seems, is become familiar with the ideas of resource-based theory supplemented with a few high-profile examples, much as they are presented in Chapter 1, and then have a brainstorming session. At the end of which you will have identified and listed the most relevant resources in your area of interest – next step assess them. Our experience suggests that it is much more complex than that. There are two main difficulties:

•

First, managers are very close to their own resources, some of those resources are part of them and their colleagues. They are particularly close to the values within the company, attitudes toward customers, change and quality, for example. They are just as close to deep-seated assumptions about, for example, the market, parts of the manufacturing process, or design limitations on products. For instance in one firm we found a widely held belief that a certain type of product would always fail. This belief could prevent the firm from aiming for high reliability in this product range while its competitors, with no such belief would have no such problem. Such beliefs and values are very important resources, because they distinguish your firm from others and because values and beliefs are difficult to copy.

•

Second, such is the variety of resource types how can one have any confidence that the most important resources have been identified? These difficulties are addressed in Sections 5.2 and 5.3 respectively.

5.2 Identification – a new angle In the previous chapter we suggested an experienced outsider would be better qualified to identify cultural resources. However it has become increasingly clear that an introduction to resource-based thinking followed by a brainstorm round a flipchart with groups or individuals, even supported by an experienced outside facilitator, was an unsatisfactory method. Better methods needed to be developed and tested. This meant finding a different angle on resources. Instead of asking managers ‘What resources do you have?’ an alternative approach was needed. Resource-based theory suggests that resources are the result of ordinary managerial actions. There are many ways in which resources can be intentionally acquired, improved or left to waste away: By acquisition:

• •

Purchase of machinery or licences New recruits with new knowledge

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5.2 Identification – a new angle

By accessing:

• •

Know-how from consultants through fees Know-how from customers, suppliers etc. through networks By internal development:

• • • •

Training courses Gained through repeated, analysed experience Adaptation of machinery to meet particular requirements Through systems which aim to hold and/or acquire knowledge, for example order processing systems which naturally update customer addresses or sales histories and surveys, used to acquire customer, supplier or employee opinions Resources can also be ‘acquired’ through chance:

• • •

An unusual order that stretches and improves resources A remarkable success that legitimises a change in strategic direction An unfortunate accident that creates the memory of behaviour to be avoided In a nutshell, resources and the level of competence performance they enable are built up or decay over time through your normal managerial actions. Your resource base evolves continually over time. History matters so a representation of your firm’s history1 should help identify your resources. The improved method, described in detail in the next section, consists of drawing a pictorial history of the internal and external events that are relevant to the focus area. The rich picture produced helps you to identify your resources because, for example, it details training given, the assets purchased and modified and other critical events. The question becomes ‘What resources have been acquired, developed or thrust upon us by these events?’ Drawing a history also helps to access those taken-for-granted resources since we can ask ‘Why did you do that?’ ‘How did that come about?’ The values and beliefs discussed earlier are often bound up in why particular decisions and directions were taken. To give you an insight into how the past determines a firm’s resources let’s look at the case of Agile Manufacturing Inc. (AMI).

1 We

have come across a related idea. Once upon a time when a business made its accounts not only were the finances recorded but the ‘account’ in the sense story or narrative of the year was also recorded.

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Insight – where are these resources?

Agile Manufacturing Inc. (AMI)* After a long and successful history as a metal components supplier AMI found itself pressured on margins and competing with companies that provided much lower leadtimes than AMI could normally provide. Every job became a rush job, overtime and stocks rose. The answer could not lie in working harder, AMI’s methods had to change. Their first step, shown in Figure 5.2, was to explore the use of single minute exchange of die (SMED) techniques. It seemed to suit AMI’s manufacturing requirements – small batches moving through one to four shaping processes. Changing the tools on each machine was a lengthy business so generally AMI had over-produced against a customer’s order and supplied a large proportion of orders from stock. This had the disadvantage of tying up cash in stocks and high write off costs. Reducing tool changeover times would increase overall capacity and enable AMI to produce more batches to order. The initial training, provided by an outside company, led from an exploratory project to a host of ideas for reducing tool changeover times. As they were implemented lead-times and work in progress stocks reduced. To underpin this success the performance measurement system was amended to emphasise the importance of reducing leadtimes and crucially the production control system was enhanced to accept leadtimes in days rather than weeks. Instead of trying to fool the system the production controller could now represent what was really hapProduction Training on control system pening on their sysSMED. amended to accept New skills tem. As time went by lead time in days further improvements were made, see Figure 5.3, just in time (JIT) techniques were adopted around Lead times bottlenecks; salesand WIP men were trained in reduce how to sell shorter lead times; and an automation of the ordering system Ideas for meant orders could quick-change be placed on the tools developed. master production Performance Knowledge schedule in one day measurement developed rather than three. By system amended to through this time, some two emphasise lead time. exploratory New skills project and a half years since they had begun, the problem had changed – their system was capable of lead times below the competition but it was sensitive to machine breakdowns.

Time = value to the business

Figure 5.2 Developing a competence for low and reliable lead times at AMI, first steps. (WIP stands for work in progress.)

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5.2 Identification – a new angle

Instead of delivering in six weeks fairly reliably, AMI now promised deliveries in two weeks but often delivered in three. The performance measurement system was amended to emphasise delivery on time and a total productive maintenance (TPM) program began. The first task in the programme was to systematically strip, clean and effectively bring each machine to an ‘as new’ standard over a series of weekends. Maintenance items were identified and placed next to the machines, operators were trained to carry out routine lubrication and filter changes and the story continues.

Training on SMED. New skills

Production control system amended to accept lead time in days

New skills and knowledge exercised and refined through practice

Lead times and WIP reduce

Lead times and WIP reduce again. JIT training begun Sales start to increase

Knowledge developed through exploratory project

Ideas for quick change tools developed. Performance measurement system amended to emphasise lead time. JIT training begun. New skills

Performance measurement system amended to put increased emphasis on delivery reliability. TPM training begins. New skills

Lead times reduce further as new tooling speeds changeovers and JIT implementation spreads Business being won from competitors

Salesmen trained to sell short lead times. New skills

(Competitors begin to copy)

Speed of response improved through automation of ordering system. New skills

Time

= Value to the business

Figure 5.3 Developing a competence for low and reliable lead times at AMI, the story so far.

Many firms could tell a story like this. The story can be represented in a historical picture like Figure 5.3. It is not difficult to go from this history to the model of a competence based on a group of interacting resources. Figure 5.4 shows the history interpreted into AMI’s competence for short leadtimes and reliable delivery.

66

Insight – where are these resources?

ce

le or t sh or ery ef nc eliv ete e d mp abl Co d reli an

ten

e mp Co Resource A

JIT knowledge and skills on the shopfloor

Initial TPM knowledge Production control system

es

Quick change tools

Sales skills and knowledge

tim

Resource C

ad

Resource B

SMED knowledge especially tool design

Performance measurement system

Order acquisition system

Figure 5.4 AIM’s competence for short leadtimes and reliable delivery, the underlying resources.

Indeed the picture of AMI’s history also improves our understanding of resources as evolving entities growing stronger or weaker depending on the changes a firm undergoes and managers like you and your colleagues implement. The method has been tested in dissimilar case contexts and appears to provide a more comprehensive identification of resources than previous methods. It also appears to provide a valuable new perspective on current concerns in the area of interest. In the next section, the methods for producing a pictorial history, deducing relevant resources, and testing the comprehensiveness of the resource list are described.

5.3 Toolkit The toolkit in this chapter consists of two parts:

•

A method for generating a pictorial history of the areas relevant to the problem, there are two parts – preparation and picture generation

•

A resource-categorisation tool that helps document the resources found in the picture and gives an indication of the comprehensiveness of the resources identified

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5.3 Toolkit

5.3.1 Pictorial histories - preparation

Aim

To construct a skeleton picture of past events, changes and assumptions in the area of interest.

Why?

Resources evolve over time, through the intentional and unintentional acts of managers, changes in the environment etc. Representing these events over time helps you to recognise the activities that help build resources and the current state of your resources.

How?

Draw a skeleton picture as shown in Figure 5.5

Materials: Flipchart sheets, pens, Post-it notes

Tips

•

Generally going back four to five years with an extra column for significant events further back in time is about right

• • •

Allow 12 inches per year

•

Allow a column for next year to accommodate planned events in the area of interest Allow one third of the vertical axis for external events since most events tend to be internal Label the time axis in 1/2 years. This is as accurate as you need to be An edited example of a completed history is shown in Figure 5.6. You aren’t supposed to be able to read it – it is intended to give an idea of the result, in this case around 70 Post-its.

Even earlier

Year before that

Year before that

Year before last

Last year

This year

External

Internal

Time Figure 5.5 A typical history skeleton.

CD Forms

Next year

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Insight – where are these resources?

Pre-1993

1993 June

1994 June

1995 June

1996 June

1997 June

1998 June

External

Internal

Time Figure 5.6 A populated history.

5.3.2 Pictorial histories – picture generation

How?

Participation is key Those involved in this phase, particularly when revealing the resources, will develop a deep understanding of the area of interest, so the relevant senior managers should be involved. Since an historical picture is being developed some participants must have had a long or past association with the area.

There are two options The picture can be completed by a group or by a set of interviews with the interviewer assembling the final picture and then checking it with interviewees. Note that eight participants is as many as most facilitators can manage (if a group is the chosen route).

Time For a group approach set aside approximately two hours, depending on the scope of the analysis and how much history you include. It can also be convenient to construct these histories in hourly time slots (perhaps over a couple of sandwich lunches).

What is an event? Events are factual descriptions of what has happened or is planned to happen. The description should include its approximate date in case the post-it becomes detached from the sheet. The event must also be relevant for the activities of interest. Therefore an analysis of a firm’s customer service activities could include:

• • •

training courses for Service engineers a new product introduction severe field problems with a new product

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5.3 Toolkit

• • • •

changes to the way of delivering technical bulletins changes to the spares ordering system setting a dress code for service engineers changes to the performance measurement system

Assumptions?

• •

It is essential to record comments and opinions on the area of interest and place those on the history. Generally we place these along the bottom of the history and include its source since this is important context to the comment. Case examples include: ‘These products are very sensitive to environmental conditions’ ‘The service function is a lot more respected round here than in my last company’

Beginning

• •

A useful start point is for all participants to fill out an event which sets their first memory of the area of interest. That may be when they joined the company or when they joined one of the relevant organisations. These first post-its are fixed to the chart, just inside the internal level and around the date when they joined. From here the routine to follow is: Write the event description on a Post-it, making sure the group understand it The facilitator usually positions the Post-it; events incorporating internal and external features are placed on the boundary

When to pause Check back to the boundary definition to check whether relevant events have been captured from all the main activities. Check back to Table 1.2 to make sure all relevant main activities have been covered.

Tips • • •

At the end of this stage: Make sure the history is checked with interested parties who were not present Feedback this picture to the steering group or project sponsor. This is an important part of keeping this constituency on board. Encourage them to add events that have been missed Use the CD to make a fair and storable copy

5.3.3 Extract, list and categorise the underlying resources.

How? • • •

The history generated in the previous section contains many of the resources directly. They can be accessed by asking: What tangible resources are contained in the history? What systems and procedures are referred to in the history? What knowledge, skills and experience have been built by training courses or collecting and analysing data? Other resources, particularly concerned with the values and culture of the company and their relation to the area of interest are more subtle, sometimes captured comments give clues to cultural issues. The following questions are also useful:

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Insight – where are these resources?

• • • • •

How interested are senior managers in the area? Has interest and expenditure in the area been high? How is this area viewed in the company? Is there high or low labour turnover in this area? Have there been cathartic events involving this area?

Use the format shown in Table 5.1 to deduce resources:

Table 5.1 Format for recording the deduction of resources Event

Comment

Resource deduction

CD Forms

Extracting resources – examples These examples are taken from the Abacus case, an investigation into the service competence of a major international supplier of production measurement equipment.

Event

Comment

Resource deduction

First survey in the UK shows our service provision is a potential strength THA (1996) ‘Service has good status compared to other companies I’ve worked for’, AM ‘Total Care’ policy begun by the MD (1996)

‘The board have always been The most senior managers in supportive of service’, JW Abacus believe service matters a lot

Two events and two comments lead to the deduction of an important set of shared beliefs among senior managers.

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5.3 Toolkit

Event

Comment

Resource deduction

‘Discovered after difficult product launch that Service knowledge was not as good as it should be.’ JW, NP (1995) Team consisting of JW, DS, NP, TN, DC charged with ‘What needs improving in Customer Support’? (1995) Service minimum standard completed – the 1996 definition of what ‘good’ service was (1996) .

Service standard and audit system

Auditing of the standard begins (1997)

Three events and a comment combine to produce a wide-ranging service standard and yearly auditing system resources.

Event

Comment

Resource deduction

‘Discovered after difficult product launch that Service knowledge was not as good as it should be.’ JW, NP. (1995) Foundation course for service engineers constructed and run for the first time (1996)

Foundation course

An event and a comment combine to produce a foundation course resource for Service engineers which covers and explains the technologies used in products rather than being product centred.

List and categorise the resources identified Use the format shown in Table 5.2 to list and categorise the resources by inserting an ‘X’ in relevant columns. There are two reasons why it is very useful to categorise the resource:

•

It makes the description more understandable to those not involved and, at a later date, to those who were involved.

•

It is a check that the resource identification has touched all the resource bases. For example if there are few or zero resources of a particular type you may have missed some. If you have not captured any resources which are culturally related you have definitely missed one or more important resources.

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Insight – where are these resources?

Table 5.2 Format for listing and categorising resources

Resource

Tangible

Knowledge skills and

System and procedural

Cultural resources

Network

Resources important

description

resources

experience

resources

and values

resources

for change

Comprehensiveness In Section 5.1, we wondered how to assess whether the most important resources had been identified. There are two ways of viewing this:

•

Have examples of all the different resource types been captured? Table 1.5, provides a good checklist – if there are gaps try to fill them since most focus areas contain resources of all these types.

•

Have all the relevant resources been identified? We’ll never know but there are some resources that are often missed at first:

•

Memory is an important resource but it is only useful if those with memories stay with your firm. Memories and a stable workforce can be powerful forces for and against change, they are often identified late in a study.

•

The central part that an experienced, competent workforce play in an organisation’s success is increasingly recognised. Surprisingly, labour support activities like recruitment systems, employee motivation, etc. are often identified late in resource analysis studies.

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5.4 Summary

Table 5.3 Extract from Abacus – resources underlying a Service competence

Service resource

Tangible

Knowledge skills and

System and procedural

Cultural resources

Resources important

descriptions

resources

experience

resources

and values

for change

x

x

x

x

x

x

Technical managers meeting/group. x

Established 1992, has developed from a gripe session to a forum for ideas Key performance measures plus targets

x

Service standard and audit system

x

x

x

x

x

x

x

x

Fault/reliability data and analysis systems Training programmes: foundation and product Shared memory of a near disastrous new product introduction Taken for granted that the product will fail

x

x

x

x

Directors believe Service really matters Web site and service bulletins

x x

300 service engineers worldwide. UK Service engineers average seven years with the company In-house developed service system for small distributors (Workman). Spares organisation

x

x

x

x

x

x

x

x

x

x

x

x

Architecture The final step in this stage is to draw an architecture of the resources listed, trying to identify any technically or socially supportive competences, as shown in Figure 1.4. This may not always be possible but it often reveals unconsidered resources.

5.4 Summary The main points covered in this chapter are:

•

History is important, today’s resources have been built from past actions – often unconsciously

• •

Cultural resources can be very powerful, try hard to identify them Don’t worry that a picture of your history might not help reveal your resources – it does, and remarkably well

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Insight – where are these resources?

5.5 Process review At the end of this chapter you will have:

• •

Documented and categorised the resources in the focus area

•

Improved the focusing of your resource-coloured spectacles

Developed a new perspective on current concerns arising out of viewing your organisation as sets of resources and competences

Insight – how important are these resources?

6

The third part of the Insight process tackles the assessment of resources identified in the last chapter. The inputs are a list of categorised resources and one or more defined scenarios. The outputs are the resource assessment, a better focused pair of ‘resource-coloured spectacles’ for those involved, and ideas for improvement see (Figure 6.1).

Alternative scenarios

Valuing resources

Resource assessments Ideas for improvement

Resource-coloured spectacles List of resources New perspectives on current concerns Figure 6.1 Evaluating resources.

The chapter is structured as follows:

•

What’s the problem? Assessing resources is not straightforward, especially when it is important to be as objective as possible and the measures are somewhat abstract

• •

Issues found in practice, good records of the assessment are essential

•

Toolkit: tools that help the assessment debate, its resolution, and provide a record of the thinking underlying the assessment

Outcomes of the assessment, several types of competence and resource emerge

The chapter concludes with a summary of the main points covered, a process review, describing the outputs if you follow the process and a reading list for those wishing to study the ideas further.

6.1 What’s the problem? If identifying your own resources is a problem of familiarity, objectively assessing them is a problem of politics and of understanding the partly 75

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Insight – how important are these resources?

abstract measures being used. You have, without any analysis, an intuitive feel for the importance of the resources in your organisation. This step sets out a way of verifying that intuition. Where your intuition and the method’s outcomes do not match there is potential for intense disagreement. There are a number of sources of disagreement:

•

The assessment method does not properly address the importance of this particular resource.

•

The resource in question used to be very valuable but over time its value has decreased and its past glory rather than its current value are being described.

Past glories Retail banks have traditionally put great importance on their branch networks. In the age of internet banking prime high street locations are becoming less and less important. The freeholds may be valuable in themselves and provide cash to invest in other services. But now profitable current accounts can be handled without the overhead costs of an extensive branch network.

•

There can be considerable implications for future resource allocation and organisational change arising from competence and resource analysis. The analysis can directly impact on the power and influence of individuals and groups within an organisation. The temptation to play politics to retain power can be strong.

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Individuals who are not powerful often feel they should defend resources with which they are involved. A poor assessment might reflect on them.

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The context of the assessment may not be explicit or understood and particular resources are more important in some scenarios than in others.

Context Taking the retail banking analogy above, one scenario might be that 20% of profitable current accounts will move to direct banking over the internet. Another might be that 85% will move to direct banking. In the former scenario a branch network is likely to remain more important than in the second.

Methods of assessing resources and competences need to take these sources of potential disagreement into account. Two further issues surface, usually during assessment and also when the assessors report their findings back to their managers and peers. These are dealt with in the next section.

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6.2 Issues in practice

6.2 Issues in practice Two major issues commonly met during resource analysis are:

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The considerable difficulty in rating resources against abstract metrics Political trouble To illustrate these difficulties consider the experiences of Research Group X:

Core competence at Research Group X (RGX)* RGX is the centralised research organisation of a multi-national firm with eight major product lines. During a strategy workshop the board of RGX agreed six improvement projects, one of which was to identify six or fewer core competences. A team of five managers joined a director in this endeavour. Definitions and tests for competences and important resources were made available, much like the background given in Chapter 1, but the approach and definitions used were not sufficiently understood for rapid progress. Over the next two meetings, of more than three hours each, the team identified six potential strategic competences by discussing their activities, organisation, resources, and what, it seemed from an earlier survey, their customers required and valued. One of these competences was unsuspected beforehand and seemed to have important possibilities. The team then experimented with the assessment of the resources underlying the competences, see Table 6.1, and, though initial experiments attempting to evaluate resources against these scales were not too successful, they provided a useful focus for discussion. There were difficulties in assessing the resources. For example the idea of sustainability was fine in theory but difficult to apply in practice. In effect the method RGX used asked managers to rate resources on a one to five scale based on a description of factors that tended to increase or decrease a resource’s sustainability. It is perhaps no surprise that they found this a struggle. A struggle conducted over several three-hour meetings between a team of managers who tried to come to consensus decisions on each resource. The tangible results from the debate were two numbers per resource, see Table 6.1 – a poor record of their earnest discussion. No wonder their evaluations would be difficult to explain and justify to their peers. Table 6.1 The RGX approach to assessing strategic resources

Tangible resources

Skill, knowledge and experience

Systems and procedures

Value

Sustainability

Resource 1

1

2

Resource 2

2

4

Resource 3

5

5

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Insight – how important are these resources?

RGX continued Six weeks after the original strategy workshop, all project teams reported their progress and plans to the board and their peers. Unfortunately the presentation did not go well for the competence team: We explained that the ‘verified technical analysis’ competence was much more than just the engineering analysis department but most of them ignored that. They preferred to think we were saying that department was core and, by implication, loads of other departments weren’t. Which obviously, to them, couldn’t be true. Individuals in the audience had core competence suggestions of their own but the team felt these suggestions (e.g. project management) were ‘desirable’ rather than actual competences. It was certainly true that a good research organisation might be expected to have very good project management skills – this was a ‘desirable competence’ but it was not a competence RGX currently performed well. The team also found it difficult to defend and justify their choice of competences and so, over the next month, team members contacted other managers in RGX to spread their understanding of competence ideas and collect data to test whether the six potential competences so far identified could be ‘core’. This lengthy dialogue finally led to wide agreement with only one change to the original competence list.

When and how individuals are involved in strategic discussions is often important. But in resource analysis there is a more severe problem than usual. First because the word ‘competence’ means different things to different people, second because the evaluation metrics are a little abstract and third because the implications of the analysis on the power within an organisation are easily understood. Methods for checking the validity of the competence and resource evaluations are required which are robust from internal and external perspectives. Internally, identified strategic resources and competences need to be generally credible and, externally, customers need to value them. It is no accident that the difficulties experienced by those managers in RGX in reaching their assessments and justifying them are related. If only the assessment method could be made easier assessors might be more confident in their justifications. Even better if the logic of the assessment was self-documenting so those not involved could check the assessment themselves. The method we have developed uses both methods of improvement – easier assessment and self-documentation. Multiple questions are used and in the Toolkit section of this chapter they are gathered on a worksheet (Table 6.4) which forms a record of the thinking during evaluation. A disagreement later, perhaps during feedback on, say, the value of a particular resource is handled by examining the record sheet. Why was the resource marked high or low for value? What aspect was missed? How should it be evaluated? We are now going to list the questions used to assess a resource or competence’s value and sustainability and populate them with examples.

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6.2 Issues in practice

Is It Valuable? Since there are various ways a resource can provide value, six questions are used; answers towards the right indicate valuable resources or competences. Example resources and competences are included: 1.

What is its net effect on the organisation’s costs and revenues? High negative impact

High positive Negative impact

Nil impact

Positive impact

impact

An out of date

An above aver-

manufacturing system

age new-prod-

A share of an oilfield

uct introduction process Licensable intellectual property rights

2.

What is its effect on the organisation’s ability to defuse threats? High negative impact

Negative impact

Nil impact

Positive impact

Long-lived contacts with key suppliers and customers

A culture that resists change

3.

High positive impact

What is its effect on the organisation’s ability to capitalise on opportunities? High negative impact

Negative impact

Nil impact

Positive impact

High positive impact A culture that allows risk taking

A culture that resists change

Highly flexible workforce

4.

How many competitors already have it? All An orderprocessing system

Most

Half

Some

None

Prime retail

Ownership of a particular oilfield

sites

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Insight – how important are these resources?

Rarity can often be an indication of value – but not always. 5.

What level of performance does it offer compared to competitors? Well below

Below

Average for

industry average industry average industry Product cost

Above industry

Indisputable

average

leadership

Leadtime

Product reliability

It may be difficult to rate a resource’s financial value, but it may provide product or service advantages for customers. 6.

What statement or question best illustrates the value of this competence or resource? The answer is free form and allows the value of a resource not covered by the above questions to be made explicit and debated.

Is that value sustainable? Here, five questions are used to discover the degree to which a resource or competence can continue to offer value; answers tending to the right indicate sustainable value. Examples of typical resources and competences are included: 1.

How easily can competitors recognise it? Very easily

Quite easily

Only if they were looking for it

Tacit knowledge held by individuals or groups

Explicit in company advertising (e.g. Caterpillar’s worldwide support network)

2.

It’s invisible

How long would it take a competitor to imitate it?