Strategy and Performance: Competing through Competences

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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

54

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.

55

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

62

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

63

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.

64

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.)

65

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

67

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

76

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.

•

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

•

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:

• •

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

80

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? <1 month Reserving car parking spaces near the store for customers with babies

1–8 month

8–24 month

2–5 month

<5 years A strong brand

81

6.2 Issues in practice

Resources that will take a long time to imitate can put imitators off. This needs an organisation to stay focused for a long period and few firms can do this. The time taken also gives the leading competitor time to continue to improve and over the longer term the environment can also change in unexpected ways. 3.

What proportion of sales revenue would it cost them to imitate? <0.5%

0.5–1%

1–5%

5–20%

>20%

A strong brand

High costs are always a barrier to imitation, but if high costs are combined with long leadtimes imitation is rarely attempted. 4.

Without investment of time and money how quickly does its value decline? >50% per year

30–50%

15–30%

5–15%

<5%

Computer

Informal

Cultural

software

networks

resources

If substantial maintenance costs are necessary a resource’s value may decay quickly since investment may be placed elsewhere. The longer a resource can endure the more important it can be. The value of today’s knowledge can decay quickly in fast-moving industries, especially if the knowledge is not used. 5.

Can its advantages be substituted by another competence or resource? To a significant extent An internet retailer’s systems can sub-

Partly

Not at all

A product reliability competence could substitute for a product service competence

stitute for prime store locations

Numbers are no longer used to rate resources since they are often meaningless. What does a sustainability of 3 really mean? The evaluation of the value and sustainability metrics is based on the pattern of answers selected and not on an average of numbers. This appears to reflect more realistically the subtlety of real resources. Managers, given

82

Insight – how important are these resources?

our experience at management workshops and in case studies, can answer these questions. It also appears that they gain an understanding of the metrics much more quickly than with previous methods and the questions stimulate more focused debate. Vitally the method provides a record of the evaluation which can be inspected and debated later. In Section 6.4 the practical use of these question sets is described with examples.

6.3 Outcomes The analysis classifies four kinds of important resources and competences as well as ordinary resources, see Table 6.2: Table 6.2 Outcomes of the analysis

Type of capability/ resource

Valuable?

Sustainable?

Probable

Possible

Desirable

Out-dated

Usually suspected prior to the analysis

Usually unsuspected prior to the analysis

Perceived as valuable in the future but current performance is poor

Weakness?

Unknown, but suspected to be valuable

Low

Negative

Medium–high

N/A

High

High

Probable:

Ordinary

Benign? Low–positive

Nil? Medium–high

Low–high

Where value and sustainability tests score High or Medium–high the item is probably important. Possible: Where sustainability scores Medium–high but value is unknown because the resource or competence has not been exercised. The assessors suspect it could be valuable. Desirable: Where current performance and thus value is low but where the future value of the resource or competence is believed to be high. It is a competence that is desirable and needs building up. Out-dated: Sustainability scores Medium–high but value scores a Negative (weakness) or Nil (benign). (NB some out-dated resources and capabilities may become more valuable again; others can obstruct what is needed for the future.) Ordinary: Where value scores Low and sustainability scores anywhere between Low and High. These resources can be

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6.4 Toolkit

essential to provide the basic performance levels required by the market and which all serious competitors must achieve. It is important to note that these resources and capabilities may also become important in changed environmental circumstances. NB It is a serious mistake to believe ordinary resources are of no interest or have little value to your firm. They can be important starting points for building new strategic capabilities especially those individualistic resources with high sustainability. In the next section the assessment tools are described, complete with examples.

6.4 Toolkit The toolkit consists of two parts:

• •

A focus tool that helps define the context of the resource evaluation A resource evaluation method that forms a self documenting record of the evaluation logic

6.4.1 Evaluation context

Aim

To document clearly the context(s) within which the resource evaluation will be applied.

Why?

Resources have different values in different contexts. For example in the age of the internet retail locations are rather less valuable than they were prior to 1995. Compared to an internet based travel agent normal travel agents now carry a whole set of extra overhead costs.

How?

For simplicity’s sake we would advise no more than three contexts be documented. First, ‘the business as currently understood’ context; your current business plan may be the right basis here as it reflects your business and markets as you currently understand them. A useful technique for identifying trends that might affect a firm’s markets is ‘STEEP’ analysis, from this other potential contexts or scenarios can be constructed, see Table 6.3. So second, identify the STEEP factors affecting your own business and markets. For example, key to a defence contractor will be the size of government spending on arms, related to that will be world political stability and public attitudes to the role of defence. Technological advances in weaponry and manufacturing methods, perhaps imported from other industries, which reduce design or manufacturing costs could also be important.

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Insight – how important are these resources?

Table 6.3 STEEP analysis

Sociological

Changes in consumer and labour markets, demographic trends (e.g. ageing population, new skills required from technological developments)

Technological

Advances in current technologies, new technologies, technologies and methods imported from other business sectors (e.g. new materials, internet, bio technology)

Economic

Financial deregulation, global competition, economic cycles, trade blocks, taxation, interest rate and exchange rate trends

Environmental

Global warming, waste disposal, raw material scarcities, energy conservation and pollution (Influenced by industry standards, government regulation and changes in attitude of customers, employees and the public)

Political

Effects of changes in local and national government. Don’t forget to consider all countries where your markets are significant. Shifts in policies, legislation, law enforcement and regulation (some overlap with Environmental and Economic should be expected)

CD Forms

Third, check

• •

Have these views been incorporated into the business as currently understood context? If not, decide whether to form two more contexts, one with the positive trends vis-àvis your business and one with the negative trends vis-à-vis your business. There are more sophisticated methods for creating contexts (or scenarios) but they are outside the scope of this book (see Further reading at the end of this chapter). An important aspect of defining a context is that it leads to a questioning of the current strategy as well as providing a basis on which resources can be evaluated.

6.4.2 Resource Evaluation

Aim How?

To evaluate resources within defined contexts. Begin with the ‘business as currently understood’ context and, for each resource, use the form in Table 6.4 to evaluate value and sustainability:

• •

Answer the value questions on the form.

• •

Answer the Sustainability questions on Form 6.4.

Looking at the overall distribution of answers to the value questions assess each resource’s value as Low, Medium, High, Unknown or Negative and record on the form Looking at the overall distribution of answers to the Sustainability questions assess each resource’s sustainability as Low, Medium or High record on Form 6.4

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6.4 Toolkit

•

Assess whether other contexts alter the value of your resources. Sustainability is usually affected only if the context says so, e.g. competitors copy resource X in less than one year

•

Use the format shown in Table 6.5 to summarise the results CD

Table 6.4 Value and sustainability assessment

Forms

Resource/competence name ...................................................................................... VA LUA B L E ?

High, negative Negative Nil impact impact impact

Positive impact

High, positive Not impact Unknown applicable

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

丣

丣

丣

丣

丣

丣 丣

丣 丣

丣 丣

丣 丣

丣 丣

All

Most

Half

Some

None

Below Average industry for average industry

Level with the best

Indisputable leadership

Low

High

Unknown

What is its effect on the organisation’s ability to: • defuse threats? • capitalise on opportunities? How many competitors already have it?

What level of performance Well below does it offer compared to industry competitors? average What statement or question best illustrates the value of the resource/competence Value summary

Negative

Medium

S U S TA I N A B L E ?

Not Unknown applicable

How easily can Very easily competitors recognise it? 丣

丣

Only if they were looking for it 丣

How long would it take a competitor to imitate?

1–6 months

6–24 months

2–5 years

<5 years

What proportion of sales <0.5% revenue would it cost them to imitate?

0.5–1%

1–5%

5–20%

>20%

Without investment of time and money, how quickly does its value decline?

<50% per year

30–50%

15–30%

5–15%

<5% per year

Can its advantage be substituted by another resource/competence?

To a significant extent 丣 丣

Sustainability summary

<1 month

Low

Partly

It’s invisible 丣

Not at all

丣

丣

丣

Medium

High

Unknown

丣

86

Insight – how important are these resources?

Tips

Some questions may simply not apply to the resource you are considering, if so, tick the ‘Not applicable’ column. The answers to some questions may not be known, if so, tick the ‘Unknown’ column. This generally occurs on some of the Value questions, sometimes because the resource has not been exercised but could provide a valuable contribution.

Table 6.5 Value and sustainability summary Value Sustainability

High

High

Resource 4

Medium

Resource 6

Medium

Low

Unknown

Negative Resource 5

Resource 1

Resource 7 Low

Resource 2 Resource 3

Unknown

CD Forms

Worked examples A. Resource: shared memory of a disastrous new product introduction, Abacus1 The shared memory had had positive effects on the organisation as a whole. It had prompted them to consider their new-product introduction processes and service offering very carefully. They had stared into an abyss and the organisation had become much more professional about its decisions. They had been through an awful experience with no scapegoats, so the memory was alive and well after five years – it was not degrading quickly. No competitor had this memory and neither would they seek to copy it, even if they recognised it. The evaluators rated its value high and its sustainability high.

1 This

example continues our use of the Abacus case from page 61-63?

87

6.4 Toolkit

Table 6.6 Evaluation of ‘The shared memory of a disastrous new-product introduction’, Abacus. Resource/competence name. Shared memory of disastrous new-product introduction VA LUA B L E ?

High, negative Negative Nil impact

What is its net effect on 丣 the organisation’s costs

Positive

High, positive

impact

impact

impact

impact

丣

丣

丣

丣

Not Unknown applicable

and revenues? What is its effect on the organisation’s ability to: • defuse threats?

丣

丣

丣

丣

丣

• capitalise on

丣

丣

丣

丣

丣

Most

Half

Some

None

What level of performance Well below

Below

Average

Level

does it offer compared to competitors?

industry average

industry average

for with the industry best

leadership

Negative

Low

Medium High

Unknown




opportunities? How many competitors All already have it? Indisputable




What statement or question best illustrates the value of the resource/competence Value summary S U S TA I N A B L E ?

Not Unknown applicable

How easily can Very easily competitors recognise it? 丣

Only if they were looking for it

It’s invisible

丣

丣

丣

丣

How long would it take <1 month a competitor to imitate?

1–6 months

6–24 months

2–5 years

<5 years

What proportion of sales <0.5% revenue would it cost

0.5–1%

1–5%

5–20%

>20%

30–50%

15–30%

5–15%

<5% per year




them to imitate? Without investment of time and money, how quickly does its value

<50% per year

decline? Can its advantage be subtituted by another

To a significant extent

resource/competence?

丣

Sustainability summary

Partly

Not at all

丣

丣

Low

Medium High

丣

丣 Unknown




88

Insight – how important are these resources?

B. Resource: directors believe Service really matters, Abacus There were several sources for this belief. First they believed Service departments should be making profits. Product reliability was increasing, warranty costs should be declining. However in the field, and especially in third party distributors, warranty was regarded as a source of the distributors’ profit and Service was seen as a cost centre. Service was also important because of the type of customer the firm served (Coca-Cola, Unilever) and because failure of their equipment meant that a production line would stop. Stoppages were serious, for these customers made global assessments of equipment suppliers and thus one distributor could seriously damage Abacus’s reputation. During the evaluation (see Table 6.7) the group acknowledged that the strong backing from directors had led to investments and actions that provided small advantages in the field which were set to increase (note the arrows in Table 6.7). This was a resource of high value. However, it was fairly easy for competitors to recognise, its effect could be copied quite quickly and at equivalent cost. The real issue was internal. If the directors relaxed their pressure for service improvement (or left and others with different beliefs joined) many third party distributors would pay less attention to the service performance metrics, etc. Other functions in the business, like Sales and Manufacturing, weren’t convinced about the worth of Service and nor were a majority in Development. The engine for Service improvement continued to be the directors and willing Service personnel. Sustainability scored on the low side of Medium. The Directors believed there was a need to show how important service really was. In essence they needed to change the resource from ‘Directors believe …’ to ‘Everyone knows Service is really important’. This would effectively increase the sustainability of their belief that ‘Service really matters’. Their solution to this problem is given in Chapter 7 page 102. C. Resource: the reference database, Academic research group This example is drawn from the analysis of an academic research group. One of their resources was a database of papers and articles that had been continually updated over a period of nine years. The current crop of PhD students searched for the most recent articles and the act of updating the database was recognised as a good thing. It was the leading database of its kind in the world. It was certainly of high value to anyone researching in the area, but its sustainability was low because the group gave it away freely, see Table 6.8.

89

6.4 Toolkit

Table 6.7 Evaluation of ‘Directors believe Service is really important’, Abacus Resource/competence name Directors believe Service really matters VA LUA B L E ?

High, negative Negative

Nil

Positive

High, positive

impact

impact

impact

impact

impact

丣

丣

丣

丣

What is its net effect on 丣 the organisation’s costs

Not Unknown applicable

and revenues? What is its effect on the organisation’s ability to: • defuse threats?

丣

丣

丣

丣

丣

• capitalise on

丣

丣

丣

丣

丣

Most

Half

Some

None

Level with the

Indisputable leadership

opportunities? How many competitors All already have it? What level of performance does it offer com-

Well below industry

Below industry

Average for

pared to competitors?

average

average

industry best

Low

Medium High

What statement or question best illustrates the value of the resource/competence Value summary

Negative

Unknown

S U S TA I N A B L E ?

Not Unknown applicable

How easily can compet- Very easily itors recognise it? 丣

丣

Only if they were looking for it 丣 丣

1–6 months

6–24 months

2–5 years

<5 years

What proportion of sales <0.5% revenue would it cost them to imitate?

0.5–1%

1–5%

5–20%

>20%

Without investment of

<50%

30–50%

15–30%

5–15%

<5%

time and money how, quickly does its value

per year

How long would it take a competitor to imitate?

<1 month

It’s invisible 丣

per year

decline? Can its advantage be

To a significant

Partly

Not at all

subtituted by another extent resource/competence? 丣

丣

丣

Sustainability summary

Low

Medium High

丣

丣 Unknown




90

Insight – how important are these resources?

Table 6.8 The reference database, Academic research group Reference database Resource/competence name ...................................................................................... VA LUA B L E ?

High, negative Negative

Nil

Positive

High, positive

impact

impact

impact

impact

impact

Unknown applicable

丣

丣

丣

丣




What is its net effect on 丣 the organisation’s costs and revenues?

Not

What is its effect on the organisation’s ability to: • defuse threats? 丣

丣

丣

丣

丣

丣

丣

丣

丣

丣

Most

Half

Some

None

Level with the

Indisputable leadership

• capitalise on opportunities?

How many competitors All





already have it? What level of performance does it offer com-

Well below industry

Below industry

Average for

pared to competitors?

average

average

industry best

Negative

Low

Medium High

What statement or question best illustrates the value of the resource/competence Value summary

Unknown

S U S TA I N A B L E ?

Not Unknown applicable

How easily can compet- Very easily itors recognise it? 丣

Only if they were looking for it

It’s invisible

丣

丣

丣

丣

How long would it take <1 month a competitor to imitate?

1–6 months

6–24 months

2–5 years

<5 years

What proportion of sales revenue would it

<0.5%

0.5–1%

1–5%

5–20%

>20%

<50% per year

30–50%

15–30%

5–15%

<5% per year

cost them to imitate? Without investment of time and money, how quickly does its value decline? Can its advantage be subtituted by another

To a significant extent

Partly

Not at all

resource/competence? 丣

丣

丣

Sustainability summary

Low

Medium High

丣

丣 Unknown

91

6.5 Summary

There are two reasons for giving this example: First, there are two answers to the durability question – ‘Without investment of time and money, how quickly does its value decline?’ The answer ‘>50% per year’ relates to the topicality of the database – anyone looking for the latest articles in the area would find the database of little value. However, the database’s overall comprehensiveness only declines at 5–15% per year if left alone. This is an example of the subtleties this multi-question approach can provide. Second, the evaluation led to a discussion on whether to charge for the database. The group continues to make the database freely available over the internet because:

•

The process of populating the database ensures the group are always up to date – no group in the area knows more

•

Having access to the database does not mean you have read or understood its contents

•

It represents a standard, a flag that this group is eminent in its field and therefore a place to come to seek and exchange information

6.5 Summary The main points raised in this chapter are:

•

An understood assessment context is essential, this may mean up to three scenarios need to be constructed (pages 83 and 84)

• •

Evaluating resources is often a political matter

•

Use a range of answerable questions, assessing the metric from the pattern of answers

•

A team can quickly diverge from its peers’ and senior sponsors’ assumptions about some resources and competences

•

Clear detailed report-backs, using the tools as an aide memoire are essential to keep the sponsoring group up to date

Trying to assess the value or sustainability of a resource on a score of one to five should be avoided – it is meaningless and time consuming

6.6 Process review You will have:

•

Assessed the value and sustainability of the resources in your area of interest

•

Ideas for improvement in your head that are ready for evaluation in the next chapter

92

Insight – how important are these resources?

6.7 Further reading Van Der Heijden, K. (1996) Scenarios: The Art of Strategic Conversation, John Wiley & Sons, Chichester. For more background on the construction and uses of scenarios.

Building a resource and competence base

7

At this point you understand how to identify and assess the value and sustainability of resources and competences. You may have tried the methods. If so, depending on what focus you chose you will have answers to some of the following questions:

• •

Which of your resources need looking after?

• •

What resources should you hide from a joint venture partner?

What resources and competences should you look for in choosing a third party distributor or joint venture partner?

Which competences will become increasingly important and which will decline in importance? We now begin the last phase of the Insight and Awareness processes ‘Building a resource and competence base’ (Figure 7.1) where we address questions like:

• • •

How can you increase the sustainability of competence X? How can you increase the performance and therefore value of competence Y? How can you build a new competence Z? from 'Awareness' Vision of required resources and competences

Current change and improvement activities

Resource and competence building

Resource assessments Ideas for improvement from 'Insight'

Figure 7.1 Building a resource/competence base. 93

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

94

Building a resource and competence base

In essence we are now concerned with building your ‘dynamic capability’, the ability to re-configure and adapt your competences over time. But before launching into the detail of resource and competence building we need to introduce two ideas that help to structure the topic as a whole. First, there are three broad strategies for building a resource and competence base:

•

Evolution, where a competence is built through training current staff, recruiting new staff with complementary knowledge, improving systems, etc. Often this occurs within an unchanged organisation with most staff performing their usual jobs

•

Incubation, where a new organisation is formed, perhaps geographically remote from the original organisation, to focus exclusively on the new competence

•

Acquisition, a company or business unit is purchased to provide the required competence We shall emphasise building on your current resources and competences through evolution and incubation rather than acquiring new competences. There are three reasons for this:

•

Most resources that you can acquire can also be acquired by competitors. For example, machines, engineers or consultants. They cannot, therefore, provide a sustainable advantage.

•

The individuality of your firm’s current resources that have evolved over time and lie around you are a far better basis for providing a sustainable competitive advantage.

•

Even if you acquire a resource that is rare, its price will reflect its rarity and there is no guarantee that a real advantage will be won. For example, see the BBC case below.

BBC – a franchise lost After holding the franchise for transmitting the Saturday night soccer Match of the Day programme for many years, BBC TV was outbid. Even though the BBC had doubled its previous successful bid a commercial channel had outbid it by a further £20 million. Newspaper speculation focussed on the BBC’s loss of a very popular programme but would the commercial channel make a profitable return after paying £19 million more than it needed to?

Second, improvements to competence performance can arise from three broad, interacting sources. You can improve:

• •

Individual resources The configuration and co-ordination of the resources involved

95

7.1 Evolution, incubation and acquisition compared

•

Supportive technical or social competences It is worthwhile taking a systematic approach to these areas to determine which offer the fastest or greatest improvement potential. Also, just as Rome wasn’t built in a day, you cannot instantly build a sustainable competitive advantage. Using those three overall strategies for competence building and the three sources of competence improvement, this chapter is structured as follows:

• • • • • •

Evolution, incubation and acquisition compared Competence and resource architecture revisited Resource enhancement, improving individual resources Co-ordination, co-ordination, co-ordination Supportive competences, improving their performance Toolkit, tools for assessing versatility, exploitability, co-ordination and potential problems As usual the chapter finishes with a summary of the main points and ideas covered, a process review describing the outputs if you follow the process, and further reading.

7.1 Evolution, incubation and acquisition compared An evolutionary approach to building a competence generally involves a large number of co-ordinated initiatives working together to overcome entrenched attitudes of what is and is not important for your firm. Many systems can embody these attitudes, obvious examples being promotion routes and the performance measurement system. Omitting to address a key change in the power structure can overcome any number of wellintended initiatives. Because important competences need to become systemic in a business, they necessarily compete with the status quo. It is rare to find successful evolutionary initiatives that are not shepherded by a united management team. An anonymous example1 of the breadth of change required is shown below.

Anonymous Insurer* Success in competence building comes from tackling many capabilities and practices simultaneously. One commercial lines property casualty insurer seeking to improve its core underwriting skills initiated over 60 programmes. It changed its hiring criteria, used different managers to conduct interviews, and modified entry-level pay scales. It adjusted promotion paths for underwriters and revamped its training

1

Coyne, K.P., Hall, S.J.D. and Clifford, P.G. (1998) Is your core competence a mirage?, The McKinsey Quarterly, 1, 40–54.

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Building a resource and competence base

programmes. To improve information, it introduced new underwriting guidelines and new information systems to provide more accurate historical and industry data. In addition, the insurer changed its measures and incentives to reward underwriting quality rather than volume. It revised its organisational structure, creating an underwriting manager in each office to break the link with branch managers, who were always under pressure. At headquarters, it made changes in the actuarial and underwriting policy departments, set up an underwriting audit team, and improved links with the claims department. Within three years, the insurer had improved its underwriting relative to the industry by the equivalent of an extra 15 per cent return on equity.

Evolutionary approaches are best used to improve competences that are currently uncompetitive but which are already deeply tied to the existing organisation. For example a firm that under-performed at new-product introduction, perhaps due to its lack of expertise in a new technology, would initially train current engineers or acquire new engineers with appropriate skills, and buy in any relevant simulation software. The existing competence would be built upon in an evolutionary manner with absorbable, small acquisitions. (This is also typical of the maintenance activities necessary to keep a high performance competence up to the mark.) If the performance gap with competitors is very large, rooted in a bureaucratic culture and where several important technologies are below par and being co-ordinated poorly a more wholesale change would be required, similar to the Anonymous Insurer case. If, taking our example of new product introduction a little further, the new product was not in the normal run of products, and, though its technologies were related to the general run, it was regarded by many as inferior or unimportant then incubation might be a better route. An example would be IBM setting up its microcomputer expertise remotely from its mainframe expertise. An incubation approach mainly relies on an in-house team, supplemented by resources (expertise and/or assets) not present in the original organisation, being isolated from the main organisation. Often, as in the IBM example, the intention is to develop a new business that requires new skills and competences. The main advantage is that the incubator is a focused, nurturing environment. It does not have to live by the rules or systems of the parent. It can take up or cannibalise systems useful to it and invent those required for this business. If there is an intention to use the competences developed in the incubator back in the main organisation there may be significant resistance from the parent, and the competences, complete with underpinning resources and co-ordination systems, may be slow to replicate even in a welcoming parent.2 2 Transferring

competences is dealt with in subsection 7.3.3.

97

7.2 Resource and competence architecture revisited

An acquisition approach where large bundles of resources are to be acquired and integrated is totally dependent on the availability of suitable companies to buy, moreover: Managers often resort to acquisition out of frustration with the time and effort involved in evolution or incubation: witness the number of acquisitions performed in recent years for the primary purpose of obtaining skills. In reality, however, acquisition is more likely to fail than either of the other two approaches. K. P. Coyne, S.J.D. Hall and P. G. Clifford (1998) Is your core competence a mirage? The McKinsey Quarterly, 1, p. 52

There are three reasons why acquisitions in this context stand a high chance of failure:

•

Frustration with evolutionary or incubation methods may make choosing an inappropriate acquisition more likely

•

The acquisition may be absorbed too quickly and left with no autonomy. In this situation key managers may leave or important systems can be over-ridden and destroyed – if they are part of the competence purchased, too bad. McKinsey’s advice is to delay integration of a competence acquisition until the resources that underpin the competence purchased are understood (Coyne et al., 1998).

•

Too much emphasis is placed on cutting costs and too little on growing market share. Having dealt with the overall strategies open for competence and resource building we shall now move into more detailed territory and begin to describe the alternative ways in which resources and competences can be built and improved.

7.2 Resource and competence architecture revisited We described a basic resource and competence architecture in Chapter 1 and repeat it here, see Figure 7.2. All competences are underpinned by a co-ordinated set of resources. Competences visible to customers are almost always supported by technical and/or socially supportive competences that are invisible to competitors and customers. Competence performance can be improved in three ways: resources can be enhanced, resource co-ordination can be improved, and supportive competences can be enhanced, here we expand these general ways into more detail, see Figure 7.3.

98

Building a resource and competence base

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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

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hn

Tec Resource X

ec tiv om pe ten ce

e

nc

ete

mp

co Resource Q

Resource Y

Resource P

Resource R

Figure 7.2 Resource and competence architecture.

The ‘enhancing resources’ leg highlights the three metrics to assess resource improvement and the resistance to be expected to those improvements . The ‘value’ metric is further broken down to show that the ideas of ‘resource fit’ and ‘resource health’ are specific ways of improving resource value. The ‘co-ordination leg’ distinguishes between micro and macro co-ordination and highlights the important enablers that managers must consider in improving resource enhancing coordination . The ‘enhancing supportive competences’ leg shows the recursive nature of Figure 7.3 – once supportive competences have been recognised, means of improving them are reached by moving

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Competence improvement Enhancing resources

Value

Sustainability Versatility

Enhancing supportive competences Resistance

Social

Technical

Resource fit Resource health

Co-ordinate, co-ordinate, co-ordinate Micro co-ordination

Enablers

Macro co-ordination

Rationale Tangible ideal Management roles and competences Learning process

Figure 7.3: Roots of competence improvement. to the top of the figure and proceeding down the resources and/or coordination legs. This enables supportive competences at different levels in the hierarchy to be handled. The following sections describe each leg in further detail.

7.3 Resource enhancement It is important not to restrict your thinking to increasing a resource’s value, it can be more important to increase the sustainability or versatility of a valuable resource. In this section we cover all three areas and discuss ways of anticipating the resistance your proposals are likely to generate.

7.3.1 Increasing value Increasing the fit and health of individual resources generally leads to improved performance of the competence concerned and so provides an increase in the value of the resource. Resource fit: Resources that are a poor fit with the activities they are performing lead to low performance. For example untrained operators, receptionists and Service engineers do not produce consistently high quality services. Recruitment systems that do not test for the required task-specific skills and psychological traits are doomed to recruit a proportion of inappropriate staff who will under-perform in tasks they were recruited into.

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Usually systems, staff and production machinery which were initially fit for purpose become more fit for the task as they learn but often the tasks they are required to perform change over time, leading back to potentially poor fit and lower performance. Maintaining and improving human resource fit involves mixtures of skill-aware recruitment systems and ongoing training, accompanied by assessment. However there is wide variety in the knowledge firms require to achieve an appropriate resource fit. Real expertise and knowledge such as we would expect from an important resource, for example, is a different beast from the knowledge and expertise we can expect from the average employee. If we take managers, for instance, they regularly face situations that are complex, rapidly changing and unique. There is no set of rules to guide them about how the situation may be resolved or endured and so managers need to regard the situation holistically and use judgement and intuition. Competent managers in these situations have what we might call ‘professional’ knowledge, created from personal experiences and structured into ‘know-how’ over many years. This knowledge is not systematic and is highly dependent on the context of past learning opportunities. Feedback from using this knowledge also changes the knowledge. For example if solution X usually works in this situation but fails to work here the manager asks ‘What is different about this particular context?’ Even if an answer is not found, the manager’s knowledge is modified – solution X now has the memory of one failure associated with it. In Figure 7.4 one example of the levels of competence used in professional development research is shown. There is a strong need for organisations to be able to transfer the insights, values and knowledge that competent managers bring to problem solving to inexperienced managers – predictably, this is not easy. Expert

Proficient

Competent

Advanced beginner

Novice

Does not rely on rules, guidelines or maxims. Has an intuitive grasp of situations based on deep tacit understanding. Analytical approaches only used in novel situations or when problems occur. Sees situations holistically rather than in terms of aspects. Sees what is most important in a situation. Perceives deviations from normal. Uses maxims whose meaning varies according to situation.

Sees actions partially in terms of longer term goals. Conscious deliberate planning. Standardised and routinised procedures. Action based on attributes or aspects (aspects are global characteristics of situations recognisable only after prior experience). Situational perception is still limited. All attributes and aspects are treated separately and given equal importance. Rigid adherence to taught rules or plans. Little situational perception. No discretionary judgement.

Figure 7.4 Levels of individual competence. (Adapted from Dreyfus, H. and Dreyfus, S. (1986) Mind over Machine: The Power of Human Intuition and Expertise in the Era of the Computer, Free Press, NY.)

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In order for these competences to be transferred managers, acting as mentors, need to be able to teach; there are at least three important factors relating to this kind of resource improvement:

•

The mentor must believe the beginner is a fit person to be taught. For the knowledge gained by the expert has not been gained without cost and there will have been situations that the teacher can only describe to someone s/he trusts. This provides a test for trainees similar to that experienced in different ways by most apprentices. For example in some religions trainee butchers are not allowed to see journeymen cut meat until they have been assessed as suitable to join the community of butchers. Up to that point they perform menial tasks.

•

The trainee must be similarly trusting and prepared to listen with a full commitment to understand as deeply as possible, listening with all senses for nuances in what is said and gestured.

•

The mentor must believe that s/he will not suffer from transferring that knowledge. There needs to be a combination of deep-seated respect for the knowledge itself and a recognition of the teacher’s emotional investment in the organisation and of their existence as a human being rather than a human asset. Knowledge is power and competent managers will not share their knowledge where they do not feel safe. In some businesses we would not expect much of this sort of knowledge transfer: ‘Managers put a positive spin on their new criteria for job applicants; they emphasize personal ambition as the key attribute they require. A 1997 survey in Training magazine showed that only 2 percent of managers valued the commitment of the employee versus 56 percent who valued ambition. A favourite saying of corporate executives in this new era is, ’You want loyalty, get a dog.’ Welch of GE goes even further by referring to loyalty to a corporation as ‘nonsense.’ The new era of employment relations forces employees into the status of free agents – responsible for themselves and to themselves.’ A. Kennedy, (2000) The End of Shareholder Value, Orion Business Books, London, p. 94

Even when conditions are ideal for transferring expertise it is still extremely difficult to achieve for we always learn better from our own mistakes and victories than we do from anybody else’s. Resource health: Perfectly appropriate resources may under-perform through lack of basic maintenance (for machines and systems) or through lack of stimulation and motivation (for staff). How are your resources valued – do the machines shine as new or are they covered in gunk? How are staff members valued? How well are they motivated? How keen are they for self-improvement? What is the staff turnover here?

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Improvements in resource health and fit can be straightforward to achieve, however since tasks change over time this is an ongoing process. Of course a poor industrial relations history or insensitive managers can easily slow down or even stop such improvements. Remember too that resources underpinning your weaknesses usually need to be destroyed or undermined rather than be ignored or made healthier or fitter.

7.3.2 Increasing sustainability Improving the sustainability of valuable resources means a lengthier competitive advantage from current performance rather than an improved level of competence performance. However this is generally difficult to accomplish in the short term since short-term changes rarely produce long-term sustainability. For many reasons, like job changes, organisational changes and changes in policy, it is also difficult to achieve improvements in sustainability in the long term. Persistence is required and resources whose sustainability is increased often rely on being tied closely to the beliefs and values written deep across the organisation.

Abacus Remember the strong beliefs of the Abacus directors that Service was very important (pages 88 – 89)? Few outside the Service organisation shared this belief resource. It was not particularly sustainable, the directors needed to increase the sustainability of this resource and one way was to prove it was true. Their action was to alter the management accounting system to remove the subsidies their Service organisations provided to Sales. Now, if a salesman closed an order with an offer of ‘free installation’ or ‘free training’, service was paid the sales value of the particular service and Sales took a hit on their margin. Technical support from Service to Sales was paid for at cost since such support normally leads to cleaner, more easily installed and invoiced orders and happier customers. Suddenly Service departments began to make profits. Somehow service looked more important than before. (A useful representation showing the trajectories of resource improvement is shown in Figure 7.95 in the Toolkit section.)

Sustainability can be increased in the short term by reducing the likelihood of your own organisation allowing it to depreciate. For example, in the case of skilled employees, provide them with more reasons for staying than for leaving.

7.3.3 Increasing versatility Improving the versatility (see pages 24 – 25) of valuable resources enables a greater return from a competence due to its use in several places rather than in one isolated context. A resource like a customer database can be replicated easily and used in another part of the business. Perhaps the addition of

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this resource can improve the performance of the competence we are concerned with. There is always the possibility that resources elsewhere in your organisation can be useful in different contexts. But not all resources are so versatile. For instance, the tacit knowledge built up over a long period, by a salesperson about a particular customer group cannot be used elsewhere. It is tied to its current surroundings – that salesperson. Also, on close inspection it may become clear that the effect of a resource is not understood and there may be much ambiguity about how the resource affects competitive advantage. Again the resource cannot be moved, it is not versatile. Of course attempts can be made to make a resource more versatile. In our example we may try to document the salesperson’s knowledge. This is usually difficult to do – even if the salesperson is willing s/he doesn’t know what s/he knows. One way of doing this is to shadow the salesperson, watching what s/he does and asking ‘Why that way?’ ‘Why talk about that aspect?’ Gradually parts of his/her tacit knowledge can be documented. We assess versatility in a similar way to our assessment of value and sustainability – using a set of questions: 1.

How deeply is it tied to its surroundings? Closely tied

Stand-alone

A key engineer A database looking after an aged relative can be geo-

A strong brand

graphically tied

A database is stand-alone and not tied to its surroundings, it can be moved onto any compatible computer anywhere on the globe. A strong brand is tied to the company that owns it. But within that company it can often be used on products and services from different businesses, for example Virgin and Disney. 2.

Is its operation understood?

Not at all The tacit know-

Partly documented and understood

Fully understood and documented A quality system

ledge of a recognised expert

While an expert’s knowledge is rarely well understood, much effort goes into making a company’s quality system well documented and widely understood.

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3.

How long would it take to reproduce elsewhere in-house? >5 years

2–5 years

6–24 months

1–6 months

The tacit knowledge of a recog-

A salesman’s knowledge of

A strong brand

nised expert

a particular

<1 month

market.

A strong brand can be quickly applied to a company’s new product but other resources take much longer to access – some may never be reproduced. Answers to the right indicate a versatile resource and it is the pattern of answers for one resource or competence that is evaluated into an overall evaluation of low, medium or high versatility.

7.3.4 Resistance While any change or improvement activity can attract resistance, resource-based theory explains some of the major problems companies face when they are doing well. It is no accident that leading companies in particular fields rarely remain on top in the face of major market or technology changes. They have simply become attached to doing what made them successful and, by association, to the resources on which those competences were built. They have then changed too slowly to face an altered market and build the resources and competences now required. •

IBM failed to translate leadership in mainframes into success with microcomputers, despite designing the dominant standard

•

DEC failed to translate a leadership in mini computers into a success with microcomputers or workstations and were eventually bought out by Compaq Core competences can become core rigidities.3 Investment in resources that do not support historic core competences can be resisted forcefully even though they are necessary to respond to clear, new market requirements. We can evaluate the resistance you can expect to experience when trying to build new competences or trying to acquire new resources with another set of questions:

3

Leonard-Barton, D. (1992) Core capabilities and core rigidities: a paradox in managing new product development, Strategic Management Journal, 13, 111–132.

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1.

Can it be built on existing resources?

No, supportive

Some new

Yes, many existing

resources are unavailable

resources are needed

resources can be used

A new manufacturing system

A new manufac turing system,

that involves new technologies, new

requiring a reorganisation of

machines, a much

existing re-

more skilled workforce, etc.

sources and some new knowledge

2.

Would it conflict with existing, highly valued resources or the firm’s traditions? Definitely

Partly

The introduction of an automated, high volume line where bespoke/craft appro-

Not at all One more auto mated line where three already exist

aches are the norm

3.

Will it replace any resources important to the firm’s operation or identity? Definitely

Partly

A structured process for strategy development, replacing an

A new software platform for mechanical

emergent process

design

Not at all

Answers to the right (on all these questions) imply little resistance will be met and it is the pattern of answers for one resource or competence that is evaluated into an overall evaluation of low, medium or high resistance. This section has covered three ways a resource can be enhanced and so lead to an improved competence performance, and described situations where the development of some resources and competences may be seriously resisted. In the next section we investigate the role of coordination on competence performance.

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7.4 Co-ordination, co-ordination, co-ordination The effect of improving the co-ordination of a competence is to generally improve its performance. However, depending on the level of coordination addressed, it may make the competence more sustainable and less versatile or less sustainable and more versatile. Improved co-ordination can be achieved at a number of levels, which will be dealt with as follows:

• • •

Macro co-ordination Micro co-ordination Enablers of co-ordination In the first we look at macro co-ordination, the levels that managers generally look after. In the second we discuss micro co-ordination, the detailed levels that managers in commercial organisations do not normally reach, and in the third we use the cases described to highlight key enablers for micro co-ordination.

7.4.1 Macro co-ordination Many managers spend their time thinking and co-ordinating at relatively high levels of aggregation. Here we are referring to the meat and drink of senior and middle managers, co-ordination mechanisms like:

• •

new-product introduction procedures

• • • •

work structuring in operations functions

the see-sawing between centralisation and de-centralisation in organisation design

empowerment and reductions in organisational levels the need for co-location between certain company functions the adoption of myriad best-practice silver bullets to better co-ordinate this or that There are specialist books galore on these matters. One of the latest coordination mechanisms concerns the improved communication technologies within a firm, like intranets, or between firms, over the internet. Again there are many new books on this subject. At an even higher level senior managers co-ordinate the shape and focus of their organisations by answering such questions as:

• • • •

should we acquire company X? should we create a joint venture with Y? shall we make that component rather than buying it? shall we centralise our development activities?

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It is much easier to answer these questions than to implement the micro co-ordination necessary to obtain the benefits from the decision. While it might make powerful strategic sense to answer all these questions with a resounding ‘yes’, the devil really is in the detailed micro coordination of implementation and operation. For this reason we move on to discuss the role of micro co-ordination on competence performance.

7.4.2 Micro co-ordination Micro co-ordination is the detailed co-ordination that individuals and groups engage in to complete their tasks. Many illustrations of this detailed level of co-ordination can be seen in exercises conducted to reveal the full detail of a business process during business process reengineering projects. Many managers can hardly believe the complexity in their order process, only those carrying out the tasks knowing what was done. Depending on staff turnover in the area they might know why some things are done in the way that they are. To reflect on this consider Mailbox Inc., page 24. Mailbox seems to be good at co-ordination indeed one could infer that Mailbox’s performance is as a result of its superior co-ordination. To expand this idea let us look at an environment where unsuccessful co-ordination can be life threatening.

The United States Navy Nimitz-class Carriers … Imagine that it's a busy day, and you shrink San Francisco airport to only one short runway and one ramp and one gate. Make planes take-off and land at the same time, at half the present time interval, rock the runway from side to side, and require that everyone who leaves in the morning returns that same day. Make sure the equipment is so close to the edge of the envelope that it’s fragile. Then turn off the radar to avoid detection, impose strict controls on radios, fuel the aircraft in place with their engines running, put an enemy in the air, and scatter live bombs and rockets around. Now wet the whole thing down with seawater and oil, and man it with 20-yearolds, half of whom have never seen an airplane close up. Oh and by the way, try not to kill anyone. Rochlin, Laporte and Roberts, 1989,4 quoted in Weick and Roberts, 19935

Even though carriers5 represent ‘a million accidents waiting to happen’,6 almost none of them actually do. Why not? 4

Rochlin, G.I., Laporte, T.R. and Roberts, K.H. (1989) The self-designing, high-reliability organization:Aircraft carrier flight operations at sea. Naval War College Review, 40(4), 76–90. 5 This section on aircraft carriers is adapted from a paper written by Karl Weick and Karlene Roberts in (1993) Collective mind in organizations: heedful inter-relating on flight decks, Administrative Science Quarterly, 38, 357–381. 6 Wilson, G.C. Supercarrier. New York: Macmillan

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In competence terms the carrier deck crew, pilots and others display a high-performance competence in reliably and safely loading armaments and in launching, landing and parking aircraft in an environment where this is difficult to achieve. Pilots and flight-deck crew are faced with a situation where the next events are predictable if all goes well but where there are huge possibilities for variation from the norm and where co-ordination cannot come from a set of rules or an all-seeing co-ordinator. One event outside the norm may cause another in fast succession because the elements of the system – planes, pilots, flight-deck crew, deck space, weather, helmsman etc. are positioned for considerable interaction. So how is this high-performing competence achieved? The answer seems to begin with deck crews and pilots developing a collective view of the many actual and potential situations that can arise through personal experience, rigorous debriefing and through the stories of the experienced. The answer finishes with a kind of interrelating or co-ordination that Weick and Roberts call ‘heedful’. Heedful co-ordination occurs when each participant has an understanding of what should and could happen during their co-ordinated activity, this includes the actions of others and their relationships to one another. Each participant needs to have the same picture as others in the group and each must heed the signals they get, must interpret them as usual or unusual. If unusual they consider; stop, maybe: signal to others; ask a question; think what could be happening. What they do not do is continue blithely on, ignoring signals that suggest something unusual is happening. Consider the following examples of heedful and heedless co-ordination.

Take off To get ready for take off an aircraft taxis onto the catapult for launching, the catapult is attached, and the engines are advanced to full power. Even though pilots have to rely on the catapult support crew, they remain vigilant to see if representations are similar. Pilots keep asking themselves questions like, ‘Does it feel right?’ or ‘Is the rhythm wrong?’ The ‘it’ in the question ‘Does it feel right?’ however, is not the aircraft but the joint situation in which the pilot is voluntarily involved. If a person on the deck signals the pilot to reduce his engines from full power he won't do so until someone stands in front of the plane, directly over the catapult, and signals for a reduction in power. Only then is the pilot reasonably certain that the joint situation has changed. He now trusts that the catapult won't be triggered suddenly and fling his underpowered aircraft into a person and then into the ocean. K. Weick and K. Roberts, (1993) Collective mind in organizations: heedful inter-relating on flight decks, Administrative Science Quarterly, 38, 357–381

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Landing (or recovery) An aircraft lands on a carrier deck at night and begins to taxi. The pilot watches the flight director's amber wands ... ‘… there was an urgency in the taxi signal movement of the wands, telling me that there must be another plane close behind me in the groove. They wanted to get my airplane completely across the foul line as quickly as possible. Taxiing at night was more carefully done than in the light of day, however. We'd had enough airplanes taxi over the side at night to learn that lesson. The wands pointed to another set of wands further up the path flight-deck and I began to follow their direction as my F-8 was taxied all the way to the first spot on the bow. ‘God how I hate this,’ I muttered to myself. ‘ Do they really have to do this or are they just trying to scare me? ‘In spotting me in the first taxi spot on the bow, the taxi director was turning the F-8 so close to the edge of the flight deck that the cockpit actually swung in an arc over the deck’s edge. All I could see was black rushing water eighty feet below. ‘Jesus’ I said to myself, ‘I hope that guy knows what he's doing …’ K. Weick and Roberts, (1993) Collective mind in organizations: heedful inter-relating on flight decks, Administrative Science Quarterly, 38, 357–381

The taxi director does know what he’s doing, as does the pilot, but that alone does not keep the plane from dropping off the deck. It is the coordination of their know-how that keeps the plane on the deck. Commands from the director that are not executed by the pilot or a pilot deviation that is not corrected by the director are equally dangerous and not controllable by either party alone. The activities of taxiing and directing remain failure-free to the extent that they co-ordinate heedfully. The kind of co-ordination at work here is also represented in the language used. To the uninitiated an aircraft ‘lands’ on a carrier, an implied solitary act of the pilot. To pilots and deck crews aircraft are ‘recovered’, implying combined, heedful co-ordination among a large group of people from the helmsman to landing signal officers, air traffic and deck crews.

Bombs and rockets and indecision When ordnance is loaded onto an aircraft its safety mechanisms are removed. If there is a sudden change of mission, the live ordnance must be disarmed, removed, and replaced by other ordnance that is now activated, all this under enormous time pressure. These inter-related activities, even though tightly coupled can become more or less dangerous depending on how the co-ordination is done. In one incident observed, senior officers kept changing the schedule of the next day’s flight events through the night, which necessitated a repeated change in ordnance up to the moment that day launches began. A Petty Officer changing bombs underneath an aircraft, where the pilot could not see him, lost a leg when the pilot moved the 36,000 pound aircraft over him. The Petty Officer should have tied the plane down before going underneath to change the load but failed to do so because there was insufficient time, a situation created by continual indecision at the top. Thus the senior officers share the blame for this accident because they should have resolved their indecision in ways that were more mindful of the demands it placed on the system. K. Weick and Roberts, (1993) Collective mind in organizations: heedful inter-relating on flight decks, Administrative Science Quarterly, 38, 357–381

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Of course even heedful co-ordination can eventually break down and the Navy has a phrase for it – OBE – overcome by events, where events fail to be seen in a pattern, responses become random and finally, overcome by events, an aircraft is lost, the carrier is damaged, or worse. What, you might now ask, has this to do with business? Interesting – but what’s the relevance? The introduction of a major new product is probably the nearest any commercial organisation gets to war or danger. Organisations get very stressed when introducing the next generation product. Failure can be extremely costly, life threatening to the company and career damaging to many of its employees. So, in your organisation, to what extent are individuals from Engineering, Purchasing, Manufacturing, Marketing and so on heedfully co-ordinating their efforts? How carefully and systematically are they taking into account the effect of their actions on one another? How frequently are they anticipating problems and checking their understanding of their colleague’s needs? To what extent are individuals completing their activity knowing or partly suspecting a problem will arise in another area as a result of their work? Would you like to have more heedful co-ordination in your organisation? If so we have made our point. Unfortunately this is a level of co-ordination that your workforce has to choose to give in normal circumstances. Where lives are not at risk managers may find it difficult to instil heedful co-ordination in the hurly-burly of major product introductions. However, in simpler situations like mass production where repeatability, continuous improvement and efficiency are the aims there may be ways of instilling more heedful co-ordination.

Toyota Toyota may be the leading exponent of mass production manufacture in the world. The so-called Toyota production system appears to significantly out-perform all its competitors and though many have tried to copy this system, none have equalled Toyota’s performance. It is as though important parts of the system have remained invisible. Recently, however, research has begun to identify some of the roots of the system and micro co-ordination, as you might expect, plays a major role. Spear and Kent Bowen7 contend that four principles underpin the Toyota production system:

•

Three rules of design, which show how all its operations are set up as experiments

•

One rule of improvement, which describes how Toyota teaches the scientific method to workers at every level in the organisation 7 The Toyota case is drawn from Spears, S. and Kent Bowen, H. (1999) Decoding the DNA of the Toyota production system, Harvard Business Review, Sept–Oct, 96–106

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Toyota’s four rules Rule 1: all work shall be highly specified as to content, sequence, timing, and outcome. Rule 2: every customer supplier connection must be direct, and there must be an unambiguous yes or no way to send requests and receive responses. Rule 3: the pathway for every product and service must be simple and direct. Rule 4: any improvement must be made in accordance with the scientific method, under the guidance of a teacher, at the lowest possible level in the organisation. All the rules require that activities, connections, and flow paths have built in tests to signal problems automatically. It is the continual response to problems that makes this seemingly rigid system so flexible and adaptable to changing circumstances. S. Spears, and H. Kent Bowen, (1999) Decoding the DNA of the Toyota production system, Harvard Business Review, Sept – Oct, 96–106.

Already you will see that this is a very detailed level of co-ordination and here we shall give an indication of two aspects of the system. The first is what the rules generate, the second is how these unwritten rules are taught by Toyota managers. Rule 1 means that when a car seat is installed the order of the bolts to be tightened is specified, the time it takes to turn each bolt is specified and so is the torque to which the bolt should be tightened.

Installing the right front seat into a Toyota Camry … is designed as a sequence of seven tasks, all of which are expected to be completed in 55 seconds as the car moves at a fixed speed through the worker’s zone. If the operator finds himself doing task six before task four then the job is actually being done differently than it was designed to be done, indicating that something must be wrong. Similarly if after 40 seconds the worker is still on task four, which should have been completed after 31 seconds then something, too, is amiss. To make problem detection even simpler the length of the floor for each worker is marked in tenths. So if the worker is passing the sixth of the 10 floor marks (that is, he’s 33 seconds into the cycle) and is still on task four then he and his team leader know that he’s fallen behind. Since the deviation is immediately apparent worker and supervisor can move to correct the problem right away. And then determine how to change the specifications or retrain the worker to prevent a recurrence.’ S. Spears, and H. Kent Bowen, (1999) Decoding the DNA of the Toyota production system, Harvard Business Review, Sept – Oct, 96–106.

The extraordinary thing is that even complex and infrequent activities are designed in this way. For example moving machinery from one area to another was broken into 14 parts and each part further divided into a series of tasks with specific people assigned to each task in a set sequence. As the tasks are completed their outcomes are compared with what was expected from the original design and discrepancies signalled.

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Rule 1 demands that operators do their work in a specific way which forces them to test hypotheses through action. Performing each activity tests the two hypotheses implicit in its design: first that the person doing it is capable of performing it correctly and, second, that performing the activity actually creates the expected outcome. For the seat installer a failure to insert his seat in the specified way within the specified time refutes at a least one of the two hypotheses – the activity either needs to be redesigned or the worker needs to be retrained or possibly both. Rule 2 creates supplier–customer relationships between each person and the individual responsible for providing that person with each specific part or service. There is no ambiguity here, Gurdeep provides material and Clare provides technical assistance and nobody else. When an operator makes a request for parts there is no confusion about the supplier or the number of units required or the timing of the delivery, these are all specified. Similarly if someone needs assistance there is no confusion over who will provide it, how that help is requested and what help will be available.

In many companies any passing supervisor can help, requests often go through intermediaries but if a problem can be anybody’s problem then it often becomes nobody’s problem. This rule not only avoids that but again helps to signal problems. A worker is expected to signal a problem immediately. The designated assistant is expected to resolve that problem in a specified time, take our car seat installer – the assistant has 55 seconds – one cycle time. If the problem cannot be resolved in that time the hypothesis that the assistant can solve the problem in 55 seconds is questioned. Was the request ambiguous? Was the assistant busy with too many other requests? Was the assistant a less than capable problem solver? If anybody could help, these potential problems could be hidden or clouded. Since communications are so unambiguous the training needs of the individual can be identified and the basis of the supplier–customer relationship can be questioned. Note that many Western managers encourage workers to try to solve problems for themselves before calling for help. Not at Toyota, because this leads to problems remaining hidden and, much worse, operators are left to decide which problems are big enough to signal. Rule 3 requires that every product and service flows along a simple, specified path. The path should not change unless the production line is expressly redesigned. Simplicity demands there should be no optional forks or loops to impede the flow in any of Toyota’s supply chains. Requiring no loops is usual production design but no optional forks – what is that about?

It means that each part’s path is specified down to the particular machine it will pass through. So if there is a group of identical drilling machines side by side, each ‘part’ Kanban8 entering that area will have 8 Kanban is a term used in JIT (just in time) production systems to represent a (usually small) batch of materials

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one and only one of those machines specified as the route. In most production systems this would not be specified and the first available machine would be used. This rule means that each time the path is used an experiment will occur. The hypothesis implicit in the pathway will be tested – that is that every drilling machine connected to the pathway is needed and no extra machines are required. If a queue builds up then there is a problem to be solved. Rules 1, 2 and 3 all ensure that problems will be made visible – problems can then be solved and the production process will move closer to the Toyota ideal. These rules also ensure that the problems will be presented in a less ambiguous way than usual. Since problems are identified early and in situ they can be better specified along with interesting or unusual data about the context of the problem, e.g. ‘it occurred:

• • •

at the start of using a new Kanban at a particular time of day on the third of a new pattern of car seat’ These are potentially vital clues to the source of the problem. Rule 4 demands that any improvement must be made in accordance with the scientific method, under the guidance of a teacher, and at the lowest possible level in the organisation. Toyota go to great lengths to teach managers how to improve and how to teach supervisors and operators. Now we shall concentrate on how Toyota managers teach the rules.

How are the unwritten rules communicated? Toyota’s managers don’t tell workers and supervisors specifically how to do the work. Rather, they use a teaching and learning approach that allows their workers to discover the rules as a consequence of solving problems. For example, the supervisor teaching an operator the principles of the first rule will come to the work site and, while the operator is doing his or her job, ask a series of questions: How do you do this work? How do you know you’re doing this work correctly? How do you know that the outcome is free of defects? What do you do if you have a problem? This continuing process gives the person increasingly deeper insights into his or her own specific work. From many experiences of this sort the operator gradually learns to generalise how to design all activities according to the principles embodied in Rule 1. All the rules are taught in a similar Socratic fashion of iterative questioning and problem-solving. Although this method is particularly effective for teaching, it leads to knowledge that is implicit. Consequently, the Toyota system has so far been transferred successfully only when managers have been able and willing to engage in a similar process of questioning to facilitate learning by doing. S. Spears, and H. Kent Bowen, (1999) Decoding the DNA of the Toyota production system, Harvard Business Review, Sept – Oct, 96–106.

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It seems that, once learnt, the rules enable a responsive, self co-ordinating and improving system to emerge. When problems do occur, the rules force revelation of the problems in a well-specified form. The fourth rule insists on a scientific approach to improvement – first specify an hypothesis – ‘the time for this operation can be reduced by 10 seconds by …’. Inspect the result, only if the hypothesis is confirmed does further questioning cease, otherwise ‘Why did we fail to achieve a 10second reduction?’ Or ‘Why did we achieve a 15 second reduction?’ Both questions focus on the apparent lack of understanding that led to the hypothesis that a reduction of 10 seconds would result. Leaving the Toyota case let us re-iterate the purpose of considering micro co-ordination. The devil is in the detail, micro co-ordination among the workforce has to occur for anything to be achieved. But often much of that micro co-ordination will be to circumvent real but hidden problems which undermine the performance of one or more competences. When managers attempt to achieve better co-ordination at detailed levels we suggest they need a set of rules like Toyota, to achieve a self-improving operation or a need for reliability found on the oily, sea-washed decks of aircraft carriers or in the control rooms of nuclear power stations. There are, however, some generic enablers of successful micro coordination, and in the next subsection we derive enablers directly from an analysis of the aircraft carrier and Toyota cases, enablers that arise from outstandingly successful examples of micro co-ordination.

7.4.3 Enablers of micro co-ordination Both the aircraft carrier and the Toyota case display distinct but powerful enablers which we believe are necessary for managers to achieve high levels of micro co-ordination and resultant high performance in their activities or competences. They are concerned with:

• • • •

a rationale or reason for such performance a tangible ideal in terms of performance particular managerial roles and competencies a powerful learning process These four aspects will be explained in turn.

A rationale is necessary to persuade workers to engage in heedful co-ordination. On an aircraft-carrier deck with the life and limbs of colleagues and oneself at risk the rationale is clear. The motivation for Toyota workers is less clear but we cannot explain it as a Japanese cultural matter – Toyota have made the system work in many countries including the UK and the USA. The rules do offer workers clarity of task, short communication channels for

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assistance and involvement in solving problems. This clarity of task and task-related interdependence is likely to motivate workers toward heedful co-ordination. But, presumably, workers who cannot be influenced to carry out the rules, will eventually leave and a self-selected group of heedfully co-ordinating workers will remain, as long as the rules are respected. A tangible ideal is, perhaps, more necessary on a repetitive production line than on an aircraft carrier, but even there ideals exist. On a carrier where danger is the rationale it is avoidance of the four worst things that can happen that is the ideal. They are fire, the deck becoming fouled, the deck locked where nothing can move, or a plane becoming immobilised in the landing area. Everything must be done to avoid these states. Yet the more a plane is moved to prevent these conditions the more likely it is that there will be a ‘crunch’ resulting in planes out of commission.

The Toyota ideal Toyota workers are very clear about the output of an ideal person, group or machine, it: is defect free (that is, it has the features and performance the customer expects); can be delivered one request at a time (a batch size of one); can be supplied on demand in the version requested; can be delivered immediately; can be produced without wasting materials, labor, energy, or other resources (such as costs associated with inventory); and can be produced in a work environment that is safe physically, emotionally, and professionally for every employee. S. Spears, and H. Kent Bowen, (1999) Decoding the DNA of the Toyota production system, Harvard Business Review, Sept – Oct, 96–106.

These Toyota ideals guide their improvement process and are focused on efficiency. In the carrier environment the deck-crew leader, or bos’n, is always interested in improving reliability and this can be achieved through increasing efficiency. One bos’n had 23 years experience on 16 carriers. At the time he joined one carrier’s crew, it took six hours to spot 45 aircraft on the deck. He helped reduce that time to two and threequarter hours, not to show an efficiency improvement but to give his crew more time to relax and maintain their alertness. Managerial roles and competencies in both cases point to similar management styles. Both cases require managers to be teachers and to instil knowledge in a Socratic fashion. We described managerial practice in Toyota earlier, below we describe the management of one flight deck.

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Deck management One bos’n, who is responsible for the smooth functioning of deck operations, gets up an hour early each day just to think about the kind of environment he will create on the deck that day, given the scheduled operations. He visualises the capabilities and weaknesses of crew members in his thinking, when he tailors sequences of activities so that improvisation and flexible response are activated as an expected part of the day’s adaptive response, and also when he counts on the interrelations among crew members themselves to ‘mind’ the day’s activities. He does not plan specific step-by-step operations but, rather, plans which crews will do the planning and deciding, when, and with what resources at hand. The system will decide the operations, and the bos’n sets up the system that will do this. The bos’n does this by attempting to recognise the strengths and weaknesses of the various crews working for him. The pieces of the system he sets up may interrelate poorly or well largely because they will either duplicate or undermine the heedful co-ordination he anticipates. K. Weick and K. Roberts, (1993) Collective mind in organizations: heedful inter-relating on flight decks, Administrative Science Quarterly, 38, 357–381

The bos’n puts his various crews in different situations from which they will learn from experience. During the day’s operations he knows that his weakest crews, especially those placed on infrequently exercised tasks will probably need his help most. This is part of his heedful co-ordination. Managers attempting to develop more heedful co-ordination at operational levels in the most differing cases we could find must have a significant teaching competence. This normally means they can carry out all aspects of the activities they manage and can teach them by demonstration rather than instruction. Managers also need to be able to test understanding by Socratic questioning – ‘What happens if?’ ‘What do you do if?’ etc. A powerful learning process is evident in Toyota, the rules raise problems in order to solve them in a way that moves performance closer to the ideal. On the carrier the process is different but no less powerful. Detailed de-briefing of every shift and especially important or new situations experienced are the norm in military organisations. Co-ordination cannot be improved without a powerful learning process, and therefore relies on a degree of repetition. In this section we have placed a great deal of emphasis on the role of micro co-ordination on competence performance – we believe this to be entirely justified. Other examples of micro co-ordination that support the above are set out in the Further Reading for this chapter. In the next section we investigate the role of supportive competences in improving competence performance.

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7.5 Enhancing supportive competences

7.5 Enhancing supportive competences These competences provide a supportive context that enables the level of performance of competences that provide valued outputs for customers to be improved. Generally supportive competences are difficult for outsiders to recognise or understand so they can also increase the sustainability of advantages the main competence achieves. It is helpful to subdivide supportive competences into ‘technically supportive’ and ‘socially supportive’ even though they are never purely one or the other.

7.5.1 Socially supportive In this subsection we shall describe two socially supportive competences, the first is concerned with teamwork the second with innovation: Teamwork: Fast, high-quality product introductions do not occur without a willingness of staff from most functions to work together to a common end, putting aside individual ambition. Teamworking in sport is an analogy frequently made, the player who rarely passes to players in a better position, preferring to attempt to score from the most difficult position, is not a team player. Nowadays we know a little more about successful teams – they need more than team players, they need a range of skills.9 The best teams can mobilise and accommodate the clever but eccentric engineer. Teams are endemic in work situations and the ability to form productive teams is a socially supportive competence in a range of problem solving situations. This ability is strengthened considerably by the following kinds of resources:

•

Promotion systems that encourage wide functional experience, from this individuals can appreciate the pressures and difficulties of different roles

• •

Appraisal and recruitment systems that value teamworking abilities Training that teaches team members to reflect on how the team is working as well as on the objective of the team

Innovation: We could call this an ‘innovation competence’, or an ability to innovate faster than competitors. A famous example is Chaparral Steel where Dorothy Barton, a professor at Harvard, studied the background to Chaparral’s rapid and extensive steel-processing innovations. At the root of their innovation competence lay a set of values:

•

Research and development was merged with Production – everyone does development

• •

Experimentation on the factory floor was constant and welcomed Innovation was everybody’s business, not just the province of engineers 9

See Belbin, M.R. (1996) Team roles at work, Butterworth-Heinemann, London

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•

Production equipment and processes were designed in-house and constantly improved

•

Re-inventing knowledge was avoided – be open to inputs from outside These values could be seen embodied in actions and attitudes in the company, for example the last value, ‘knowledge should not be reinvented’ appeared to be embodied in:

• •

Extensive networking with suppliers, customers and academics

•

Benchmarking against competitors and ‘best in class’ companies in other industries

• •

A respect and hunger for knowledge, wherever its source

Heavy investment in employee travel to support information gathering and global networking

Shared beliefs that there is no value in re-creating something – rather build on the best existing knowledge This example suggests other potential supportive competences, for example ‘the ability to absorb knowledge’ and ‘the ability to share knowledge’. As we suggested earlier there are no purely socially or technically supportive competences, they are all a blend, but let’s now look at a supportive competence that has a more technical leaning.

7.5.2 Technically supportive Customers will not receive outstanding services or products if the product/service is not designed to ensure a defect-free delivery process. If the delivery process is not designed to take advantage of these product/service features again outstanding quality will not be delivered. The supportive competences here are in the product/service design for delivery and delivery process design. Fault-free, rapid communication: A competence for very low lead times on complete, complex orders is probably impossible to achieve without a supportive communications environment. Cisco Systems is a good example of this.

Cisco Systems Vying with Microsoft and GE to be the highest valued company in the world, Cisco is the major provider of internet infrastructure. The starting point for the whole process is the customer’s order. Generally, customers enter their requirements on-line. On-screen, they select from a powerful configuration engine the precise options and device characteristics that they require, with the software blocking inadmissible selections, and prompting for the appropriate cables and ancillary equipment …

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Not only is the process one that takes place without tying up Cisco salespeople, says Meijerink (head of Cisco’s manufacturing and logistics function), it also achieves high levels of order accuracy: the right devices, correctly configured, and with the right cables and ancillary equipment… But Cisco has moved beyond this. For customers such as Wal-Mart, Cisco has built software applications that sit on Wal-Mart’s computers hooked into the retail giant’s purchasing systems. When Wal-Mart orders a Cisco router or switch, the Cisco application automatically transmits the data to Cisco’s customised Oracle ERP system, where it joins the stream of orders directly entered by customers using the conventional Cisco Connection Online system. Enter Cisco’s manufacturing plants – two directly owned and nine belonging to specialist electronic subcontractors. The ownership of the plants, however, makes no difference to how customers’ orders are treated. Once in Cisco’s ERP system, the order will linger for less than a day before being transmitted to the appropriate plants. First and second tier suppliers have access to the plan, and produce accordingly. Management Today, January 2000

For Cisco the supportive competence is the ability to provide error-free, reliable, short communication channels between customers and suppliers. The ability of the internet to connect us all is a major opportunity to speed communications between resources and so enable rapid co-ordination. Such technical supportive competences are often designed to eliminate human error in areas where there are clearly right and wrong answers. Unfortunately it is still human beings that programme and provide new configuration data for these highly automated systems and errors can still occur. For how to improve the resources underlying supportive competences, go back to Sections 7.3 and 7.4. In the next section the toolkit for this chapter is described.

7.6 Toolkit The toolkit in this chapter is presented in three parts:

•

Deciding what kind of improvement is required. Is it increased value through a higher competence performance, increased sustainability or increased versatility?

•

Identifying appropriate mechanisms of improvement. Is the main improvement mechanism better co-ordination, specific resource improvements or improved supportive competences? This section also contains a set of tools for assessing the:

• • •

exploitability of a resource or competence versatility of a resource or competence co-ordination of a competence

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• • •

resistance to be expected from your plans current opportunities for resource and competence improvement

Implementation advice

7.6.1 What type of improvement?

Aim • • •

To identify the kind of competence improvement you require. There are three broad categories: Performance/value Sustainability Versatility The ambitious may try to attempt all three but, in practice, concentration on one or two is more usual.

Why? How?

A clarity (or sanity) check is valuable at this point. The inputs to this decision are:

• • •

The focus of the study (from Chapter 4) The resource lists and architecture (from Chapter 5) The resource and competence evaluations (from Chapter 6) Lay them out. Decide and document a clear focus or set of foci for improvement.

7.6.2 Which improvement mechanisms should be used?

Aim

To select appropriate improvement mechanisms to achieve the improvement focus decided in the previous section.

Why?

There are many alternatives (discussed earlier in this chapter) and each can affect more than one improvement focus, as illustrated in Table 7.1.

How?

Table 7.1 is used as an aide-mémoire to the earlier parts of this chapter and a partial guide to assess the most likely improvement foci to achieve your competence improvement aims. It is important to realise that the most likely improvement foci will also depend on the state of the existing resources in your focus area and the availability and cost of other resources that you might call on (e.g. consultants), purchase (e.g. machines) or recruit. Such is the wide range of contexts you may be faced with, combined with the individuality of your own resources that a detailed process description is not appropriate.

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Table 7.1 Interactions between aims and improvement approaches (*** – * most to least improvement potential, on average)

Improvement focus

Increase performance

Increase

Increase

(value)

sustainability

versatility

Improve co-ordination

Macro

**

Note 1

Note 3

Micro

***

Note 2

Note 3

Improve support competences

Technical

**

*

Note 4

Social

**

**

Note 4

Value

**

*

*

Sustainability

*

**

*

Versatility

*

*

**

Resource improvement

Note 1: Large-scale macro co-ordination efforts may also reduce sustainability by:

• •

Attracting competitor attention Over-riding existing micro co-ordination mechanisms And increase versatility by:

•

Formally clarifying co-ordination mechanisms

Note 2: Micro co-ordination efforts may result in the same outcomes as macro co-ordination efforts if implemented in a top-down ‘managerial’ manner. Providing an environment for bottom-up improvement may work better towards increasing sustainability and reducing versatility.

Note 3: The way to improve versatility through co-ordination activities relies first on understanding clearly how the competence works.

Note 4: Dependence on context versatility may be reduced or increased by actions to improve supportive competences. Gather your data:

• • •

The focus for improvement (from the previous section) The resource lists and architecture (from Chapter 5) The resource and competence evaluations (from Chapter 6) Use those assessment methods detailed in Tables 7.2 and 7.3 which are useful for the improvement focus you have chosen: Table 7.2 contains assessments of the:

• •

exploitability of competences and resources versatility of competences and resources

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•

co-ordination of competences

Table 7.2 Assessment of exploitability, versatility and co-ordination of resources and competences

CD Catalogue

Resource/competence name ...................................................................................... E X P LO I TA B L E ? Already highly To what degree can leveraged it be leveraged in its current position? 丣

Well Good Significant Major Not developed oppor tunity oppor tunity oppor tunity Unknown applicable some improvement possible 丣 丣 丣 丣

It would be useful in:Strongly disagree

Disagree

Neither agree nor disagree

Agree

Strongly agree

丣

丣

丣

丣

丣

丣

丣

丣

Low

Medium

High

Unknown

• other parts of the 丣 business • other markets 丣 E X P LO I TA B I L I T Y S U M M A RY

V E R S AT I L E ? How deeply is it tied to its surroundings?

Closely tied

丣

How long would it take to reproduce elsewhere in-house? >5 years Is its operation understood?

Partly tied

丣

Easily portable

丣

丣

2–5 years

6–24 years

1–6 months

Fully understood and documented 丣 丣

<1 month

丣 V E R S AT I L I T Y S U M M A RY

Low

Medium

High

Unknown

CO-ORDINATED Not at all How often is its operation reviewed? 丣

Yearly

Monthly

Weekly

Daily

丣

丣

丣

丣

Strongly disagree

Disagree

Agree

Strongly agree

丣

丣

Neither agree nor disagree 丣

丣

丣

丣

丣

丣

丣

丣

Medium

Low

Unknown

There is a tangible ideal performance level

Not at all

丣

Partly documented partly understood 丣 丣

There is a strong rationale for high performance

CO-ORDINATION High OPPORTUNITY

Not Unknown applicable

Not Unknown applicable

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Form 7.3 contains assessments of the:

• •

resistance likely from implementing particular resource and competence improvements current opportunities for resource and competence implementation The output of this section can be captured and summarised in the format shown in Table 7.4.

Table 7.3 Assessment of resistance to, and opportunities for, resource and competence development

Forms

Resource/competence name ...................................................................................... R E S I S TA N C E ? Can it be built on existing strategic or non strategic resources?

No, supportive resources are available 丣

Some new resources are needed 丣

丣

Yes, existing resources- Unknown can be used 丣

丣 丣

丣 丣

丣 丣

丣 丣

Will it replace any resources important to the firm’s operation or identify?

丣

丣

丣

丣

Not at all

Unknown

S U M M A RY D E G R E E High O F R E S I S TA N C E

Medium

Low

CURRENT O P P O RT U N I T I E S ? Is it affected by current or planned projects?

No discernable effect

Yes, this project will strengthen Unknown this resource

Yes, this project undermines this resource

Not applicable

丣

Could it conflict with: Definitely • existing, highly valued resources? 丣 • the firm’s traditions? 丣

丣

Partly

CD

Project descriptions 1

丣

丣

丣

丣

丣

2

丣

丣

丣

丣

丣

3

丣

丣

丣

丣

丣

4

丣

丣

丣

丣

丣

Not applicable

Unknown

Not applicable

Table 7.4 Format for assembling all metrics with relevant action notes Resource, competence or supportive competence name

Value

Sustainability Exploitability Versatility Coordination

Action Resistance Opportunities notes

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7.6.3 Implementation advice

Aim

To emphasise the need for good explanations and visualisations of what is planned and the advantages of setting performance measures on the resource and competence improvements expected.

Why?

We know that resource and competence analysis can be an abstract matter, especially for those not involved. So it is more difficult to explain the logic and purpose of your resource-based plans than normal objectives like sales growth and cost reduction. This explanation is intended as much for those who have completed the analysis as those who have not. How much of the detailed thinking will you remember in six months time? Setting performance measures on resources and competences is not always straightforward, though it is very helpful to focus on the micro co-ordination of implementation. This is the right place to raise the issue of measurement but it will be covered in more detail in the next chapter.

How?

There is no substitute for a short explanation of the basic ideas of resource and competence ideas. But we believe once a plan is formed there should be explanatory visualisations to publicise the plan. We have found representations like Table 7.5 useful. It shows the resources underpinning the Abacus service competence assembled according to their Value and Sustainability scores. The actions in capitals are intended to improve the circled resources in the directions shown by the arrows.

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Table 7.5 Abacus – improving individual resources Value Medium

Sustainability

High

High

Shared memory of a disastrous new product introduction

Medium

Unknown Negative

GTS knowledge of people and product

300 Service engineers worldwide

Training programmes – product and foundation

ENGINEER EVALUATION AND

Taken for granted that

HELP WITH RECRUITMENT

products

Directors believe service really matters

UK service engineers aver-

Spares organisation

company

Installed printer base, include consumables supply

In house developed service system for small distributors

Key performance measures plus targets

PEER to PEER TRAINING ON

district sales management NEW ACCOUNTING SYSTEM FOR SERVICE Low

Low

will fail

age seven years with the

SERVICE MANAGEMENT METHODS AND APPROACHES technical managers meeting, established 1992, has developed from a technical gripe session to a forum for ideas

Group technical services test rig

Service standard and audit system Fault/reliability data and analysis systems Web site and service bulletins

Other visuals showing the competence architecture of your focus area, for example Figure 1.4 on page 17, are useful for examining the relationships between resources and generating useful comments. The histories produced for identifying resources also always create interest and debate. Such is the intangibility of resource-based ideas to those not closely involved that efforts in this direction are valuable, valuable in increasing the sustainability of your belief (we trust) that resource-based approaches to strategy-making can be valuable for you and your firm. For performance measurement advice see the next chapter. Warning: You may feel that some of your resource plans are not for trumpeting about, walls have ears. You may be right, but you do need a reasonably wide repository for this kind of knowledge because the evidence suggests most damage to a firm’s competence and resource base is self-inflict-

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ed rather than the result of copying by competitors. If a reasonable number of influential people in your company do not know what was important, what is important, and have a view of what may become important in your resource base then your firm is in a potentially dangerous situation.

7.7 Summary The main points raised in this development chapter are:

•

Begin by analysing existing resources, there is more chance of achieving a sustainable advantage from this route

•

Be systematic, there are three basic ways to improve the performance of a competence:

•

Remember resources can be improved by increasing their value, sustainability and/or versatility

•

Use the assessment forms to evaluate

• • • •

problems in acquiring or developing resources which resources and competences can be used outside their current positions

Improve supportive competences Improve co-ordination by developing:

• • • •

a rationale a tangible ideal managers with the ability to teach a powerful learning process

•

Take a long look at the detailed co-ordination processes for they often underpin very high or low performance levels

• • •

Assess the options that best suit your needs Produce explanatory visualisations to explain the improvements planned Deploy resource and competence performance measures to assist in implementing your plans

7.8 Process review You will have:

•

Critically examined individual resources, supportive competences and the co-ordination in your focus area

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7.9 Further reading

•

A visualisation of the directions you wish to take with particular resources and competences

•

Action plans which blend achieving your business objectives with building and protecting your resource and competence base

•

A need to produce performance measures to track the development of the resources and competences in your focus area

7.9 Further reading Leonard-Barton, D. (1992) Core capabilities and core rigidities: a paradox in managing new product development, Strategic Management Journal, 13, 111132. For a readable account of the best time to attack a core competence whose value is declining. Leonard-Barton, D. (1992) The factory as a learning laboratory, Sloan Management Review, Fall, 23-38. Leonard, D. (1995) Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation, Harvard Business School Press, Boston, MA. For insight into developing or assessing an innovation competence. Dreyfus, H. and Dreyfus, S. (1986) Mind over Machine: The Power of Human Intuition and Expertise in the Era of the Computer, Free Press, NY. For more on individual competence. Weick, K.E. and Roberts, K.H. (1993). Collective mind in organizations: heedful inter-relating on flight decks, Administrative Science Quarterly, 38, 357–381. For more information on heedful inter-relating. Be warned, this is a worthwhile yet difficult read. Spear, S. and Kent Bowen, H. (1999) Decoding the DNA of the Toyota production system, Harvard Business Review, Sept–Oct, 96–106. (Reprint 99509.) Tapscott, D., Ticoll, D. and Lowy, A. (2000) Digital Capital: Harnessing the power of Business Webs, Nicholas Brearly, London. For thought-provoking notions on connecting people together. Turban, E., Lee, J., King, D. and Chung, H.M. (2000) Electronic Commerce: A Managerial Perspective, Prentice Hall, NJ. For more depth and detail on co-operation through networks.

For more on micro co-ordination: Wenger, E. (1998) Communities of Practice – Learning, Meaning and Identity, Cambridge University Press, Cambridge. For Communities of Practice insights. Gittal, J.H. (2000) The paradox of coordination and control, California Management Review, 42, 3, 101–116

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For discussion of SouthWest Airlines competence at turning planes round fast particularly micro co-ordination issues. Sobek, D.K., Liker, J.K. and Ward, A.C. (1998) Another look at how to integrate product development, Harvard Business Review, July-Aug, For Toyota’s product development process and more signs of micro co-ordination.

Measuring competence and resource development

8

Performance measurement systems are being increasingly used for ‘translating strategy into action’ to quote the balanced scorecard gurus Bob Kaplan and David Norton. Clearly then, your performance measurement system needs to reflect your resource-based strategy elements if their implementation is to be assured. Our approach is to integrate performance measures into the development of resource-based strategies. In that way, not only are some of the shortcomings of conventional performance measurement systems overcome but performance measures can be used as a tool to facilitate the implementation of resource-based strategies. This chapter is divided as follows:

•

What’s the problem? Why should we measure the development of resources and competences?

•

A framework, designed to integrate the measurement of resources and competences into the day to day management of the business

• • •

Case studies, showing how this framework is used in practice Assessment and measurement compared, both approaches are necessary Toolkit, a tool that helps define detailed resource measures The chapter concludes with a summary of the main points covered, a process review and a reading list.

8.1 Why should we measure resource and competence development? There are four main reasons for measuring resource and competence development:

129

• •

It allows you to balance the short term with the long term

• •

It increases your understanding of the key drivers of performance

It focuses on the resources which help you improve rather than just the targets you are trying to meet

If you don’t measure resources and competences, actions will tend to

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Measuring competence and resource development

address more high-profile measures and work against your resource development aims

8.1.1. Balancing short and long term Significant competences and resources take years to build. Performance measures, on the other hand, tend to focus on short-term results and if not managed sensibly, can be in conflict with, or even destroy, the longer term process of resource development. It is therefore very important to create and use measures which track aspects of long-term strategy as a balance against short-termism. For example:

•

In many large firms, ‘high flyers’ tend to move on after only a couple of years. Often, during their tenure, performance improves but is this improvement sustainable beyond the high flyers period in the post? Often, high performance achieved in the short term leaves substantial problems for the next job holder.

•

A classic measure of performance is return on capital employed (ROCE). However, it is often much more difficult to increase the returns than it is to reduce the value of capital employed. Therefore, the application of ROCE as a performance measure can promote behaviour such as delaying new investments, investments that are essential for the development of resources and competences.

•

Another classic performance measure is profitability. Short-term improvements in profitability can be achieved by reducing discretionary expenditure such as spending on R&D projects. This increases profitability in the short run but damages longer term profitability.

•

Company reputation in the market place can take many years to build but can be quickly damaged by short-term actions. Service reliability may be reduced by stock reduction policies, quality reduced by a cost saving programme and flexibility through a productivity drive. The ‘Stable and Enduring Inc.’ case in Chapter 2 illustrated exactly how this type of activity can take place. A CEO was looking to gain his bonus and move on, investment in production systems was frozen, discretionary expenditure delayed and the result was damage to the company’s reputation. This is how tomorrow's performance is traded to meet today's shortterm performance measures. Sometimes this is done explicitly when the company has no choice, but usually it is a gradual process which permeates a business and destroys its long-term competitive position over many years. One way to overcome the problem is to implement measures of competence and resource development. Make the ‘high flyer’ account, at the end of their two-year job tenure, not only for

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8.1 Why should we measure resource and competence development?

financial performance, but also for the resources and competence performance levels bequeathed to their successor.

8.1.2 Moving from achievement to improvement Nowadays good performance is about more than achieving a target; it is about obtaining continuously improving performance. Thus:

•

While simply measuring performance provides focus and often leads to some improvement, it doesn't by itself change the fundamentals of the process or system. The short-term improvements which occur after a performance measure is implemented are not always sustainable.

•

The sustainable way of improving performance is to improve the underlying resources and/or the way they are co-ordinated.

•

Developing the underlying resources also has the advantage of allowing you to further develop performance rather than hit a brick wall.

Unsustainable improvements at Instruments Ltd* On-time delivery was a priority for Instruments Ltd. The equipment they produced was used on their customers’ production lines, so if they delivered late, they caused delays which their customers didn’t easily forget. Measuring on-time delivery was a first step. It focused everybody’s minds on what they were trying to achieve. The new Operations Manager latched on to this measure with a vengeance, instigating daily Production team meetings to identify problems early. The tension this produced in Production was clearly visible and delivery performance rose quickly. But the improvement was not sustainable, falling back as soon as he left the company. The second attempt was based on systematically working through the causes of failures to deliver on time. This exposed the problem of late deliveries from suppliers and actions were taken to improve supplier delivery reliability. Re-work was targeted and the product was produced more consistently first time. As each of these improvements was put in place, performance improved, but this time the improvement was sustained. Over time, the use of these improvement techniques changed the attitude of the workforce. They became involved in the improvement activities and started to learn the basic fault-finding techniques. As more

Performance

en

Performance

ro ve m

Performance

t

people became familiar with these methods, the speed of the improvement accelerated.

ce

n rforma

Achieving performance

ing pe Improv

Time

Figure 8.1 Improving performance.

Time

anc for m ng per Accelerati

e

im

p

Time

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Ideally, improvement should progress as shown in the right-hand diagram of Figure 8.1. The first graph shows the usual way a target is displayed, as a flat line – a number to be met and exceeded. The second graph shows a better way of displaying the target – as an increasing number to represent the fact that competitors will also be improving their own performance and your performance will have to continue to improve if you want to catch up, or remain in front. The third graph shows an accelerating target, what can be achieved if you can improve the resources that allow you to generate an improved performance. In reality, few companies ever achieve the third graph, but occasionally it happens.

The new computer sales system The new computer sales system was a mammoth project for the company. It was supposed to enable the implementation of a new database allowing a better understanding of the customers and their requirements as well as better control over the scheduling of orders through manufacturing. However, the specification was hard to agree and Sales and Systems argued over functionality. As a result, the project took 12 man years to develop, was nearly a year late and was delivered without the full reporting suite. As luck would have it, the parent company decided to dispose of the business and sold its Computer Systems department to a facilities management company. Within a year, the facilities management company decided to rationalise its hardware platform and gave notice that the ‘new sales system’ could no longer be supported. But by now the company was totally reliant on the new system. Mike was given the task of building a new sales system again. Fortunately, some of the original programming team were available and he got them together with the Sales department to hammer out the specification. A new method of handling the customer data was invented and the Sales team tried it out using paper and pencil with actual orders. The specification was agreed and they were ready to go. Because of the timescales, a 4th generation language was bought to speed up development. As this was new to the Systems department, training was needed, but to ensure rapid progress, a joint development team was created using external experienced programmers as well as internal staff. The joint project team meant that the users’ needs were understood and incorporated into the new system. It also meant that the software skills were rapidly transferred into the business. The initial programmes emerged slowly, but as code was re-used and capabilities developed, programmes appeared more quickly and with fewer and fewer bugs. The resulting system was planned to take three man-years of effort and nine months to deliver. In practice, it was completed three months in advance of schedule, included additional functionality and had minimal maintenance requirements. The use of the 4th generation language combined with the development of the human resources achieved through configuring the programming team, and the improvement in the team members gained through learning and experience, accelerated the performance.

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8.2 A competence-based performance measurement framework

8.1.3 Increasing our understanding Measuring resource development can increase our understanding of the key factors which drive improvement. Building a picture of how the improvement in resources relates to the improvements in performance:

•

Makes the performance and underlying resources explicit and guides your actions

•

Creates an understanding of ‘what?’ is to be developed and, more importantly, ‘why?’

•

Creates a picture which can communicate the importance of the resources

•

Allows measurement of the implementation of resource based improvement programmes

•

Allows you to measure the interdependencies between resources and performance, and, in so doing, to test and challenge the strategic assumptions the business uses

8.1.4 If you don’t measure it … Companies should measure what they value and believe is important. Not measuring competences and resources tends to send a message throughout the business that they are not important. This will influence your staff’s behaviour. The consequences are:

•

If you have no competence or resource measures, their development will be ignored and occur by chance

•

If performance is measured purely in terms of outputs, resources will not be consciously developed Good performance measures are designed to squeeze out discretionary slack as they focus everyone on achieving a good performance as indicated by the performance measures. This leaves little time for experimentation, often the very source of new ideas and resources. In fact, this focus can destroy the activities that create new competences. However, constructive use of performance measures can help you build your resources and plan your future development.

8.2 A competence-based performance measurement framework There are numerous performance measurement frameworks in current use, the most popular being the ‘balanced scorecard’. The balanced scorecard was popularised by Kaplan and Norton in 1992 through their Harvard Business Review article. They identified four perspectives, each one representing an important face of the organisation:

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• • • •

financial external customer internal process innovation and learning Their idea was that these four perspectives represent a balanced view of any organisation and that by creating measures under each of these headings no important area would be missed. A typical scorecard for an engineering company might look like Figure 8.2. The scorecard had an immense impact on performance measurement thinking, mainly because it moved attention away from purely financial measures and started to build links between performance in one perspective, and performance in another. For example, does investment in training reduce the cost of quality and so increase customer satisfaction, resulting in more repeat orders and hence higher financial returns? Frameworks like the balanced scorecard are designed to structure performance measures in a way which emphasises certain aspects of the performance measurement system. With the balanced scorecard this is the balance between the four perspectives. Here we present a framework that differentiates between measures of performance and measures of resource development. As discussed in Chapter 4, selecting the right unit of analysis is fundamental to resource-based analysis. The unit of analysis taken here is at the level of a business process. We look at the competence with which a particular business process is being performed. The framework is in two halves, measures of resource development and measures of process or competence performance. An analogy

Financial Return on capital Return on sales Sales growth Value added per employee

Customer

Internal process

Customer satisfaction Customer complaints Customers lost/won Sales from new products

Order conversion rate On-time delivery Cost of non-conformance Leadtime

Innovation and learning Appraisals completed on time Training plans completed New products on time

Figure 8.2 A typical balanced scorecard.

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8.2 A competence-based performance measurement framework

The framework

The analogy

The balance sheet

Measures of resource development

Measures of process performance

The profit and loss account

Figure 8.3 The competence and resource framework and its financial analogy.

might be a financial statement. Financial statements have two principal components, the profit and loss account and the balance sheet. The profit and loss account is analogous to the process/competence performance whilst the resource development is analogous to the balance sheet. A successful company must not only generate a good profit performance but must also have a strong balance sheet. This is the way we interpret the two halves of the competence-based performance measurement framework, see Figure 8.2. The objective of this framework is to emphasise the balance between the performance of the competence today and the development and co-ordination of the resources which determine how the competence will perform tomorrow. Note that our model of a competence has taken another step forward. Figure 8.2 shows arrows between resources, the relationships inferred by these arrows will be discussed later. In the next two subsections we shall describe the competence performance and resource development frameworks before providing examples of how they are used in practice.

8.2.1 A competence performance framework One framework used for describing measures for processes, and therefore competences, is that described by Brown (see Figure 8.4). The objective of such a model is to create an understanding of the relationships between the inputs, processing and outputs, leading to a better understanding of how the process operates and, importantly, how to improve process performance.

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1. Inputs

2. Processing system

3. Outputs

4. Outcomes

• Skilled, motivated happy employees A • Customer requirements • Raw materials • Components • Capital

• Design of products/ services B • Production of products • Performance of services • Delivery/ distribution • Servicing

• Products • Services • Financial services

• Delighted customers • Customers' needs met

A. Input measures

B. Process measures

C. Output measures

D. Outcome measures

1. Employee satisfaction 2. Supplier performance 3. Financial

1. Processes/ operational 2. Safety/ environmental 3. Financial

1. Product/ service quality 2. Financial performance

1. Customer satisfaction

C

5. Goal Repeat business

D Long-term survival

Figure 8.4 Macro process model of an organisation (adapted from M.G. Brown (1996) Keeping the Score: Using the Right Metrics to Drive World Class Performance, Quality Resources, NY.

This model is useful for devising measures of current performance but has limited merit in helping to understand how superior performance can be achieved. However, one factor, which is often forgotten, is that any process or competence produces outcomes from repeated performance, the longer term effects of the operation of the process. Inevitably repeating a process or competence will alter the resources that underpin it. We shall return to this idea later in the chapter. For now the process measurement approach will be used to devise competence measures. We deal with the much more difficult task of devising measures for resources and resource co-ordination in the next section.

8.2.2 A Resource measurement framework The representation used for the resource framework is depicted in Figure 8.5. Unlike the process model (Figure 8.4) the relationship between competence performance and its underpinning resources is not a simple linear relationship. Thus the depiction of the competence, resources and measures is less structured. In Figure 8.5, the competence is represented by the external triangle and the resources that underpin the competence by the ovals inside. From experience we have found that it is useful to show the interaction between the main resources by means of arrows. The arrows are drawn to show how one resource influences another. Influences can be two-way or one-way, for example in Figure 8.5, resource 1 affects resource 2 but not the reverse and resources 2 and 3 influence one another. The description of the individual measures and how they relate to

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8.3 Using the competence and resource measurement frameworks

Resource 1

Resource 2

Resources

Resource 3

Resource measures

Commentary

Figure 8.5 The competence/resource measurement framework.

the resources is best captured in a table. The commentary is particularly useful as it explicitly describes the connection between the measure and the resource. Developing resource measures is a creative process, concerned with understanding how the competence’s performance is achieved. Assumptions are often made in arriving at appropriate measures. These assumptions need to be documented so that the reasoning behind the use of that particular measure to track the development of the resource is not forgotten.

8.3 Using the competence and resource measurement frameworks In this section, we shall demonstrate how the framework is used in practice through three case studies:

•

A simple explanation of the resources underpinning the order winning competence of an engineering company. This is included to demonstrate the principle of how the competence measures and resource measures can be combined in the framework.

•

An example of a recruitment competence. This example shows how resources interact to build a competence and how easily these resources can be destroyed.

•

A production example. This gives an example of how an inappropriate set of resources have emerged and how performance measures are used in an attempt to develop new resources.

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Measuring competence and resource development

Case 1. Measuring an order winning competence This example describes a supplier of capital equipment attempting to measure and manage its order winning competence. The objective of the order winning competence was stated as: ‘To create a continuous supply of profitable, high-quality orders for the survival and long-term development of the business’

This statement needs some further explanation:

•

‘continuous supply’ referred to the fact that the company was looking for a steady stream of orders, rather than the feast and famine which is so often the hallmark of the capital goods industry.

•

‘high-quality orders’ had a specific meaning for the company. An order was deemed to be of high quality if it met a set of criteria (being for an existing product, (not the next development from the R&D department), being from a credit-worthy customer, being on standard delivery leadtime, being on standard payment terms, etc.).

•

‘long-term development’ was included to recognise that occasionally the company had to embark on projects which were at the limit of their current capabilities. So judicious selection of orders which extended these capabilities was seen as a ‘good thing’. However, a wholesale and uncontrolled departure into new areas of business was not. The two had to be carefully balanced.

Competence measures Starting with the process approach, the company had developed a comprehensive set of measures. These included: Input measures

• •

Levels of enquiries from existing customers Levels of enquiries from new customers Process measures

• • • •

The number of quotations issued The value of quotations issued The number of sales visits made The quotation to-order-conversion rate Output measures

• •

The value of orders received The quality of orders received

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8.3 Using the competence and resource measurement frameworks

Outcome measures

• • • •

The profitability of orders by market and product Successful projects Customer satisfaction Repeat business Taking Brown’s framework (shown in Figure 8.4) these measures can be represented as in Figure 8.6. Goal:

To create a continuous supply of profitable, high-quality orders for the survival and long-term development of the business

Inputs • Enquiries • New leads

Process • • • •

Number of visits Number of quotations Value of quotations Order conversion rate

Outputs • Order value • Order quality

Outcomes • • • •

Profits Successful projects Satisfied customers Repeat business

Figure 8.6 Competence/process measures for winning business.

However, not only did the organisation measure these different factors, they also linked the measures together. For example, through regular assessment of the measures over a period they found that the number of quotations was a predictor of the number of orders that would be received three months later. In addition there was a distinct relationship between the number of sales visits made and the number of quotations produced. In this way they started to build a cause and effect model that helped predict the future and created a better understanding of some of the factors which influenced the value of the new business won. The temptation with a model such as this is to try and manage the whole process by increasing the number of visits, which in turn should increase the number of quotations and so influence the number of orders. This can be done up to a point, but there is a tendency for people to start playing games. That is to say, they start making inappropriate visits, produce quotations which aren’t required and generally undertake activities which just make the numbers look better. The management team therefore decided to look at the resources which influenced their order winning performance, and these are discussed below. Resource measures The approach taken was Insight, as described in Chapters 4 to 6. Having defined the scope, the management team started by charting the past four years sales performance together with other events, such as the

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Measuring competence and resource development

arrival of new Sales engineers, the launching of new products and the changes in the marketing strategy. As a result of this work, over 20 resources were identified. During the evaluation of these resources, the team decided to focus on the key aspects which the Sales team could directly influence and to leave other factors, such as product performance, for another debate. From this analysis, five key resources were identified:

• • • • •

Company reputation Customer relationship Application knowledge Selling skills Knowledge of customer buying procedures Figure 8.7 shows Sales’ contribution to the order winning competence. The arrows represent the team’s theories or assumptions about the interaction between the five resources identified. For example:

•

Possessing application knowledge can greatly help develop the customer relationship since the Sales engineer is in the position of being able to help the customer solve a problem. Similarly, a good customer relationship can enable the Sales engineer (and through the engineer, the company) to gain additional application knowledge. This occurs when the relationship, with the trust that such a relationship brings, allows the engineer to work on problems with which he has no previous experience.

•

Similarly, having a good relationship with the end user may well lead to introductions to the buyer or the project manager. In this way, the customer relationship can be used to extend the Sales engineer’s knowledge of the customer’s buying procedure. Similarly, an understanding of the buying procedure may lead the engineer to develop a deeper set of customer relationships by getting to know the other people involved in the buying decision. The only one-way relationship was between selling skills and customer relationship. Selling skills were seen as being desirable for building the customer relationship but were not developed by that relationship. This theory building, aimed at understanding how a competence works, is a difficult process. For example we do not yet possess the tools or understanding that enables us, to describe the co-ordination present in the competence. Further, defining a measure for a resource can also be very difficult. For example possible measures for the resource ‘company reputation’ might be the ‘numbers of orders lost and won’. But because those measures reflect the operation of the whole order winning competence – they

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8.3 Using the competence and resource measurement frameworks

Number, spread and strength of key contacts

Lost and won orders

Customer relationship

Application knowledge

Selling skills

Value of orders won vs. area potential

Resources Company reputation

Resource measures Lost orders?

Orders won? Invitations to quote

n e: nc utio ete trib ng i mp on Co les' c winn Sa order to

Company reputation

Customer buying procedure knowledge

Sales forecast accuracy

Commentary The ratio of the number of orders lost to existing customers was seen as an indicator of company reputation Orders won from competitors was seen as an indication of increasing reputation. In this market this may be a better measure of reputation

Customer relationship

Number, spread and strength of key contacts

There is a need to understand who the key decision maker is

Application knowledge

Assessment

Assessment was considered the only method of measuring the development of this resource

Selling skills

Value of orders won against the sales territory potential

This is an outcome measure, alternatives might include time invested in sales training

Customer buying procedure knowledge

Sales forecast accuracy

The ability of the Sales engineer to accurately forecast the next months' order intake was seen as a good indicator of how well the customers’ buying procedures were understood

Figure 8.7 The resource measurement framework – Sales’ contribution to the order winning competence.

are therefore competence measures and not truly resource measures. A better measure might be ‘number of invitations to quote’ – a measure that suggests the company is on a list of competent suppliers. However even this measure may mean little if your company’s position on the list is to make up the numbers. These matters are highly dependent on the particular market and companies interacting in that market, so it is rarely possible to generalise and measures have to be carefully selected. One point should be noted. Figure 8.7 was designed purely to show the Sales department’s contribution to winning orders and not as a complete representation of the whole company’s contribution to order

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Measuring competence and resource development

Number, spread and strength of key contacts

Lost and won orders

Customer relationship

Application knowledge

Selling skills

Value of orders won vs. area potential

Inputs • Enquiries • New leads

Resources Company reputation

Process • • • •

Number of visits Number of quotations Value of quotations Order conversion rate

Resource measures Lost orders?

Orders won? Invitations to quote

e: tion nc ete ribu ng i mp ont Co les c winn Sa order to

Company reputation

Customer buying procedure knowledge

Sales forecast accuracy

Outputs

Outcomes

• Order value • Order quality

• • • •

Profits Successful projects Satisfied customers Repeat business

Commentary The ratio of the number of orders lost to existing customers was seen as an indicator of company reputation Orders won from competitors was seen as an indication of increasing reputation In this market this may be a better measure of reputation

Customer relationship

Number, spread and strength of key contacts

There is a need to understand who the key decision maker is

Application knowledge

Assessment

Assessment was considered the only method of measuring the development of this resource

Selling skills

Value of orders won against the sales territory potential

This is an outcome measure, alternatives might include time invested in sales training

Customer buying procedure knowledge

Sales forecast accuracy

The ability of the Sales engineer to accurately forecast the next months' order intake was seen as a good indicator of how well the customers’ buying procedures were understood

Figure 8.8 Competence (process) and resource measures – order winning competence.

winning. Therefore, company reputation was seen as being influenced through the customer relationship, whereas in reality, every aspect of the company’s performance would have an impact on its reputation. To complete this case it is worth including the competence or process performance measures along with the resource measures, see Figure 8.8. From this representation it is clear that repeated operation of this competence will change and develop the customer relationship, application knowledge and company reputation resources, as described earlier.

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8.3 Using the competence and resource measurement frameworks

Case 2. Measuring support processes – recruitment and development This example is taken from GKRR plc, a major multi-national engineering company which had developed a scheme for recruiting and developing high quality graduate engineers for the group as a whole. GKRR plc* The main recruitment of graduate engineers was centralised in the group’s R&D function which recruited, employed and trained between 10 and 15 engineers a year. The training programme was centred on a series of projects which each engineer undertook over the two-to threeyear period they spent on the central R&D programme. These projects were primarily based in the operating companies around the group and each project was carefully selected and managed by a tutor. The performance measures for the recruitment function focused on traditional measures in the form of a cause and effect diagram for the balanced scorecard (see Figure 8.9). Number of graduates taking jobs in operating companies

Number of new graduates recruited

Quality of project results

Training costs

Figure 8.9 Goal deployment.

However, conversations revealed that there was significantly more to the recruitment and training of the graduate engineers than had been captured by this approach. It was agreed that the objective of the process was: To provide a continuous supply of high-quality engineers for the future development of the business

Competence measures Using the process framework the competence measures chosen were: Input

• • •

Number of applicants Percentage of offers accepted Number employed

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Measuring competence and resource development

Process

• • •

Variety of projects offered Percentage of projects successfully completed Cost per project Output

• •

Value of business improvement achieved Number of graduates placed Outcome

• • •

Number of project alumni still employed by GKRR after five years Mean value of alumni seniority Mean time to reach level 3 managerial position These can be represented as in Figure 8.10.

Resource measures Delving into the reasons why the recruitment competence performed so well revealed a more complex picture of the resources that underpinned it:

•

Many companies in the UK had experienced difficulty in recruiting high-quality graduate engineers. In contrast, at GKRR, central recruitment had been built up over the last 15 years and nobody in the company could remember when they last had a problem in this area.

•

The company focused on the top four engineering universities in the UK, building up a track record of recruiting the best and developing relationships with the academic staff to help in this process. The staff were happy to assist, as they could see the quality of the training and development provided, as well as the successful careers paths of their previous students.

•

The graduate engineers didn’t have to be found jobs within the group Goal:

To provide a continuous supply of high quality engineers for the future development of the business

Inputs

Process

• No. of applicants • % offers accepted • No. employed

• Variety of projects • Successful projects • Cost

Outputs • Value of business improvements • No. of graduates placed

Figure 8.10 Competence measures – recruitment competence.

Outcomes • No. of people still employed • Mean level reached • Mean time to level 3

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8.3 Using the competence and resource measurement frameworks

on completing the programme, they were often syphoned off during their second or third year when the operating companies were eager to place them directly into line management positions. The central R&D group had difficulty keeping many of their graduates until the end of their training.

•

The projects were successful because they also brought benefits to the operating companies in which they took place. Incidentally, the operating companies had to pay for the projects, but they were still in demand. The projects were often used for moving best practice around the group and as a result were usually highly successful in bringing rapid performance improvements.

•

The engineers developed quickly during the two to three years in the development scheme. This was mainly attributed to the skill of the tutors in choosing the next project. Each project was chosen to stretch the graduate to the limit of their abilities, with support provided by the tutor to ensure that the graduate didn’t completely flounder. The managed progression and mentoring through simple to more complex projects greatly assisted the trainees’ development.

•

After 15 years of running the programme, there was a large group of alumni, with many in senior positions throughout the group. The resources identified were:

• • • • • • •

A very good in-house reputation Documented evidence of international projects and promotion The recruitment process The training process Long-lived, good relationships with university staff The project group alumni The staff group (i.e. the tutors and trainers within the project group) These resources interacted and supported one another, for example:

•

The evidence of international projects and promotion assisted recruitment but also helped build the relationship with the university staff

•

The relationship with the university staff enabled the company to recruit the best candidates, building their in-house reputation for quality people

•

The training process enabled the international projects to be undertaken with minimal risk of failure, it also helped build the reputation with the universities and the in-house reputation

•

The whole competence was further supported by the alumni who had reached senior positions and who were now recruiting from the scheme

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Measuring competence and resource development

t

Long-lived relationships with university staff

en

Evidence of international projects and promotion

Project group alumni

tm rui ec : r

ce

ten

e mp

Co

Very good reputation in-house

Training processes The staff group

Recruitment processes

Figure 8.11 Resources within the recruitment competence.

These are illustrated by Figure 8.11. The resource and competence measures chosen are summarised and represented in Figure 8.12. GKRR* – a postscript At the time of this analysis, moves to reduce central costs were underway. Two operating divisions decided that they could set up their own internal recruitment and development scheme copying the scheme run by central R&D. The problem was that the divisions didn’t have their own tutors to supervise the projects. So they had to rely on their own internal line management. They also had to use central R&D training for the short courses they provided. Although the costs appeared lower (mainly because the line management time required to run the scheme was never fully costed) this approach began to undermine the resources built up over the previous 15 years. First, it confused the university staff, who had always been ready to recommend the company in the past. Second, it reduced the quality of graduates taken, as the operating companies did not have the same reputation and these posts were seen as second best. Other effects were still awaited. The points being made are: • You can rapidly destroy resources built over many years – in this case 15 years of work was being undermined in just over 12 months.

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8.3 Using the competence and resource measurement frameworks

nc ete mp Co

Internal customer satisfaction

Very good reputation in-house

Alumni measures

rec e: rui

Project group Evidence of alumni international projects and promotion

t en

Training processes

tm

Long-lived relationship with university staff

Number of up to date student career profiles

Staff measures

The staff group

Recruitment processes

Inputs

Process

Outputs

Outcomes

• No. of applicants • % offers accepted • No. employed

• Variety of projects • Successful projects • Cost

• Value of business improvements • No. of graduates placed

• No. of people still employed • Mean level reached • Mean time to level 3

Resources

Resource measures

Commentary

A very good in-house reputation

Internal customer satisfaction survey

Critical for new projects and for ensuring the graduates obtained their first line positions

Documented evidence of international projects and promotion in the form of "student career profiles"

Number of up to date 'student career profiles'

Seen as important by potential recruits and university contacts. Perception is important, hence the measure, but need to check for quality

The training process

Staff experience (no. of tutors x length of service)

An essential ingredient in supporting stretching projects with low risk of failure. Difficult to measure quality here, but useful as an initial measure

Long lived relationships with university staff

Staff relationships (no. of staff x length of relationship)

Important for recruiting the best and getting staff insights. Difficult to measure quality here, but useful as an initial measure

The project alumni group

Project alumni seniority score (no. of people x level in the organisation)

An indication of the potential support from the alumni

Figure 8.12 GKRR’s resource and competence measures for graduate engineer recruitment.

•

It is easy to believe that the same results can be achieved far more cheaply. Don’t start changing things that are really working well without fully understanding how they work and the consequences of the change.

•

Don’t always believe that because things are going smoothly, they are easy to do. Some of your most important resources may well go unnoticed simply because they are being used so well that they never come to anyone’s attention.

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Measuring competence and resource development

Case 3. Measuring the order fulfilment competence This example is taken from a scientific instruments manufacturing company, concerned with the poor performance of their order fulfilment process. Scientific Instruments* The company was small, employing some 25 people in order fulfilment, most of them in assembly and test. The majority of components were bought-in or produced by subcontractors. Traditionally the company had been very sales focused with a strong internal technical support facility. This meant that the company had a good knowledge of customers’ needs and a real understanding of their applications, backed up by a strong flow of new products coming into the market. However, order fulfilment and, in particular, manufacturing had been neglected. Performance measures were used in the company, but, surprisingly, manufacturing was sparsely measured. However, the business level measures showed:

• • •

On-time delivery was erratic and below the industry standard Customer product returns were at an unacceptable level on some products Costs were considered under control as they were generally in line with the standard cost When order fulfilment was discussed, there was a general feeling amongst those involved that:

• • •

Things could not be improved

•

Because of the company’s size, purchasing had very little leverage with suppliers and the supply chain in general and many delays were caused by suppliers

•

Because of the rate of development of new products, production was regularly making products which had never been made before

•

Many products were made at extended intervals

There were no trends in the customer return data The one real identifiable problem in the performance of the assembled product had not been resolved during the last five years

Creating the statement which captured the objectives of the order fulfilment process was not easy. Although the on-time and customer product return figures were a cause of real concern, the company relied on the flexibility of its manufacturing facilities to get the new products to the market and tailor the product to the customers’ requirements.

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8.3 Using the competence and resource measurement frameworks

Goal:

To fulfil orders in a timely fashion, with a supply of high-quality products, at consistent costs in response to a volatile demand

Inputs • No. of orders • Order quality • Order mix

Process • • • • •

Suppliers on time Re-work % to standard time Schedule adherence Labour availability

Outputs • • • •

Completion on time Cost Right-first-time on test Sales value/employee

Outcomes • • • •

Customer satisfaction Customer returns Customer complaints Profit margin

Figure 8.13 Competence (process) measures for order fulfilment.

It was agreed that the prime objective was: To fulfil orders, in a timely fashion, with a supply of high quality products at consistent cost in response to a volatile demand

It was also recognised that new and non-standard products needed to be treated differently and segregated from standard production. Competence measures This statement of the objective led to the development of a set of process measures as shown in Figure 8.13. Resource measures The key resources identified were:

• • • • • •

Multi-skilled workforce Documented bills of material (BOM) Operations culture Product manufacturing knowledge Procurement knowledge Manufacturing procedures There was concern about knowledge resources. In small companies (but also true in small, specialised departments of larger corporations) some of the resources are often held in the heads of a few individuals. In some cases, the company relies on one person’s knowledge. While completed BOMs were a valuable resource it was normal to not finish the BOM after the first production run because the latest production pressures regularly overtook routine updating functions. As a result, for certain components, manufacturing and procurement relied on peoples’ memory. Besides knowledge, the other major resource identified was the operations culture. In this case, the operations culture was a problem resource, in particular the belief that things could not be improved.

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Measuring competence and resource development

This was being fed by issues that had not been resolved over a long period, giving rise to the belief that certain aspects of quality didn’t matter. This was compounded by the fact that there had been considerable management rhetoric about quality, but this rhetoric had not been backed up by action. The first step was to surface this attitude and give it a provocative name – ‘a British Leyland attitude to quality’. Everyone knew about the long-term decline of the company British Leyland and the idea was to use a phrase that kept making that point. Their end product was not bad in itself, but the delivered product often suffered a considerable number of teething problems. The second step was to put actions in place to begin to overcome the difficulties:

• • •

Implementing the right-first-time measures Making BOM documentation and updating mandatory Initiating quality improvement projects The third step was to separate the standard from the non-standard products. This was felt to be one of the major causes of quality problems. Prototypes will always have initial teething problems and prototypes kept being produced long after systems and practices should have been put in place to transform them into a standard product. As a result, all production was considered of prototype quality. Separating the regular production identified those products for which

• •

Quality standards had to be regularly met Delivery standards had to be regularly met It also removed many excuses for not meeting the standards. The fourth step was to measure perceptions of attitude to quality. The resulting resource measures are shown in Figure 8.14, with comments in the table.

8.4 Measurement or assessment Much of this book has been concerned with the identification and assessment of competences and resources. The tools described in Chapter 6, are specifically designed to assess a resource’s value and sustainability. In Chapter 7 means of assessing versatility and co-ordination amongst other variables have been demonstrated. In this chapter, however, we have focused on developing frameworks for measuring resources and competences.

151

8.4 Measurement or assessment

: ce

ten

e mp

Co

Multi-skilled workforce

ful

Product manufacturing knowledge

Procurement knowledge

t

en f ilm

Manufacturing procedures

er

ord

Operations culture

Completed BOMs

Inputs • No. of orders • Order quality • Order mix

Resources

Process • • • • •

Suppliers on time Rework % to standard time Schedule adherence Labour availability

Resource measures

Outputs • • • •

Completion on time Cost Right-first-time on test Sales value/employee

Outcomes • • • •

Customer satisfaction Customer returns Customer complaints Profit margin

Commentary

Multi-skilled workforce Skill matrix

Ensuring availability of suitably skilled staff to ensure quality and flexibility

Bill of materials

Percentage of BOMs complete

Ensuring accuracy of information on products infrequently manufactured

Operations culture

Quality attitude in staff survey

Undermine current attitudes to quality

Product manufacturing knowledge

Percentage of BOMs complete

Less data held in individual heads

Procurement knowledge

On-time delivery of procured items

An indication of the ease of procurement – assuming that the more standard the component the more likely it is to be delivered on time

Figure 8.14 Summary of the order fulfilment competence and resource measures.

You could ask, ‘should we use measures or should we use the assessment?’ The answer to this question is that both are required and the discussion that follows describes the advantages and disadvantages of each approach.

•

Assessment is required to identify the important competences and resources, measures on their own will not do this assessment for you.

•

However, assessment takes considerable management time and effort and so cannot be undertaken too frequently. Therefore measures are a quick tool for assessing the development or destruction of competences and their underpinning resources.

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Measuring competence and resource development

•

Resource measures can usually give an early warning of future competence improvement.

•

It must be remembered that measures are a tool. They provide an indication of what is happening and not a complete picture. The results they provide should always be interpreted with this in mind.

•

Self-assessment has its drawbacks. It is quite easy for an internally focused management team to become over optimistic in their own assessments. In this situation the use of measures can provide a useful reality check, especially when they are combined into the framework suggested here. ‘If we are so good, then why are we losing so many new orders?’, for example.

•

Finally, trying to measure resources within a competence requires a theory about how the competence works and how the resources interact. Measurement, therefore forces us to try to understand how a competence works and how its performance may be improved. The advantages and disadvantages of assessment and measures are complementary. One supports the other and therefore they should be used in tandem in any business situation.

8.5 Toolkit The toolkit consists of:

•

A method for designing detailed resource measures

8.5.1 Designing resource measures

Aim

To help you design useful resource measures so that you can track progress and receive early warning of possible problems.

Why?

Because measuring resources focuses your attention on their development. If you don’t do this:

• • • How?

Resources will be ignored Managers will manage performance without consideration for the development of resources for the future Resources will be vulnerable to destruction by insensitive actions or cost-cutting exercises This is done through completing the Resource measure record sheet. (Guidance notes and a blank sheet are shown in Tables 8.1 and 8.2. and are also available on the accompanying CD.)

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8.5 Toolkit

Table 8.1 Resource measure record sheet – guidance notes Measure

The title of the measure; a good title will indicate by itself what is being measured

Related resource

To which resource does this measure relate? What is the belief underpinning this measure? In this section you should briefly explain why this resource is believed to be important, which competence (s) it underpins and

Assumptions

how it is believed to support current and future performance Why is this measure a good indicator of the development of the resource? Here you

Purpose

should explicitly state why you are measuring this All measures have their limitations as they can only be indicators of how the resource is

Limitations

developing. Here it is useful to record any limitations and shortcomings of the measure so that the measure is not interpreted blindly, but simply as the current best indicator To which other measures does this resource measure relate? In particular, this resource is believed to underpin the performance of a competence, so the performance measures

Related to

should be identified here allowing the belief to be tested and a better understanding developed between the development of the resource and the resulting performance It is important to define precisely how the measure is to be calculated, partly so that the measure is consistently calculated and partly as the formula communicates precisely what is

Formula

to be achieved

Target

What is to be achieved, and by when?

Frequency

How often is this measure to be calculated and how often should the results be reviewed?

Who measures?

Here the individual responsible for generating and reporting the measure should be identified

Source of data

For consistency of measurement the source of the data should be accurately recorded

Who acts on the data?

Here the person responsible for acting on the result of this measure should be identified For measurement to be effective, it should be followed by action. Here the objective is to give some guidance as to the type of action which should be taken, or what is and is not acceptable. Remember the three types of action which can be taken:

What do they do?

1. Improving the resource itself (possibly through investment in the resource or through developing it by repeated use) 2. Improving the co-ordination of resources (trough better reporting, re-structuring, etc.) 3. Improving the supportive competences on which this competence is based Record here any specific features, outstanding issues, problems and other comments

Notes and comments

which relate to the measurement of this resource and how this resource interacts with other resources

Participation You can do this on your own or in a small group. Involving others in the discussion greatly enhances the understanding of the measure. However, do ensure that you involve (or at least show the finished version to) people who really understand the detail of what you are measuring.

Time The first measure will take 45 minutes to an hour, subsequent measures about 30 minutes.

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Measuring competence and resource development

Materials You will need blank copies of the resource measure record sheet, (see Figure 8.2) ideally on overhead projector transparencies so that you can display the finished measures to the rest of the team for comment and agreement.

Process Fill in a blank resource measure record sheet for each measure on copies of the form, using the guidance notes provided. An example is shown in table 8.3.

Tips

Everyone talks about measures in terms of the title followed by the target. The title is therefore very important. The target is highly dependent on how it is measured and so the formula is critical. Specify the formula precisely, don’t leave it for everyone else to try and guess what you mean. Remember, the formula drives behaviour so be precise and think about the consequences of measuring this resource in this way. You will probably have to loop round the different sections of the record sheet several times as you develop one part of the measure and then find it is not consistent with another part.

Table 8.2 Resource measure record sheet Measure Related resource Assumptions

Purpose

Limitations

Related to

Formula Target Frequency Who measures? Source of data Who acts on the data? What do they do? Notes and comments

CD Forms

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8.6 Summary

Table 8.3 Resource measure record sheet – example Measure

Quality attitude survey

Related resource

Operations culture ‘British Leyland attitude to quality’ is undermining the company’s ability to produce

Assumptions

high-quality, defect-free products in the timescale required, a change in this attitude will allow us to overcome this problem.

Purpose

This measure will able us to monitor whether the actions we are taking are having a positive effect on attitudes to quality.

Limitations

This measure is only an indication of the attitude and shouldn’t be confused with quality itself. Don’t drive this measure too hard as respondents will record what they think you want and the measure will become useless This measure relates to improving the order fulfilment resources. In particular it

Related to

should be considered together with trends in ‘right first time’, ‘first time pass rate’ , ‘customer returns’ and ‘customer complaints’ Average score on individual employee’s attitude to quality (0–5 Likert scale, 5 being high).

Formula

Average score on other employee’s attitude to quality (0–5 Likert scale, 5 being high). Average score on management employee’s attitude to quality (0–5 Likert scale, 5 being high).

Target

Reach an average of 4 on all three responses by end of this financial year

Frequency

To be measured twice a year and reviewed at the following measures meeting

Who measures?

Quality manager Pat Winters

Source of data

Results from survey forms sent to all operations employees (see list)

Who acts on the data?

Managing Director, Neal Pearson 1. review response

What do they do?

2. ensure the planned quality actions have taken place 3. assess next set of quality initiatives

Notes and comments

Review this measure after 18 months

8.6 Summary The main ideas covered in this chapter are:

•

•

Measuring resources and competences is important because:

• •

It allows you to balance the short term with the long term

• •

It will increase your understanding of the key drivers of performance

It focuses on the resources which help you improve rather than just the targets you are trying to meet

Anything you don’t measure will be overtaken by more high profile measures

A competence based measurement framework should consist of process measures and resource measures

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Measuring competence and resource development

•

Examples have been provided of the measurement of different competences and the resources which underpin them

•

Ideally both resource measures and assessment should be used to track progress, however,

• • •

Assessment is time consuming and cannot be conducted too frequently Resource measures are only an indication of progress

A toolkit has been provided to help you develop resource measures

8.7 Process review You will have:

• •

Developed a set of competence measures using the process model

•

Documented those assumptions in the resource and competence measures framework

•

Devised detailed performance measures using the Toolkit.

Developed a theory or set of assumptions on how the current performance of the competence in question is achieved

8.8 Further reading Brown, M.G. (1996) Keeping the Score: Using the Right Metrics to Drive World Class Performance, Quality Resources NY. For the process model, especially chapter 8 pages 95–103. Kaplan, R.S. and Norton, D.P. (1992) The balanced scorecard – measures that drive performance, Harvard Business Review, Jan/Feb, 71-79. The original balanced scorecard article. Kaplan, R.S. and Norton, D.P. (1996) The Balanced Scorecard – Translating Strategy into Action, Harvard Business School Press, Boston, MA. Covers the use of performance measurement systems, specifically the balanced scorecard, to implement strategy. Kaplan, R.S. and Norton, D.P. (2000) The Strategy Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment, Harvard Business School Press, Boston, MA. Kaplan and Norton start to write about capabilities.

Closing thoughts

9

You now know much of what we could put down on paper about resources, competences and their analysis. In this, our final chapter, we shall address four areas. The first is a group of health warnings about using resource-based theory. Second is a discussion on the interplay between resource-based and market-based strategy-making. Third is the effect of shareholder value thinking on resource-based strategymaking; and finally we speculate on what’s next – what other developments in strategy-making are appearing on stage or hiding in the wings? The chapter is structured as follows:

• • • •

Health warnings Resource-based and market-based strategy-making Shareholder value What’s next? Finally we summarise the main points covered and suggest some further reading.

9.1 Health warnings Can a competence be ‘over-exercised’? Are there dangers in trying to improve a high-performance competence? Can resource analysis be damaging? The short answer is yes – in some circumstances.

9.1.1 Over-exercising a competence Say you have a competitive advantage derived from a reputation for high reliability and design leadership. It may seem obvious that you should exercise the related resources and competences as much as possible to achieve as great a competitive advantage as possible. Surely this should result in improved profits for the firm, however, this may not always be so. Two kinds of disadvantages can result from this mindset. First, over-exercising a competence can lead to overshooting customer requirements and hitting another important trade off – cost. See the experience of Toyota. 157

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Closing thoughts

Toyota Competences in product design speed and understanding customer requirements were key sources of competitive advantage at Toyota and other Japanese vehicle manufacturers, like Nissan, in the 1980s. However these very competences were eventually over-exercised in the 1990s when Toyota overshot customer satisfaction needs with too many user options and too many product variants. The result was excessive costs, heightened by the appreciation of the yen in 1993. Toyota subsequently slowed its newproduct release rate and increased parts standardisation.

Second, opening up a large performance gap between you and your competitors can make them fairly desperate. It is seldom wise to make competitors desperate for they may then do something different. They may invent another way to compete because they have no choice. Firms with competitive advantage(s) are fully invested in the competitive status quo. The continuation of that status quo is to the firm’s advantage. It follows that for some (lucky?) firms the degree of superiority they demonstrate over their competitors should be a topic of careful discussion.

Kirin Beer Kirin is the leading brewer in Japan. The world it inhabits is one of brands, its main external threat is the entry of new and successful beer brands, most likely from fashionable foreign producers. To counter this perceived threat they have developed a very fast response competence. Kirin aims to copy any brand, from its taste to its presentation within six weeks. This means that promotion materials, bottles and labels would be provided in parallel with a product formulation that could be mass produced with identical taste in all five of its breweries six weeks from a decision to respond. Using Kirin's extensive distribution resources the rival brand could be quickly dominated. Needless to say this is not a capability Kirin displays frequently, going that fast can cost extra. Kirin have to exercise it just enough to retain this competence and, perhaps, warn competitors of the fight they are likely to experience if their new product begins to be successful in Japan. Adapted from a talk by Paul Logan (Unilever plc) ‘Engineers to Japan Lecture’, IEE, March 1995

There is also evidence that some manufacturers have products ready to launch whenever the competition show signs of catching up.

Sony and Sergei Bubka Why is it that Sony always seems to have the smallest and highest specification digital video camera (and more or less any other product) on the market? As soon as JVC and Canon introduce a comparable product Sony's next (even smaller) product appears, retaining the highest price while the ‘superseded’ product’s price is reduced in order to force down the price of the competitor’s new product. It is as if Sony often have the next design ready and waiting for their competitors next launch. It's a good strategy; the smallest, most advanced consumer durable demands a price premium; replacing it with an even better

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9.1 Health warnings

product before absolutely necessary reduces margins. Sony seem to work within their design and manufacturing miniaturisation competences. Sergei Bubka, the Russian pole-vaulter had the same strategy. Frequently working well within his polevaulting competence he set 35 world records in a 15-year career (18 indoor, 17 outdoor) and was rewarded handsomely for every one by meeting organisers keen to have a world record at their event.

The Kirin, Sony and Sergei Bubka examples raise the intriguing question - what level of competence superiority should managers aim for and what level of competence superiority should they demonstrate in their market?

9.1.2 Appropriability This awful word is rather key to resource ideas. Given your company has important resources, who benefits (or appropriates) most from them? The firm through re-investment, employees through good wages and salaries, or competitors who copy them? If we consider the innovations a firm makes it very much depends on the industry as to whether innovations can be protected. Innovation in pharmaceuticals can often be reasonably well protected through patents. But in many areas from consumer electronics to manufactured foodstuffs innovation is unpatentable. Anyone in the business can make a Walkman-like product (Sony invention) or copy the first introduction of an olive oil/butter spread. There is no protection against imitation for these products. Innovation skills alone rarely sustain a competitive advantage. However, if combined with a powerful brand the innovator can expect to enjoy a continued leadership from the innovation, for example Sony still leads in the Walkman market. The financial services sector is another business where product innovation can be rapidly copied by competitors. But a reputation for innovation attracts customers, who can gain access to the latest products without having to shop around. Salomon Brothers has benefited from this and so have effective retailers like Tesco and Sainsburys. The reputation of the supplier may also induce customers to try an innovation which they might otherwise view with reluctance. CocaCola did not sell a low sugar product until the availability of aspartame enabled the company to manufacture a good quality drink. Diet Coke then quickly gained an acceptability which drinks with other artificial sweeteners had not achieved, and established a new segment of the soft drink market in the process. Coca-Cola similarly established disposable cans in the market place without themselves being the leader in the market. J. Kay (1993) Foundations of corporate success, OUP, Oxford, p. 106

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Closing thoughts

Another means of appropriating the benefit from an innovation is to acquire a stockholding in return for out-sourcing. Through that stockholding the inventor can retain some control over the invention and benefit from its success, see the IBM example.

IBM Following its decisions to outsource its PC standard microprocessor and operating system to Intel and Microsoft respectively, IBM's market value fell by over $90 Bn. Yet IBM had the early opportunity to own up to 30 percent of Intel's stock and 40 percent of Microsoft. IBM initially obtained 20 percent of Intel shares but sold them (too early) for a profit of $0.625 Bn . Had IBM fully invested in the stock opportunities placed before them they could have netted $100 Bn. C.H. Fine (1998) Clockspeed, Persus Books, NY, p. 174

Effectively problems of appropriation begin when your firm's ownership of the resources of interest is ambiguous. In the case of employees' skills, two major problems arise. First the lack of a clear distinction between the technology within the firm and the knowledge of the individual. And second, the limited control employee contracts offer over the services provided by employees. Many of the problems that have arisen in acquisitions of human capital intensive companies arise from conflicts over property rights between the acquiring company and employees of the acquired company. An interesting example is the protracted dispute which followed the acquisition of the New York advertising agency Lord, Geller, Frederico, Einstein by WPP group in 1988. Most of the senior executives of the acquired company left to form a new advertising agency taking several former clients with them. R.M. Grant, (1991) The resource-based theory of competitive advantage: implications for strategy formulation, California Management Review, Spring,p. 128

The degree of control your firm can have over skilled workers depends on the degree to which they are supported by and combined with other resources in your firm. The more they are supported the more control your firm has. For example, there is a degree of doubt over the individual contributions of Keane, Scholes, Veron, Giggs and Beckham to the success of Manchester United football club. More obvious may have been the individual contribution of Magic Johnson to the LA Lakers. Johnson was therefore in a better position to appropriate a large share of the Lakers profit than any one of the soccer players.

9.1.3 Other risks from resource and competence analysis There are two other risks we have met in practice. First, it may appear that competence and resource analysis is invariably a good thing for

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9.2 Resource-based and market-based strategy-making

firms carrying it out. It will be if the analysis is rigorous, but managers should realise that there is an important trade -off between the sustainability and versatility of a resource. It may be very tempting to try to make a valuable resource much more versatile and therefore usable in other areas. But in so doing the resource concerned will become much better understood. This increased understanding can make the resource less sustainable because it may become easier to identify and/or copy and/or steal. Second, if the performance of a competence is poor almost any attempt at improvement contains few dangers. But if and when managers try to improve the performance of a valuable competence that is already performing well without having a very good understanding of how it works, then wave a red flag. Generally there are few people who would attempt to repair a valuable mechanical watch who did not know a good deal about mechanical watches. Unfortunately some managers think they can do anything in their organisations. Of course if they approach the task with the knowledge that they do not understand – that is to say with some humility and honest curiosity they may succeed. For in this way their interest can often motivate those involved to improve or at least identify what might be needed for improvement.

9.2 Resource-based and market-based strategy-making How do competence ideas fit with more traditional approaches to strategy-making? Are there company circumstances where resource or market-based approaches have advantages? In this section we discuss how these perspectives interact and look at company circumstances where one approach or another has advantages.

9.2.1 The interaction of market and resource perspectives Our view is that resource-based and market-based strategy-making are complementary. The competences your firm develops will, in part, be a function of your and your colleagues’ perceptions of both your markets and current resources. Whether resources are changed by conscious, planned actions, good luck or misfortune the effect of these changes will play back into the market through competitors’ perceptions of your actions and competences. Competitor perceptions may then potentially generate responses. Given responses from rivals your perception of the market is changed and so on. Note that your perceptions of the market and the wider environment are represented in the scenario(s) you choose before assessing your resources and competences, see Chapter 6.

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Closing thoughts

Competitor resources evolving through time

Market events

D

A

E B

C C

Your resources evolving through time

Time

Figure 9.1 The interplay of resource and market based strategy-making.

Figure 9.1 illustrates a typical set of events: A

a competitor launches a new product with a novel specification

B

your Marketing and Engineering departments notice the launch and specification and decide to copy the specification in a more cost-effective way

C

actions in your company change the engineering and production resource base and lead to

D

your new-product launch

E

The product is extraordinarily successful, modifying your financial resource position and confirming your perception of the market Meanwhile we would expect your competitors to be responding to that success in ways that will inevitably modify their resource base.

9.2.2 The relative importance of resource and market perspectives In our experience there are three sets of company contingencies that affect this balance:

• • •

the issues facing the company its stage of development its industry group

Company issues: We have already identified issues where a resource-based analysis is highly relevant:

•

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

•

By acquisition or divestment

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9.2 Resource-based and market-based strategy-making

• • • • • • • •

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 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 These issues, and particularly the first set, are more common now as globalisation in search of economies of scale continues to gather pace, assisted by modern internet-enabled means of communication (and thus co-ordination).

Stage of Development: Start-ups normally have to pass two tests to secure external finance. The first is a market test – does the service or product have an attainable market? The second is a resource test – are these people capable of turning our capital and their idea into a successful outcome? What is their experience? How strong is their desire? I try to visualise the main proposers in a Rolls-Royce, and if they don’t look comfortable I rarely invest. Venture capitalist

Both are clearly vital tests, with the emphasis on the idea and so a market judgement. Why? Well if the resources are not ideal the investor can make conditions, some of which can strengthen the apparent resources, for example, by insisting on an accountant joining the team to bolster financial control. Once past these tests, the financed start-up is thrown back on its resources. It must leverage the maximum from the founders, more people will join the organisation, founders will have to teach recruits about the idea, make sure the recruits’ knowledge is utilised, and co-ordinate, co-ordinate ... The issues here are resource-based and are, in the main, caused by a shortage of resources, particularly the resource of ‘management’. A resource-based analysis of the start-up will continue to be vital until the firm is large enough to face the issue-based needs for resource analysis described earlier. Up until this time a resource view suggests that the organisation should frequently access external resources, whether this be advisers and/or consultants on focused problems or other companies with complementary resources who can assist in manufacture or marketing, etc. In all these cases effort must be made to capture as much knowledge as

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Closing thoughts

possible within the organisation. The relationship with outside sources of expertise should have twin objectives. First is the achievement of the task, whatever that is, and second is the acquisition of knowledge about what is important in achieving the task. During this period the organisation needs to build and extend its resources and thus tends to benefit most from a resource-based view of its operations and strategy-making. Manufacturing industry: The major industry-based variable we have met is the special position that manufacturing companies appear to face. There are two sources of data that strongly suggest that resourcebased views are much more important for manufacturing companies than for example, banking, mining, tourism, agriculture, retail and wholesale trades, lodging and entertainment.

•

First, the fact that there are many more examples in the literature of manufacturing firms benefiting from resource-based approaches than those in the sectors mentioned above

•

Second, a growing body of economics research which finds that for manufacturers it is business-specific factors that are the main source of superior return on investment Let us take these one by one. In a survey of books and papers on resource and competence theory, manufacturing companies were mentioned four to six times more than all other industries combined. From this we could conclude that the resource-based perspective is likely to be:

• • •

either more important for strategy-making in manufacturing firms or easier to access and exploit in manufacturing firms or both There could be other explanations – for example the results may be a function of access to different industry groups or some other imbalance between service and manufacturing firms. However the empirical comparisons between industry groups in the next section strongly indicate that manufacturing firms are different. Richard Rumelt, a noted economist, set out to answer the question ‘How much does Industry Matter?’ His aim was to apportion the variation in manufacturing companies’ published return on investment between business specific, sub-industry specific, industry year and ownership factors. The major findings were:

•

The return on investment of manufacturing firms depends between five and ten times more on the business unit than on the industry in which it operates

•

The idea that some manufacturing industries were inherently more

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9.2 Resource-based and market-based strategy-making

profitable than others did not appear to hold water …returns were much more to do with the unique endowments, positions and strategies of individual businesses. R.P. Rumelt (1991) How much does industry matter? Strategic management Journal, 12, p. 168

Further support for these findings came from McGahan and Porter1 who set out to answer a similar question to Rumelt but for a wider range of industries. They showed manufacturing industry to be an ‘outlier’ where profitability depended three times more on the business unit itself than on the industry in which it was based. This was unlike industries like tourism, agriculture, retail and wholesale trades, lodging and entertainment whose profits depended much less on the individual business unit and much more on the particular industry. On average, manufacturing may offer richer possibilities for sustainable positioning than other sectors, a possibility also supported by other studies A.M. McGahan and M.E. Porter (1997) How much does industry matter really? Strategic management Journal, 18, p. 26

The combination of evidence presented here strongly suggests that resource-based strategies are important for manufacturing companies seeking above-average profits and/or return on investment. This may be especially so in firms undergoing fast technological development partly because these are just the conditions under which new opportunities and new markets are created. Further support for the importance of resource-based strategies in manufacturing firms comes from the theory itself. Manufacturing companies tend to be socially and technically complex, employing many people with widely contrasting educational and skill backgrounds. Some manufacturing and development processes are still regarded as black arts. Logically such environments provide a fertile environment for the emergence of idiosyncratic and difficult to imitate resources, the very stuff of establishing unique and sustainable competitive advantages. Brand-based industries: In our experience companies who rely heavily on reputation and branding for their competitive advantage have a natural affinity for market-based strategy-making. Much of their strategy focuses on the marketing concepts of product, price, promotion, place and position. Examples would include Marks and Spencer, Diageo, Coca Cola, Nike and Adidas. However such firms may also benefit from a resource analysis of their marketing competences.

1 The Porter in this research is the same Porter who had built a reputation on the importance of industry group and more or less fathered the concentration of strategists on markets and market positioning.

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Closing thoughts

9.2.3 Summary This section has highlighted a range of situations in which resourcebased strategy-making can be more relevant than market-based views and vice versa. There are strategic issues like joint venture evaluation or make versus buy assessments that require an internal perspective of your firm. Start-up and small companies can benefit greatly from resource-based analysis and, it seems that manufacturing companies present the conditions of complexity that make resource-based analysis particularly rewarding. For their profits depend much more on the quality of their assets, human and technological than other industry groups. Notwithstanding these discussions both market- and resource-based strategy perspectives should be maintained if a company is to survive in the long term.

9.3 Shareholder value In this section we reflect on the prevailing shareholder value measurement of company and managerial success and relate that to resourcebased thinking. We raise the particular examples of Chris Gent’s bonus package for taking over Mannesmann and a resource-based view of Jack Welch’s time in GE. Finally we discuss the relevance of these factors.

9.3.1 A historical perspective In the USA and, to a lesser extent, the UK the environment for employing a resource-based strategy has never been more hostile, for the notion of what a company is for has been radically changed in the Anglo-Saxon world over the last twenty years or so. Once upon a time firms had a balanced set of stakeholders, and they still do in many UK companies, in mainland Europe and especially in Japan. Firms were there to provide employment, to satisfy customers, and to repay shareholders for the capital invested. Dividends had only to be sufficient to induce investment in the firm’s shares. As Penrose put it: In the 1950s the phenomenon of the firm run by the type of owner managers who were not committed to the firm was not as evident as it seems today. … Some 40 years later … . The role of financial institutions as shareholders can now be seen to require much careful analysis, as does the role of directors in their financial managerial functions who may well be more interested in their own financial rake-offs through high salaries, stock options, golden handcuffs, bonuses, etc. than in the growth of their firms E.T. Penrose (1959) Theory of the Growth of the Firm, Basil Blackwell, Oxford 3rd edition, pp. xi–xii

In the 1940s and 1950s the huge financial institutions we now see han-

167

9.3 Shareholder value

dling investments in unit trusts, bonds, large pension funds, etc. did not exist. Their growth and role has led to fierce competition for the commissions generated by handling these transactions. Financial institutions must seek out shares that provide the highest return to shareholders so that they can out-perform competitors and attract new investors. One result of this is that, particularly in the USA, one of the stakeholders has become prime – the shareholder. The aim of many firms has now become ‘to maximise shareholder value’. The methods of providing that shareholder value are to return more profits to stockholders as dividends and deliver an increasing share price. The internal methods of doing this are:

• • • • •

improve ROCE by divesting of all but the best current businesses cut labour costs cut R&D costs share buy-backs director-level share options These are antithetical to the internal investments for the long-term suggested by resource-based ideas. CEOs need to be brave and unselfish to launch programmes from which only their successors will reap the benefit. Because in the short-term, less will be returned to shareholders, the stock price is likely to reduce or at least not increase, their stock options will decline in value and they are also likely to be fired. Of all the methods of promoting shareholder value the share option deals for directors are the most pernicious. They explicitly align the motivation of managers with rising share prices, practically guaranteeing their decisions will focus on the short term. One highly public example of this was the increased rewards package for Chris Gent of Vodaphone AirTouch.

Chris Gent CEO Vodaphone AirTouch When the remuneration committee of Vodaphone AirTouch announced the £10m bonus for Chris Gent on negotiating the takeover of Mannesmann of Germany they did not foresee the protests from shareholder groups including the Association of British Insurers and the National Association of Pension Funds. Why protest? Chris Gent had converted a company that did not exist 20 years ago into the world’s biggest mobile service provider by a series of bold acquisitions – he was worthy of reward. (So were many others but that is not the argument here.) Gent’s £10m bonus was in two parts. The first was to be paid under a scheme linked to future share price performance. There was no criticism from shareholders on this one. But the second £5M was to be paid in cash simply because Gent concluded the deal. This was a deeply disturbing development – if directors make deals simply because they result in risk-free bonuses there is likely to be a negative impact on the whole of industry. Calls to withdraw the second element were widespread.

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Vodaphone tried to damp down the furore with fudged explanations of their actual intentions, the shareholder revolt subsided and Gent has that £5m cash bonus. Adapted from Guardian Editorial July 11 2000 (A very rich Gent indeed – deals like this one need to be stamped on) and Guardian Notebook July 13 2000 (Time to prove they are worth the money)

Was this ‘deal bonus’ a step too far, one that board remuneration committees will prevent in the future? Perhaps, but the very members of these boards are generally CEOs from other businesses. So there is no certainty there.

9.3.2 General Electric Perhaps the greatest example of the shareholder value mindset is Jack Welch of GE, for the third year in succession in 2000 he became Fortune magazine’s most admired CEO. The GE story is a useful way to explain the phenomenon of shareholder value and reflect on what it tells us about resource-based ideas in practice.

General Electric before Welch’s reign General Electric (now known as GE) was created from the genius of Thomas Edison, by 1900 it was involved in every corner of the electricity business. During the first half of the twentieth century GE provided an outstanding range of innovations from electricity generation technology to mobile radio (or walkie talkies). Back in the 1950s GE had good to dominant positions across a wide range of electrical and electronic technologies from lighting products to consumer durables. In the 1950s, CEO Fred Borch invested in three new technologies: the peaceful use of nuclear power, jet engines for aircraft and computers. Of these GE became the largest supplier of aircraft engines in the world but public opinion put paid to the nuclear business and the computer business was sold. Borch had invested in three technologies and one had paid off handsomely, he had continued re-investing substantial proportions of GE profits for the future of GE. A. Kennedy (2000) The End of Shareholder Value, Orion Business Books, London

The inheritance: The GE that Welch inherited was full to the brim with resources, built during more than half a century of re-investment by Welch’s predecessors. Many resources were under-utilised but GE was so large no-one could have imagined trying to take it over and start squeezing them dry. It had world positions in aircraft engines, power generation and major appliances and in the technical products area (where Welch came from) there were good returns from plastics and medical equipment. In addition to this there was a vast range of other businesses: mobile radio competing with Motorola, and consumer electronics beginning to feel the heat of Japanese competition were but two examples.

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9.3 Shareholder Value

The Welch years We will run only businesses that are number one or number 2 in their global markets … In addition to the strength, resources and reach of a big company … we are committed to developing the sensitivity, the leanness, the simplicity and agility of a small company. GE Annual Report (1988) Implementing this vision, Welch re-arranged the corporate portfolio. GE was the first conglomerate to initiate massive down-sizing of staff and, through its portfolio planning approach, large acquisitions and divestments. We started out with 411,000 employees. We acquired an additional 111,150 employees. Through divestments, we reduced 122,700 employees. We restructured, or downsized to get more efficient, reducing some 123,450 employees. Now we have 276,000. Enormous in and out. Welch quoted in J. Kay (1993) Foundations of Corporate Success, OUP, Oxford During the early 1980s Welch became known as ‘Neutron Jack’ after the neutron bomb which left property alone but destroyed people. It is no wonder Welch thinks company loyalty is ‘nonsense’ see Chapter 7 page 101. From massive re-structuring Welch increasingly turned to three other strategies – first his biggest investment of all – the purchase of GM stock – $30billion worth. Second, building a massive financial services arm. And third, investment in the after-market or service aspects of current products, from jet engines to domestic appliances. GE stock buy backs: These began in 1988 when Welch believed stockmarket valuation did not reflect GE’s performance. We’re not sure why this is the case, but it occurs to us that perhaps the pace and variety of our activity appear unfocused to those who view it from the outside. GE Annual Report (1988) While stock buy backs are a good method of returning capital to shareholders and are clearly marvellous for boosting the stock price they were hardly helping the long-term future of GE. The buy backs signal, perhaps, a lack of imagination combined with an aversion to risk. Welch, according to Kennedy,2 indicated to security analysts that buying-back stock was a better way to generate value for shareholders than taking a ‘wild swing’ on an acquisition or investing in a new technology. Surely a company with GE’s resources could avoid taking ‘wild swings’ on technology – the company bequeathed to Welch was born and developed on new technologies. GE Capital Services (GECS): Welch’s investments in this area were outstandingly successful from the outset and have continued apace to this day, since 1995 GECS have acquired 100 businesses in Europe alone.3 The 1999 results show GECS’s contribution to net income rose from $100 million to $4.4 billion, during his tenure. Notably GECS have been reluctant to use write-offs as a way of clearing its books of bad debts. While normal financial institutions have no experience in managing businesses, GE can call on a host of managerial talent. As Kennedy notes: In 1983 when Tiger International (parent of North American Railcar) went belly up, instead of writing off the loans GE got into the railcar leasing business itself (and, to its credit, subsequently made it a

2 3

Kennedy, A. (2000) The End of Shareholder Value, Orion Business Books, London. Guardian, September 16, 2000 p. 27.

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profitable business for the company). When leased airplanes came off lease prematurely, leaving GE holding the bag, GE provided the seed capital to convert the planes for use as cargo vessels, which were in turn leased to its newly started freight airline. A. Kennedy (2000) The End of Shareholder value, Orion Business books, London, p. 58 After-market services: the growth in this profitable adjunct to the main manufacturing businesses has been dramatic. Service revenue has risen from just under $5 billion in 1985 to $13 billion in 1998.

Jack’s bequest: First let us be clear that Jack Welch, assessed on his own intent of delivering shareholder value, has been an astonishingly successful manager. For shareholders over his entire reign Jack has succeeded – but what is left of GE? Welch has developed the financial services arm of GE out of all recognition, principally by acquisition, to provide over $55 billion revenues, $4.44 billion profits, representing 28% of GE’s total profit and almost 50% of total revenues in 1999. The RCA acquisition remains only as a significant, highly profitable television presence – NBC. The medical systems division has enjoyed similar success, becoming a world leader, again with acquisitions an important factor. The core, inherited businesses remain in good shape but the leadership position of the Aircraft engine business is being threatened by Rolls-Royce Aerospace. Their4 R&D investments ($6–7 billion over 10 years) have been well ahead of GE5 (at 3% or $315M in 1999 and lower amounts in preceding years) for a considerable time. Rolls-Royce now claim to have the widest product offering in the civil aircraft sector as well as a number of specification advantages. It has been a persistent claim from commentators that GE’s R&D investment levels are poor compared to other US companies and also to Japanese and European companies. Note that competition from Japanese companies was largely responsible for the exit of GE (and other US companies) from consumer electronics. What is notable about Welch’s bequest is what is not there – the technological colossus Welch inherited has exited the consumer electronics (despite acquiring RCA’s consumer electronics business) and mobile radio sectors and has virtually no presence in semiconductors. The host of spare resources Welch inherited are gone, for GE is lean and mean. Jack gave whatever value was there back to the shareholders in buy backs and the savings made from down-sizing a skilled and knowledgeable workforce. The Verdicts: Alan Kennedy’s analysis of GE’s story has two conclusions: sell now before Welch leaves and pity Welch’s successor. For Kennedy believes Welch has used up all the methods available for increasing shareholder

4 5

Rolls-Royce (1999) annual report. GE 1999 annual report and calculated assuming GECS have had nil R&D expenses.

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9.3 Shareholder value

value, the share price is, in Kennedy’s opinion, grossly over-valued and at the next recession the GE share price is due for a considerable fall. Our analysis is that Jack cashed in the slack resources built from reinvestment in GE over 60 years, pleased the shareholders, built one service operation – a bank and made another, NBC, highly profitable. He encouraged the core manufacturing businesses to think of the whole product lifecycle and the profitable services they could offer. And he promoted, in recent times, the application of the internet across all businesses. GE is well positioned for the future in these respects. Unarguably GE’s aircraft engine business is in a worse competitive position than when Jack inherited it. Rolls-Royce Aerospace have not followed a shareholder value ethic, their stock price has languished while they invested in Rolls-Royce, gained market share and produced new, powerful, extendable designs. But it is a shame both for the people whom Welch made redundant and for Welch’s long term reputation that so little imagination was applied to pioneering new businesses during an age when so many new markets in technologies known to GE were created. In an age when Nokia graduated from rubber boots to its current position in mobile communications, what was Jack doing? In that sense Welch differed from all the previous GE CEOs who together created the resources Welch relied upon for much of his initial ‘success’. He would not take, in his own words, ‘a wild swing’ on an acquisition or investing in new technology6.

9.3.3 Summary It is not within the scope of this book to forecast the end of shareholder value and a return to more balanced rewards among all stakeholders. Perhaps a major stockmarket correction and long investigations over the entrails of companies found particularly vulnerable to its effects could change things. Perhaps new regulation on company boards will force them to attend to a longer term more balanced model of what companies are for, and so what operating officers can be allowed to do. Not all companies in the USA follow Jack, and for small to medium or unlisted companies it is not always an issue. However we believe that the advent of shareholder value thinking would have been impossible without the large re-investments of the previous 50 years. Now many firms have down-sized, got themselves lean and mean with a minimum of under-utilised resources – what next? A little more resource-based 6 Footnote added at proofs.

We thought, at the time of writing, that there was still time, the fall in technology shares presented opportunities for GE to acquire major telecommunication or computing assets. But Welch persisted with his attempt to acquire Honeywell. An acquisition that made such good market positioning sense that the European Union were bound to deny its fruition.

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thinking? A touch more re-investment and attention to the future? We shall see. But in the meantime, no matter the difficulty or even bravery required we would urge directors to husband their companies’ long term future a little more. Many of you do that already. After all as one UK director put it: I don’t agree with these stock options. What would I do with all that money? Probably I’d leave it to my children and it would ruin their lives.

9.4 What’s next? Answering this kind of question is often helped by looking at how we have got to the current position on strategic thinking and strategy-making. So in this section we shall briefly summarise the trends of the last 40 years. Prior to 1990 managerial interest in market-based strategy had reigned supreme, bolstered by industry-focused economics research, and popularised in the strategy literature by Michael Porter in the late 1970s and early 1980s. During this time business strategy was mostly about markets and marketing. Many CEOs assumed that those often awkward functions – Engineering and Manufacturing could always support the business (or was it the Marketing?) strategy. However during the 1980s, in both the USA and Europe, the competitive situation of manufacturing industry in comparison with Japanese and other far Eastern competition became of major concern. Whether subsidised by low returns to shareholders or not, Japanese consumer electronics were often of better quality and reliability than their Western counterparts. Western manufacturing companies sought solutions in Japanese production methods and improvement processes. They began to catch up in quality and cost terms but company profitability was often subsidised by out-sourcing and other means of improving return on capital employed, as in the GE story. There was a phrase that described this – ‘stick to your knitting’ – in other words focus on the current crop of successful products and/or markets and get rid of the rest. This reduction in a company’s resource base left it less able than before to ride problems in its current markets but the financial results were better, the share price was up, share options were looking good, so why worry? It was too late to worry in some industries – consumer electronics disappeared from US ownership and the motorcycle industry in European and US hands declined to a small group of niche players. In 1990 Harvard Business Review (HBR) published ‘The core competence of the corporation’ by C.K. Prahalad and Gary Hamel. The article became the most popular HBR reprint ever. It looked inside the organi-

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9.4 What’s next?

sation, describing high profile, respected, and growing companies like Canon and Honda and their apparent use of competence ideas. There were, however, other reasons for companies to be interested in these ideas:

•

Competitive pressures in the 1980s and early 1990s had led many companies to review their vertical integration policies with a view to increased out-sourcing. Yet fears that key capabilities might be lost led to increased interest in resource-based thinking.

•

The high rate of change in many markets meant that managers had been forced to look inside their organisations for some of the answers on survival and sustainable advantage.

•

Increased numbers of alliances and joint ventures aimed at sharing risk and expenditure on product development and/or becoming global players. Together these factors heralded a resurgence in competence and resource-based ideas among companies, consultants and strategy researchers. Unfortunately, though the ideas of competences, capabilities and resources provoked great interest, operationalisation of the theories went largely undeveloped and so by the late 1990s attention from most researchers and consultancies had diminished. The competence view provides a link between the direction a firm wishes to move in and the resources needed to achieve that move. A key resource is knowledge and it is hard to imagine that the recurrence of resource-based ideas, implicit in the ‘competence and capabilities’ wave of the early 1990s did not influence the increasing recognition of the role of knowledge (or ‘knowledge management’) in strategy-making. Meanwhile software providers, looking for the next golden goose to follow enterprise resource planning (ERP) began to promote the ideas of ‘knowledge management’. After all they could handle the filing and retrieval and distribution of recorded knowledge so they began to drive the ‘knowledge’ agenda. If you have read this book you will know that many of the knowledge resources important for businesses are not written down, could not be written down, and that it is not easy to identify important knowledge in a firm except in very general terms.

Our first What’s next? We expect that competence and resource-based analysis will be increasingly used to determine what a firm’s important knowledge is or should be. This approach will provide an important link between an organisation’s strategy and key aspects of its knowledge management requirements.

In parallel with a re-recognition of the importance of knowledge in organisations has come the re-realisation of the importance of compe-

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tent people. Already we sense the growing power in the role of Human Resource directors and the resurrection of individual competencies as an increased area of focus for business improvement.

Our second What’s next? We would expect this increased focus on individual competencies, that began in the mid-1990s, to survive for some years yet and along with it a greater role and influence for Human Resource managers and directors.

Our final section concerns improving the tangibility of resources and competences ideas. Unless this can be achieved the benefits from these approaches will be severely attenuated. The fact is that many of the resources that underpin the current competitive advantage of large businesses evolved over a long period, partly by chance, partly by design and often involved investing significantly for the future and consequently reduced profits in the short term. This was accomplished at a time, prior to the mid 1970s, when company boards had a more balanced view of the role of their companies. After that came the asset strippers who identified under-utilised resources in firms and set out to acquire them. The time of shareholder value had arrived and its success was perhaps born from of an amalgam of three factors:

• • •

its appeal to individual greed the availability of under-utilised assets within businesses the ease with which its success could be measured Measurement, and specifically numbers, implies tangibility. Numbers to represent the real resources and capabilities that underpin a firm’s current and potential financial performance are sorely needed. It is therefore necessary to examine the kind of performance measures one might use to recognise and support the development of resources and competences over the longer term. These performance measures have to compete with the financial and performance measures that customers recognise (e.g. leadtimes and quality). We devoted Chapter 8 to this topic and we are the first to admit to have only scratched the surface. This is a difficult endeavour because in principle the idea of measuring resource and competence performance is bound up with an implicit search to identify the causal variables responsible for overall business performance.

Our third What’s next? The tangibility of resources and competence ideas will be improved in general by further attention to their performance measures. Current attention to the ‘management’ of knowledge should provide a focus for this, though we suggest that it will not be best measured by counting the number of PhDs you employ.

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9.5 Summary

9.5 Summary

•

Resource-based analysis can lead to:

• • •

this is sensitive to your industry sector it is sensitive to the strength of your reputation or brands it is also sensitive to your dependence on employees with identifiable skills and knowledge that is easily transported to competitors

And there are other risks:

• • •

confusing the performance superiority you demonstrate to the market with the performance superiority you target internally

It is important to make sure you can appropriate for your firm a decent proportion of the benefits that accrue from its resources;

• • • •

over-exercising a competence

Making a sustainable resource more versatile but less sustainable Inappropriately trying to improve a high performance competence whose operation is not understood

Market- and resource based strategy-making are mutually supportive

•

But resource-based approaches are more relevant in certain situations, for example:

• • • •

Joint venture evaluation Make versus buy decisions Start-ups and small companies Manufacturing companies

•

Shareholder value notions are antithetical to resource-based views. A phenomenon most powerful in the USA and UK

•

Three important developments and continuations of resource base thinking are expected in the future:

•

Use of resource-based theory to determine what a firm's important knowledge is

•

A continued increased focus on individual competencies and a greater role for Human Resource directors

•

Focus on the measurement of resource and competence development to improve the tangibility of resource-based ideas

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9.6 Further reading Kay, J., (1993) Foundations of Corporate Success, OUP, Oxford. Many of the examples are out of date, but the thinking remains influential. Kennedy, A. (2000) The End Of Shareholder Value, Orion Business Books, London. For more on shareholder value, especially the role of boards. Fine, C.H. (1998) Clockspeed, Perseus Books, NY. For more examples on the appropriability issues arising from make versus buy decisions. Porter, M.E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, NY. Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, NY. Examples of Porter’s work popularising market-based strategy.

Index

Abacus Ltd (example) resource analysis 45, 70–1, 73 service competence improvement 52, 55–7 service importance recognition 87–90, 102 shared memory 54 Academic research group (worked example) 90–2 acquisition approaches, competence improvement 94, 97 Agile manufacturing Inc. (example) 64–5, 66 Anon Inc (example) 2 Anonimo Inc. (case example) 37–8 Anonymous Insurer (example) 95–6 Apple Computer (example) 3, 4, 42–3 assessment, or measurement alternative 150–2 Awareness method 29–30 approach 32–4 Insight method comparison 41, 48–9 need for 30–2 outcomes 34 toolkit 34–7

balanced scorecard 133–4 BBC (example) 94 Boston Celtics (example) 44–5 bottom-up analysis process 45–6 boundary changing 1–2, 52 drawing 53, 55–8 brand-based industries, development strategy 165

micro 107–14 competence appropriability 159–61 architecture 14, 17, 18 categories 12–13 core 77, 172 definition 9–12 delivered quality 15–19 health warnings 157 importance 26 individual levels 100 innovation 117–18 order winning (case example) 138–42 over-exercising 157–9 socially supportive 117–18 technically supportive 118–19 competence improvement 99 building strategies 94–5 focus 52, 120 macro co-ordination 106–7 mechanisms 120–2 micro co-ordination 107–114 performance 94–5 toolkit 119–26 competence and resource measurement framework 135–7 using 137 competitive advantage, building 44 core competence 77, 172 Crown, Cork & Seal (example) 11 curiosity focus 52

business process checklist 10, 11–2 delivered quality competence 15–19 Canon (example) 47

design and build process co-ordination improvement 38

capability, dynamic see dynamic capability

design for manufacture (DFM) procedure 16

Caterpillar (example) 10, 23, 24

disaster planning, resource analysis 44, 52

change planning 33–4 resistance to 104–5

dynamic capability 13

evolutionary approaches, competence improvement 94, 95–6

Chapparral (example), innovation competence 9, 117 Cisco Systems (example) 118–19 co-ordination improvement macro 106–7

177

facilitator, using 54

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Index

General Electric (case example), shareholder value 168–71

Operational activities, improving 33

Gent, Chris 167–8

order fulfilment competence, measuring 148–50

GKRR plc (case example) 143–7

order winning competence (case example) 140–4 outsourcing decisions 42–3

histories, pictorial see pictorial histories Honda (example) 11 human resource fit 99–101

IBM (example) 2, 160 improvement, competence see competence improvement incubation approaches, competence improvement 94, 96 innovation competence 117–18 Insight method 48–50 Awareness method comparison 48–9 boundary 53 facilitation 54 focus and scope 51–3 pictorial histories toolkit 65–9 reporting frequency 54 resource identification 61 resource importance 75–6 resource-categorisation toolkit 70–3 staff involvement 54 toolkit 54–8 Instruments ltd (example) 131, 132

Jobs, Steve 3, 4 joint venture, entry logic 43

K-Mart (example) 22 key customer relationships, developing 37 Kirin beer (example) 158 Komatsu (example) 24

leadtimes, development 64

performance measurement aid to understanding 136 competence-based framework 133–4 failure 133 improving 31–2, 131–2 short and long term 130 pictorial histories importance 63 picture generation 68–9 preparation 66–7 profitability, as performance measure 130

rationale, performance 114–15 RCA (example) 1 recruitment and development measurement process (case example) 143–7 reference database, as resource 90–2 Research Group X (example) 77–8 resistance, change 104–5 resource and activity capture format 35–6 resource analysis difficulties 77–8 outcomes 82–3, 175 resource and competence analysis bottom-up 45–6 detail 46–8 implementation advice 124–6 reporting frequency 54 risks 159–63 top-down 45–6 using 41–5, 175 resource and competence architecture 14, 97–8

manufacturing industry, development strategy 164–5, 172

resource and competence database 93–5 acquisition strategy 94, 97 building strategies 94–5 evolution strategy 94, 95–6 incubation strategy 94, 96

market-based strategy-making 161–6

resource and competence development 129

measurement or assessment alternative 150–2 performance see performance measurement

resource fit 99–101

micro co-ordination 107–14 enablers 114–16

resources acquiring 62–3 assessing value 79–80, 85–6 assessing sustainability 80–2, 85–6 categorisation 20, 70–3

macro co-ordination 106–7 Mailbox Inc. (example) 24 make versus buy decisions 42–3

NGRM Research (example), unit competence 57–8 Nucor (example) 9

resource health 101–2 resource-based strategy-making 161–6

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Index

for change activities 33–4 definition 19–21 enhancing 99–105 evaluation 75, 83–6 identifying 61–3, 75–6 importance 5, 6, 21–5 for improved operational activities 33 increasing sustainability 102 increasing value 96–102 increasing versatility 102–4 measurement framework 129, 136–7, 141 measures toolkit 152–5 retail banking (example) 76 return on capital employed (ROCE), as performance measure 130

market-based 161–6 resource-based 161–6 Superlative Delivered Quality Inc.(SDQ) (case example) 15–19 sustainability increasing 102 resource importance 21, 23–4 sustainable advantage, building 52

teamwork competence 117 top-down analysis process 45–6 total productive maintenance (TPM) program 65 Toyota (example) competitive advantage 158 production system co-ordination 110–14

risk minimisation 2 Rolls-Royce, strategy-making 30–1

United States Navy (co-ordination example) 107–10 USX (example) 9

Scientific Instruments (case example) 148–50 Sergei Bubka (example) 159 service importance 88–90 shared memory, as resistance 87 shareholder value 166–8 General Electric (case example) 168–71 single minute exchange of die (SMED) techniques 64

value see resources, assessing value versatility increasing 102–4 resource importance 21, 24–5 Virgin (example) 25 Vodaphone AirTouch (example) 167–9

Sony (example) 158–9 Stable and Enduring Inc. (example) 30, 130

Wal-Mart (example) 22

start-ups development strategy 163 resources review 5–6

Welch, Jack 168–71

strategy-making future trends 172–3

Xerox (example) 22–3

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