Strategy and Performance Competing Through Competences (Strategy and Performance)

This page intentionally left blank
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 vii
Acknowledgements ix
When to use this book 1
How to use this book 7
Chapter 1 Practical competence and resource frameworks 9
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
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 mar-
ket/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 busi-
ness 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 prod-
ucts, 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 weakness-
es. 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, val-
ues, 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 SWOT – strengths, weaknesses, opportunities and threats.
vii
viii Preface
The two processes we describe aim to redress this imbalance by con-

centrating 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 sup-
port for the research.
Many other companies and organisations in addition to the above
have supported the research with their valuable time, providing a test-
ing 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. When disaster is at hand
3. When you are trying to build a more sustainable competitive advantage
4. When you need fresh perspectives on how to improve your business
5. 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 compo-
nents 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 dealer-

ships 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 atti-
tude 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 divest-

ments. 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 technolo-
gies 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 partic-
ular 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.
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 friend-
liness, 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 sig-
nificant 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 under-
stood 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 differ-
ent’ 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.
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, remem-
bered them very well – he would wouldn’t he? He was the one who bor-
rowed 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 crys-
tallised. 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 advan-
tage over competitors through improving the competence of its service activities. This included installa-
tion, service and repair, consumables supply, customer training, advice and maintenance contract nego-
tiation. 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
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 routine-
ly 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 con-
siderable 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 objec-
tives? 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 tak-
ing on new technologies and facing up to potentially catastrophic mar-
ket 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.)
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 espe-
cially 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 manage-
ment. 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 indus-
trial settings. For that reason it contains many insights from practice –
what happens when you apply these ideas – alongside a supportive the-
oretical 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 resource-
based 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 defi-
nitions 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 practi-
cal 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 for-
ward? 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 ver-
sus buy, acquisition, divestment, new market entry, taking on new tech-
nologies 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 exam-
ples, tools and insights from real experience.
Chapter 8 is concerned with the measurement of resources and com-
petences. This is a subject that has yet to be fully addressed either by
managers or academics. Its importance is related to the attention com-
petence and resource-building investments receive around manage-
ment and board room tables. It is only relatively recently that attention
to non-financial measures like delivery leadtime have become of cen-
tral 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 resource-
based ideas and finally thoughts on other recent developments in strat-
egy-making and the future role of resource-based ideas.
Practical competence and
1 resource frameworks
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 compa-
nies 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 man-
agement practices that have prevented it from adopting new technologies in a timely and efficient man-
ner. Its low performance (or competence) in this area put USX at a considerable competitive disadvan-
tage compared to mini-mill producers like Chaparral and Nucor. The highly innovative mini-mill produc-
ers 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 micro-
processor 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 cus-
tomers 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
Well below Below

Company industry industry Average Level with Indisputable
performance average average for industry the best leadership
Strength or Significant Weakness Neither Strength Significant

weakness weakness strength nor Strength
weakness
Competence Very Low Low Average High Very High
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 struc-
ture 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 neces-
sary 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
• acquisition/mergers/divestment
• performance measurement and objective setting
• networks with relevant legislators and industry bodies
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 retir-
ing 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.
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 predomi-
nantly 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 compe-
tences that consultants and academics have described. These defini-
tions may be of interest to you but you are likely to be much more inter-
ested 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 Those currently on a par with competitors’ resources

and competences 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 Description
category
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 The small number of key activities, usually between or three and
business unit 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) For example, a competence for building and working productively
competences 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 per-
formance 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 compe-
tences will need improvements to the competencies of individual sales
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 Resource
B C
Figure 1.1 A representation of a competence.
This representation of the relationship between resources and compe-

tences 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 manufac-

turers); 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 com-
petence 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 sev-
eral 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’ pro-
duction lines, and ongoing contact with peers on customer production
lines. (Operators know why it is important to pack products in a partic-
ular 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
Co iverin
de
mp g
l
Strong
ete qua
belief that
nc
quality is key
e: ity pr
Loyal and
l
experienced
SPC staff
duo
knowledge Rigorous
ct
and skills ISO 9001

Performance procedures
measurement
Customer focus
and reward system
a strong value
Figure 1.2 Primary resources underlying the delivered quality competence.

Co liverin
de
mp g
Strong
ete qua
belief that
nc
quality is key
e: lity pr
Loyal and
SPC experienced
knowledge staff
du o
and skills
ct
Performance Rigorous
measurement
• ISO 9001
and reward system procedures
Reliable manufacturing Customer focus
system a strong value
Co sign cturin
de nufa
mp of p g
ma
ete rod pro

nc
e: uct a ess
Design
for manufacture
procedure
nd
c
In-house
Skills in using automation
DFM procedure 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 manu-
facturing 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

• Skills and experience built from practicing the DFM procedure (seven
or eight new products per year)
• A large production engineering group with automation design knowledge
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 work-
ing productively in teams, the resources that underlie this competence are:
17 1.3 Resource and competence architecture
Co liverin
de
mp g
Strong
ete qu a
belief that
nc
quality is key
e: ity pr
Loyal and
l
SPC experienced
knowledge staff
duo
and skills
ct
Performance Rigorous
measurement ISO 9001
and reward system procedures
Reliable Customer focus
manufacturing system a strong value
Co sign cturin
de nufa
mp of p g p
ma
Co
ete rod ro
mp
nc
ete
e: uct a ess
nc
e:
for
Design
mi
nd
c
for manufacture
ng
procedure
an
do
pe
ra
In-house
ti
Skills in using
ng
automation
DFM procedure Multi-disciplinary
in
and design
tea
knowledge personnel
ms
Skills in using Structured problem
problem solving methods 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 engi-
neering 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
Cu
sto
me
Resource
r
A
pe
rce
i
ved
com
pe
ten
ces
Resource Resource
B C
Tec
hn
So
ica
cia
l su
lly
Resource
pp
su
X
or t
pp
ive
or
tiv
co
ec
mp
Resource
om
ete
pe
ten
nc
e
ce
Resource
Y
Resource
Resource
P
R
Fig 1.5 Extended competence architecture.
involved. This is particularly so for competences that customers recog-

nise, 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 compe-
tence’ 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-
19 1.4 What is a resource?
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 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)
• The performance of supportive competences
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 com-
petence 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, equip-
ment, 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, experi-
ence and knowledge of employees, advisers, suppliers and distributors.
Skills, knowledge and experience can also be held or embodied in sys-

tems, in-house databases, personal and organisational networks, brands
and reputation. An organisation’s culture and values can be very impor-
tant resources too, especially, for example, the prevailing attitudes to cus-
tomers, 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 rep-
resents 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, cus-
tomers 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 doc-
uments and the computer resources they run on are tangible.
But the efficient running of these systems requires inter-
twined intangible resources like the knowledge and experi-
ence of the operators and users of the system.
Cultural resources One type of intangible resource often developed over long
and values 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 compa-
ny personnel with suppliers, customers, legislative authorities,
or advisers. We include reputation and brand in this category.
Resources important A key resource area related to recognising when valuable
for change 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 imple-
menting change (like cash for investment).
Do not make the mistake of thinking that these resource types are sepa-
rable. 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 under-
lying 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 knowl-
edge 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 pro-

vides a competitive advantage that is valuable to cus-
tomers
• 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.

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 pro-
vide premium pricing.
• Long-lived personal contacts and networks with key suppliers, cus-
tomers and/or legislative authorities are examples of resources which
enable access/influence on customer/legislative requirements or speci-
fications. Even if threats cannot be defused, those with superior net-
works 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 cul-
ture 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 appropri-
ate reporting structure and compensation resources and sophisticated point of sale inventory control sys-
tems. 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 com-
petitive 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.
• 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

• Competitors should also have difficulty in finding substitute mecha-
nisms for rivalling the advantages it provides
• The firm itself should not undermine, destroy or otherwise allow
resource values to depreciate
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 con-
fusion 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.
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 cus-
tomers 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 com-
petitors 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 sub-
stitution. 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 sig-
nificant 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 compe-
tences is to design very reliable mid-size, construction equipment.
Finally, a firm can destroy its own resources particularly quickly, espe-
cially resources that naturally depreciate quickly. The value of some
knowledge resources can decline quickly in fast-moving, high-technolo-
gy 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 cur-
rent application. However some resources are not versatile, there are
three potential reasons for this:
• 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 complemen-
tary 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 vir-
tually 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 soft-

ware 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 under-
stood 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 suc-
cess. 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.
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, sus-
tainability and versatility metrics, that are the source of competitive advan-
tage. 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 impor-
tant 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 pos-
sesses 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 com-
pany, 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 some-
thing 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 frequency of practice
• the priority given to the activity especially where shared resources
are involved,
• the performance of supportive competences
• It follows that your competency as a manager is a vital key to the per-
formance 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 ordi-
nary, 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, Addison-
Wesley, Reading, MA.
Especially chapter 5 ‘Evaluating firm strengths and weaknesses: resources and
capabilities’.
Grant, R.M. (1991) ‘The resource-based theory of competitive advantage: impli-

cations 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.
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.
Awareness – what does
2 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 sen-
sitise 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 out-
comes 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.
New change and
Current change Resource and improvement
and improvement competence activities aimed at
activities building competence and
resource building
Vision of required
resources and competences
Existing change and

Envision the
Business improvement activities
resources underlying
objectives with resource and
the achieved objectives
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 require-
ments (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 compe-
tence 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 chap-
ter 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 pro-
ductivity 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 infor-
mation, especially where new products were concerned, to a position where some key suppliers were active-
ly 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 pro-
duction process and involved the manufacture of customer specified jigs and fixtures. These were now out-
sourced 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 illus-
trates 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 bil-
lion 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)

• Resources develop in an ad hoc manner and their well-being can be left
to chance
• Resource-insensitive decisions can be made
For these reasons, helping managers to become more aware of their

resources as they decide how to reach their business objectives is a use-
ful 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-
agers to visualise the impact of different options on achieving their

objectives and on their resource base.
Improved performance
"Profit and loss"
Coherent
Business implementation actions
objectives
"Balance sheet"
Improved assets/abilities
for further performance
improvement
Figure 2.2 Actions that improve performance and the resource base.
The analogy used in Figure 2.2 compares the outcome of improved per-
formance (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 meas-
ure. 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.
2Most 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
What resources
Change underpin these
activities activities?
What Resources
Business activities are required
objectives to achieve these business
objectives? Resources
Improved What resources

operational underpin these
activities 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 machinery?
• new engineer recruits?
• new sales staff?
• new suppliers or advisors?
• Which resources have been improved?
• 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 compe-
tences required to support improved performance and provide a fur-
ther platform from which even better performance can be achieved.
Resources underpinning the change activities are more subtle. There are often prob-
lems in changing organisations:
• Planning change needs ‘joined up thinking’. If the teamworking prac-

tices within your organisation are poor change may be slowly and mini-
mally achieved.
• Extra resources are invariably needed for change and initially change
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 sug-
gesting 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? To enable you to take resource-aware decisions to achieve your business objectives.
How? 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
Knowledge System and Cultural Resources

Tangible skills and Procedural resources Network important
Activity 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.
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 bet-
ter 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, suppli-
ers, advisors ...?
• Which resources have been improved e.g. through training or refurbishment?
• 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?
• What current problems have been reduced or eliminated and how exactly
was this achieved?
• 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 subcon-
tractor, 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 unre-
sponsive, 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

Major messages Up to date Contacts Provide time Appoint a

for customers and brochures, database at board business
sister companies standard used by all meetings to communications
being regularly slides review main manager,
updated messages overall focus
for this
objective
Increase personal Better influ- Include in Needs to be Measures
networking for encing skills appraisal recognised of network-
directors and required and objectives as a very ing con-
managers system important tacts and
objective database
entries
Major events being All managers/ Briefing sys- Need to be

used to promote directors must tem prior to recognised as
the company understand major events very important
the order of opportunities
military ranks
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 overlap-
ping 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.
Table 2.3 Improve the co-ordination of the design and build process

Improved design Design Better know- Robust design Designs to be Visit other PRTM con-
process libraries ledge of reviews owned by contractors sultants
product and originating to look for
Design systems Design for designer over new tech-
quality across modular their whole niques
measures designers build guide- lifecycle
lines
Careers for Preferences
graduates Early involve- for sharing
cycling ment of rather than
between manufacturing hoarding
design and in design knowledge
manufacturing process
Improved Reward sys- Engineer led

design/build tems adjust- design and
process ed to reflect build teams
the impor-
tance of Leadership
teamworking moving from
design to
production to
commissioning
over the pro-
ject’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 com-
petence 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
3 analysis methods
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:
• Considering make versus buy alternatives
• 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 sensi-
tises you to protect and develop resources relevant to your current busi-
ness 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 resource-
based 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?
• The level of detail required: achieving a balance which enables action-
able outcomes
• Insight: an overview of the second approach
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 compe-
tences 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 com-
ponents 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 com-
ponents designed specifically for your business. If the component con-
cerned plays a fundamental role in providing any important perform-
ance 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 inno-
vate 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 deci-
sions 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 capabili-
ties of the Japanese suppliers, which in turn increased Japanese industry
autonomy and ultimately the ability of that industry to demand more crit-
ical work. In addition, the suppliers gained in their appeal as subcontrac-
tors which, in turn won them more contracts. On the US side, fewer con-
tracts 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 con-
stricts 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 vol-
umes 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 part-
ners’ 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.
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 cus-
tomer 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 under-
estimate 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 impor-
tant, 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 per-
formance 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 sig-
nificant goals, individuals competent at the relevant skills and at collab-
orating effectively with one another. Outstanding teamwork also needs
members to be unified towards the achievement of the common objec-
tive, 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 mil-
lennium, 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 compe-
tence 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 percep-
tions of what is important. However, since company boards and man-
agement 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.
1Awareness 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.
Table 3.1 Pros and cons of alternative directions of analysis
Direction of Advantages Disadvantages

analysis
Top-down Competences across a Fed by perceptions of senior

large, multi-unit organisa- managers
tion may be addressed Weaknesses may be ignored
New corporate directions in the search for consensus
and opportunities may be 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
involved in the area have analysis is wide and the
to be involved to access the number of resources is large
detailed data Not always understood by
Firmer basis for further work those not involved in the
Capable of identifying process
unsuspected and poten-
tially valuable resources
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 High
Department?
Detail Business The need

in the process Business for business
analysis unit context
(for equivalent
effort)
Corporation Low
Low
Narrow Wide
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 microelec-
tronics, 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 photo-
copiers. 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 impor-

tant 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 dif-
ficult, 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 com-
prehensive 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.
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 earli-
er – 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 Slower route

chosen. Provides superior insight into Danger that those not
resource-based ideas and a basis for more involved will not under-
creative strategy-making stand some outcomes
High potential for identifying valuable, yet
unsuspected and therefore under-utilised
resources
High potential for actionable outcomes.
Awareness The faster route, usually Potential for actionable

Appropriate for management teams results lower than
Insight.
Provides a good, practical feel for
resource-based ideas Very low chance of iden-
tifying under utilised
Capable of sensitising managers to make
resources or unsuspect-
resource aware decisions
ed valuable resources
Can be used to examine a firm’s ‘change
competence’
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 co-
ordinating desired resources in order to achieve business objectives.
This route can also focus on the ‘change competence’ of the organisa-
tion 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 out-
comes 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 Existing change and

improvement activities
Resource with resource and
Current change competence objectives
and improvement
and
competence New change and
activities
building improvement
activities aimed at
competence and
resource building
Step 3 (Chapter 6)
Alternative Valuing Resource assessments

scenarios Ideas for improvement
resources
Step 2 (Chapter 5)
Resource-coloured spectacles
Identifying List of resources
Curiosity resources New perspectives on current
concerns
Achieving a
business Step 1 (Chapter 4)
objective
Defining Defined focus
Business Participants
project scope
decisions Project organisation
and focus Boundary
Figure 3.2 Insight.

Step 3 takes the resource listing and assesses them for value and sus-
tainability 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 resource-
aware 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 suit-
able 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 sus-
tainable advantage or looking for improvement ideas. These issues
require an analysis that focuses on existing resources and their assess-
ment. Insight is designed to help tackle these decision areas.
• There are pitfalls when choosing very large or very small areas of inter-
est – 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 partic-
ular 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
4 scope is appropriate?
This is the first step in the Insight method, where the aim is to docu-
ment 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
Defined focus
Defining
Business Participants
decisions
project scope
Project organisation
and focus
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, par-
ticular 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 ‘serv-
ice’ 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 deliv-
ery 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 valu-
able than developing a generalised and partial consensus on what con-
stitutes 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 bound-
aries 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
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 them-
selves. 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, ‘resource-
coloured 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 mat-
ter 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:
• the scale of the analysis is understood
• relevant participants are identified
• the area of interest is seen in a business context
How? 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 busi-
ness 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 inter-
viewed?
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
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 Abacus Ltd Date June 1998

Focus Service Competence
What major activities are included in Installation, repair and service, technical
the area of interest? support, spares and consumables provision,
Use the business process checklist, 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: Central Service support
All activities in the organisation? District Sales management
OR A set of activities across a number of UK Service organisation
business units or organisations? One European third party distributor
OR All activities within a single business A range of customers
unit or organisation?
OR A set of activities within a single
involved?
List the products involved: The Delta range only
Given the above, who should be inter- The analysis will cover about 15 intervie-
viewed? wees 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 prod-
ucts or services (see Table 1.2). But just as important are the support
activities, for example recruitment methods, training provision and tech-
nology 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
57 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 cre-
ated 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, per-
haps a training session for his plant engineers. Such behaviour requires
a wide variety of skills. Can your recruitment methods identify candi-
dates 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 dis-
tributor’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 interna-
tionally. 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 organisa-
tional 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 compe-
tences within the boundaries of the research laboratory but miss com-
petences lying partly outside its borders, perhaps with particular sup-
pliers 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.
Table 4.3 Defining the boundaries – NGRM Research
Organisation NGRM Research Date November 1999

Focus The core competences of the whole research centre
What major activities are included in All activities within the research centre:
the area of interest? agreeing projects with their product group
Use the business process checklist, customers
Table 1.2, as a prompt. carrying them out
reviewing them
giving advice
labour support
technology support
What is the organisational scope: The whole of the central research and
All activities in the organisation? development unit and one customer per
product group
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
involved?
List the products involved All product groups
Given the above, who should be inter- The analysis will involve a core team of
viewed? six, representing the different parts of the
organisation and interviews with 25 more
internally and five product group represen-
tatives
59 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.

• Initially, if possible, choose small, but important areas to focus on –
develop those resource-coloured spectacles.
• If in doubt, focus on one or more of your competences at meeting cus-
tomer performance requirements e.g. low leadtimes, low costs or high
product reliability.
• Do not draw the boundary too tightly – important resources like advis-
ers 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.
4.6 Process review

• 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 proj-
ect members
Insight – where are these
5 resources?
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 proj-
ect, a list of participants and a defined scope, measured by the products
and organisations involved. As Figure 5.1 shows, the outputs are a cate-
gorised list of resources and the beginning of a set of ‘resource-coloured
spectacles’ for those most involved.
Identifying
List of resources
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 sup-

plemented with a few high-profile examples, much as they are present-
ed 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 manufactur-
ing 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 relia-
bility in this product range while its competitors, with no such belief
would have no such problem. Such beliefs and values are very impor-
tant 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 con-
fidence 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 fol-
lowed by a brainstorm round a flipchart with groups or individuals,
even supported by an experienced outside facilitator, was an unsatisfac-
tory 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, sup-
plier 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, con-
sists 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 ques-
tion 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.
Agile Manufacturing Inc. (AMI)*

After a long and successful history as a metal components supplier AMI found itself pressured on mar-
gins and competing with companies that provided much lower leadtimes than AMI could normally pro-
vide. 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 hap- Training on Production
pening on their sys- SMED. control system
tem. As time went by New skills amended to accept
further improve- lead time in days
ments were made,
see Figure 5.3, just in
time (JIT) techniques
were adopted around Lead times
bottlenecks; sales- and 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 developed measurement
rather than three. By through system amended to
this time, some two exploratory emphasise lead time.
and a half years project New skills
since they had
begun, the problem Time
had changed – their
system was capable = value to the business
of lead times below
the competition but
Figure 5.2 Developing a competence for low and reliable lead times at AMI, first steps.
it was sensitive to
(WIP stands for work in progress.)
machine breakdowns.
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 sys-
tematically strip, clean and effectively bring each machine to an ‘as new’ standard over a series of week-
ends. 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 Production New skills and Performance measurement

SMED. control system knowledge system amended to put increased
New skills amended to accept exercised and emphasis on delivery reliability.
lead time in days refined through TPM training begins. New skills
practice
Lead times Lead times and

and WIP WIP reduce again. Lead times reduce
reduce JIT training begun further as new tooling
speeds changeovers and
Sales start to JIT implementation spreads
increase
Ideas for Business being won
quick change from competitors
tools developed.
Performance
Knowledge measurement
developed system amended to Salesmen
through emphasise lead time. trained to sell Speed of response improved
exploratory JIT training begun. short lead times. through automation of ordering
project New skills New skills system. New skills
(Competitors Time
begin to copy)
= 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 compe-
tence for short leadtimes and reliable delivery.
Co
mp
Co d reli
e
an
ten
JIT
mp abl
ce
knowledge
ete e d
Resource
and skills on
nc eliv
A
ef
the shopfloor
or ery
sh
or t
Initial TPM knowledge
le
Resource Resource
ad
Production Sales
B C
tim
control system skills and
es
knowledge
Quick
change SMED knowledge
tools especially tool design
Performance Order
measurement system 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 col-
leagues 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 man-
agers, 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.
Year Year Year

Even before before before Last This Next
earlier that that last year year year
External
Internal
Time
Figure 5.5 A typical history skeleton.
CD
Forms
Pre-1993 1993 1994 1995 1996 1997 1998

June June June June June 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 interview-
er 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
69 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 exter-
nal 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 rele-
vant 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 collect-
ing 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:
• 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.
First survey in the UK shows

our service provision is a
potential strength THA (1996)
‘Service has good status
compared to other compa-
nies I’ve worked for’, AM
‘Total Care’ policy begun by ‘The board have always been The most senior managers in
the MD (1996) 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.
71 5.3 Toolkit
‘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 def-
inition of what ‘good’
service was (1996)
. Auditing of the standard Service standard and
begins (1997) audit system
Three events and a comment combine to produce a wide-ranging service standard and yearly
auditing system resources.
‘Discovered after difficult

product launch that
Service knowledge was not
as good as it should be.’
JW, NP. (1995)
Foundation course for service Foundation course

engineers constructed and
run for the first time (1996)
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.
Table 5.2 Format for listing and categorising resources

Resource Tangible skills and procedural resources Network 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.
73 5.4 Summary
Table 5.3 Extract from Abacus – resources underlying a Service competence

Service resource Tangible skills and procedural resources important
descriptions resources experience resources and values for change
Technical managers meeting/group.

Established 1992, has developed from a x x x x
gripe session to a forum for ideas
Key performance measures plus targets x x x x
Service standard and audit system x x x
Fault/reliability data and analysis systems x x x x
Training programmes: foundation and product x x
Shared memory of a near disastrous new
x x
product introduction
Taken for granted that the product will fail x x
Directors believe Service really matters x x
Web site and service bulletins x x x
300 service engineers worldwide.
UK Service engineers average seven years x x
with the company
In-house developed service system for
x x x
small distributors (Workman).
Spares organisation
x x x
Architecture
The final step in this stage is to draw an architecture of the resources list-
ed, 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
5.5 Process review

• Documented and categorised the resources in the focus area

• Developed a new perspective on current concerns arising out of view-
ing your organisation as sets of resources and competences
• Improved the focusing of your resource-coloured spectacles
Insight – how important are
6 these resources?
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 specta-
cles’ for those involved, and ideas for improvement see (Figure 6.1).
Alternative Valuing Resource assessments

scenarios resources Ideas for improvement
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, espe-

cially when it is important to be as objective as possible and the meas-
ures are somewhat abstract
• Issues found in practice, good records of the assessment are essential
• Outcomes of the assessment, several types of competence and resource
emerge
• Toolkit: tools that help the assessment debate, its resolution, and pro-
vide a record of the thinking underlying the assessment
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 intu-
itive 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 dis-
agreement. 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 par-
ticular 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 sur-
face, 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.
77 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 iden-
tify 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 back-
ground 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 poten-
tial 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 assess-
ment 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
Value Sustainability
Resource 1 1 2
Tangible
Resource 2 2 4
resources
Resource 3 5 5
Skill, knowledge
and experience
Systems and
procedures
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 depart-
ment 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 sug-
gestions (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 col-
lect data to test whether the six potential competences so far identified could be ‘core’. This lengthy dia-
logue 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 per-
spectives. 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 work-
sheet (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.
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 com-
petences. Example resources and competences are included:
1. What is its net effect on the organisation’s costs and revenues?
High negative High positive

impact Negative impact Nil impact Positive impact impact
An out of date An above aver- A share of an

manufacturing age new-prod- oilfield
system uct introduction
process
Licensable
intellectual
property rights
2. What is its effect on the organisation’s ability to defuse threats?

A culture that Long-lived

resists change contacts with
key suppliers
and customers
3. What is its effect on the organisation’s ability to capitalise on opportunities?

A culture that A culture that

resists change allows risk
taking
Highly flexible
workforce
4. How many competitors already have it?
All Most Half Some None
An order- Prime retail Ownership of a

processing sites particular oil-
system field
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 Above industry Indisputable

industry average industry average industry average leadership
Product cost 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 compe-

tence 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 compe-
tences are included:
1. How easily can competitors recognise it?
Very easily Quite easily Only if they were looking for it It’s invisible
Explicit in Tacit knowledge

company held by individ-
advertising uals or groups
(e.g.
Caterpillar’s
worldwide sup-
port network)
2. How long would it take a competitor to imitate it?
<1 month 1–8 month 8–24 month 2–5 month <5 years
Reserving car A strong brand

parking spaces
near the store
for customers
with babies
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 com-
bined 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 Partly Not at all
An internet A product reliability competence could substi-

retailer’s sys- tute for a product service competence
tems can sub-
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 evalua-
tion 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
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 compe-
tences as well as ordinary resources, see Table 6.2:
Table 6.2 Outcomes of the analysis
Probable Possible Desirable Out-dated Ordinary
Usually sus- Usually unsus- Perceived as Weakness?

Type of capability/ pected prior to pected prior to valuable in the
resource the analysis the analysis future but cur-
rent perform-
ance is poor Benign?
Valuable? High Unknown, but Low Negative Low–positive

suspected to
be valuable
Nil?
Sustainable? High Medium–high N/A Medium–high Low–high
Probable: 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 any-
where between Low and High. These resources can be
83 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 envi-
ronmental circumstances.
NB It is a serious mistake to believe ordinary resources are of no inter-

est or have little value to your firm. They can be important starting
points for building new strategic capabilities especially those individu-
alistic 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.
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, technolo-
gies 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-à-
vis 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 cur-

rent strategy as well as providing a basis on which resources can be evaluated.
6.4.2 Resource Evaluation
Aim To evaluate resources within defined contexts.

How? 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.
• 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
• Answer the Sustainability questions on Form 6.4.
• 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
85 6.4 Toolkit
• Assess whether other contexts alter the value of your resources. Sustainability is usu-
ally 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
Table 6.4 Value and sustainability assessment CD

Forms
Resource/competence name ......................................................................................
VA LUA B L E ? High, negative Negative Nil Positive High, positive Not
impact impact impact impact impact Unknown applicable
What is its net effect 丣丣丣丣丣

on the organisation’s
costs 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
opportunities?
How many competitors All Most Half Some None
already have it?
What level of performance Well below Below Average Level Indisputable
does it offer compared to industry industry for with the leadership
competitors? average average industry best
What statement or question
best illustrates the value
of the resource/competence
Value summary Negative Low Medium High Unknown
S U S TA I N A B L E ? Not
Unknown applicable
How easily can Very easily Only if they were It’s invisible
competitors recognise it? looking for it
丣丣丣丣丣
How long would it take <1 month 1–6 6–24 2–5 <5 years
a competitor to imitate? months months years
What proportion of sales <0.5% 0.5–1% 1–5% 5–20% >20%
revenue would it cost
them to imitate?
Without investment of <50% 30–50% 15–30% 5–15% <5%
time and money, how per year per year
quickly does its value
decline?
Can its advantage be To a significant Partly Not at all
substituted by another extent
resource/competence? 丣丣丣丣丣
Sustainability summary Low Medium High Unknown
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 Medium Low Unknown Negative

High Resource 4 Resource 5
Medium Resource 6 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 introduc-
tion 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

What is its net effect on 丣丣丣丣丣

the organisation’s costs
and revenues?
opportunities?
already have it?
What level of performance Well below Below Average Level Indisputable
does it offer compared industry industry for with the leadership
to competitors? average average industry best
What statement or
question best illustrates
the value of the
resource/competence
Unknown applicable
How easily can Very easily Only if they were It’s invisible
competitors recognise it? looking for it
丣丣丣丣丣
them to imitate?
decline?
subtituted by another extent
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 increas-
ing, warranty costs should be declining. However in the field, and espe-
cially 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 improve-
ment 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 lead-
ing 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


and revenues?
opportunities?
already have it?
What level of perform- Well below Below Average Level Indisputable
ance does it offer com- industry industry for with the leadership
pared to competitors? average average industry best
What statement or question
best illustrates the value
of the resource/competence
Unknown applicable
How easily can compet- Very easily Only if they were It’s invisible
itors recognise it? looking for it
丣丣丣丣丣
How long would it <1 month 1–6 6–24 2–5 <5 years
take a competitor months months years
to imitate?
them to imitate?
time and money how, per year per year
decline?
Table 6.8 The reference database, Academic research group

Reference database
Resource/competence name ......................................................................................


and revenues?
opportunities?
already have it?
What level of perform- Well below Below Average Level Indisputable
ance does it offer com- industry industry for with the leadership
pared to competitors? average average industry best
What statement or
question best illustrates
the value of the
resource/competence
Unknown applicable
How easily can compet- Very easily Only if they were It’s invisible
itors recognise it? looking for it
丣丣丣丣丣
What proportion of <0.5% 0.5–1% 1–5% 5–20% >20%
sales revenue would it
cost them to imitate?
decline?
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 under-
stood 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
• 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
• 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
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
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
7 competence base
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 and competences should you look for in choosing a
third party distributor or joint venture partner?
• What resources should you hide from a 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
Existing change and

improvement activities
Resource with resource and
Current change competence objectives
and improvement
and
competence New change and
activities
building improvement
activities aimed at
competence and
resource building
Resource assessments
Ideas for improvement
from 'Insight'
Figure 7.1 Building a resource/competence base.
93
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 sys-
tems, etc. Often this occurs within an unchanged organisation with
most staff performing their usual jobs
• Incubation, where a new organisation is formed, perhaps geographical-
ly 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 compe-

tences 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 competi-
tors. 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 exam-
ple, 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 com-
mercial 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 deter-

mine which offer the fastest or greatest improvement potential. Also,
just as Rome wasn’t built in a day, you cannot instantly build a sustain-
able 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 well-
intended 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 shepherd-
ed 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
1Coyne, K.P., Hall, S.J.D. and Clifford, P.G. (1998) Is your core competence a mirage?, The
McKinsey Quarterly, 1, 40–54.
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 mainte-
nance activities necessary to keep a high performance competence up
to the mark.) If the performance gap with competitors is very large, root-
ed 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 organisa-
tion, 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-ordi-
nation 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 inte-
grated 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 acqui-
sitions 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 choos-

ing an inappropriate acquisition more likely
• The acquisition may be absorbed too quickly and left with no autono-
my. In this situation key managers may leave or important systems can
be over-ridden and destroyed – if they are part of the competence pur-
chased, too bad. McKinsey’s advice is to delay integration of a compe-
tence 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 compe-
tences 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 sup-
portive competences can be enhanced, here we expand these general
ways into more detail, see Figure 7.3.
Cu
sto
me
Resource
r
A
pe
rce
i
ved
com
pe
ten
ces
Resource Resource
B C
Tec
hn
So
ica
cia
l su
lly
Resource
pp
su
X
or t
pp
ive
or
tiv
co
ec
mp
Resource
om
ete
pe
ten
nc
e
ce
Resource
Y
Resource
Resource
P
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 co-
ordination . 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
99 7.3 Resource enhancement
Competence improvement
Enhancing resources Enhancing supportive

competences
Value Sustainability Versatility 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 co-
ordination 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 inappro-
priate staff who will under-perform in tasks they were recruited into.
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 knowl-
edge 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 ‘profes-
sional’ 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 compe-
tence used in professional development research is shown. There is a strong
need for organisations to be able to transfer the insights, values and knowl-
edge that competent managers bring to problem solving to inexperienced
managers – predictably, this is not easy.
Does not rely on rules, guidelines or maxims. Has an intuitive grasp of
Expert 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

Proficient 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

Competent deliberate planning. Standardised and routinised procedures.
Action based on attributes or aspects (aspects are global characteristics

Advanced beginner 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.

Novice 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.)
In order for these competences to be transferred managers, acting as

mentors, need to be able to teach; there are at least three important fac-
tors 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 invest-
ment 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 man-
agers 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 stim-
ulation 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?
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 diffi-
cult 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 direc-
tors 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 organisa-
tions provided to Sales. Now, if a salesman closed an order with an offer of ‘free installation’ or ‘free train-
ing’, 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 likeli-

hood of your own organisation allowing it to depreciate. For example, in
the case of skilled employees, provide them with more reasons for stay-
ing 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 replicat-
ed easily and used in another part of the business. Perhaps the addition of
this resource can improve the performance of the competence we are con-
cerned 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 inspec-
tion 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 salesper-
son, watching what s/he does and asking ‘Why that way?’ ‘Why talk about
that aspect?’ Gradually parts of his/her tacit knowledge can be docu-
mented.
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 strong brand

A database looking
after an aged relative
can be geo-
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?
Partly Fully under-

documented stood and
Not at all and understood documented
The tacit know- A quality system

ledge of a recog-
nised 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.
3. How long would it take to reproduce elsewhere in-house?
>5 years 2–5 years 6–24 months 1–6 months <1 month
The tacit know- A salesman’s A strong brand

ledge of a recog- knowledge of
nised expert a particular
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 tech-
nology 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:
3Leonard-Barton, D. (1992) Core capabilities and core rigidities: a paradox in managing new
product development, Strategic Management Journal, 13, 111–132.
1. Can it be built on existing resources?
Yes, many
No, supportive Some new existing
resources are resources resources can
unavailable are needed be used
A new manu- A new manufac

facturing system turing system,
that involves new requiring a re-
technologies, new organisation of
machines, a much existing re-
more skilled work- sources and
force, etc. some new know-
ledge
2. Would it conflict with existing, highly valued resources or the firm’s

traditions?
Definitely Partly Not at all
The introduction of One more auto

an automated, high mated line
volume line where where three
bespoke/craft appro- already exist
aches are the norm
3. Will it replace any resources important to the firm’s operation or identity?
Definitely Partly Not at all
A structured process A new software

for strategy develop- platform for
ment, replacing an mechanical
emergent process design
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 situa-
tions where the development of some resources and competences may
be seriously resisted. In the next section we investigate the role of co-
ordination on competence performance.
7.4 Co-ordination, co-ordination, co-ordination

The effect of improving the co-ordination of a competence is to gener-
ally improve its performance. However, depending on the level of co-
ordination 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 nor-
mally 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 relative-
ly 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

• the see-sawing between centralisation and de-centralisation in organi-
sation design
• work structuring in operations functions
• 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 co-
ordination mechanisms concerns the improved communication tech-
nologies within a firm, like intranets, or between firms, over the inter-
net. 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?
107 7.4 Co-ordination, co-ordination, co-ordination
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 ques-
tions with a resounding ‘yes’, the devil really is in the detailed micro co-
ordination 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 re-
engineering 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 con-
sider 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-year-
olds, 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
In competence terms the carrier deck crew, pilots and others display
a high-performance competence in reliably and safely loading arma-
ments 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-ordi-
nator. 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 interrelat-
ing or co-ordination that Weick and Roberts call ‘heedful’.
Heedful co-ordination occurs when each participant has an under-
standing of what should and could happen during their co-ordinated activ-
ity, this includes the actions of others and their relationships to one anoth-
er. 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 ques-
tion; 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 under-
powered 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
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 air-
planes 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,
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 co-
ordination 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 direct-
ing 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 activat-
ed, 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, sen-
ior 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,
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, over-
come 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 tak-
ing into account the effect of their actions on one another? How frequent-
ly 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-ordina-
tion 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 prod-
uct 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 signifi-
cantly 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 sci-
entific 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

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 auto-
matically. 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 sec-
onds 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.’
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.
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 speci-
fied. 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 immedi-
ately. The designated assistant is expected to resolve that problem in a speci-
fied 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, speci-
fied 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
one and only one of those machines specified as the route. In most pro-
duction 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 – prob-
lems can then be solved and the production process will move closer to
the Toyota ideal. These rules also ensure that the problems will be pre-
sented in a less ambiguous way than usual. Since problems are identi-
fied 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 oper-
ators. 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.
It seems that, once learnt, the rules enable a responsive, self co-ordinat-
ing 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 speci-
fy an hypothesis – ‘the time for this operation can be reduced by 10 sec-
onds by …’. Inspect the result, only if the hypothesis is confirmed does
further questioning cease, otherwise ‘Why did we fail to achieve a 10-
second 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 co-
ordination, 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 power-
ful 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
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 heed-
fully 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.
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 three-
quarter 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.
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 opera-
tions. 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,
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 sup-
port 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.
117 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 cus-
tomers 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 frequent-
ly made, the player who rarely passes to players in a better position, pre-
ferring 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 pro-
ductive teams is a socially supportive competence in a range of prob-
lem 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 work-
ing 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

• Production equipment and processes were designed in-house and con-

stantly 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 re-
invented’ appeared to be embodied in:
• Extensive networking with suppliers, customers and academics
• Heavy investment in employee travel to support information gathering
and global networking
• Benchmarking against competitors and ‘best in class’ companies in
other industries
• A respect and hunger for knowledge, wherever its source
• 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 exam-

ple ‘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 prod-
uct/service is not designed to ensure a defect-free delivery process.
If the delivery process is not designed to take advantage of these prod-
uct/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 require-
ments 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 …
119 7.6 Toolkit
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 conven-
tional Cisco Connection Online system.
Enter Cisco’s manufacturing plants – two directly owned and nine belonging to specialist electronic sub-
contractors. 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, reli-
able, short communication channels between customers and suppliers. The
ability of the internet to connect us all is a major opportunity to speed com-
munications 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 compe-
tences, 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
• 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? A clarity (or sanity) check is valuable at this point.
How? 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), pur-
chase (e.g. machines) or recruit.
Such is the wide range of contexts you may be faced with, combined with the individ-
uality of your own resources that a detailed process description is not appropriate.
121 7.6 Toolkit
Table 7.1 Interactions between aims and improvement approaches (*** – * most to least
improvement potential, on average)
Increase
performance Increase Increase
Improvement focus (value) sustainability versatility
Improve Macro ** Note 1 Note 3

co-ordination
Micro *** Note 2 Note 3
Improve support Technical ** * Note 4
competences
Social ** ** Note 4
Resource Value ** * *
improvement
Sustainability * ** *
Versatility * * **
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-ordina-
tion efforts if implemented in a top-down ‘managerial’ manner. Providing an envi-
ronment for bottom-up improvement may work better towards increasing sustain-
ability and reducing versatility.
Note 3:
The way to improve versatility through co-ordination activities relies first on under-
standing 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
• co-ordination of competences
Table 7.2 Assessment of exploitability, versatility and co-ordination of resources and competences CD
Resource/competence name ...................................................................................... Catalogue
E X P LO I TA B L E ? Already highly Well Good Significant Major Not

To what degree can leveraged developed oppor tunity oppor tunity oppor tunity Unknown applicable
it be leveraged in some improve-
its current ment possible
position? 丣丣丣丣丣
It would be useful in:Strongly Disagree Neither Agree Strongly
disagree agree nor agree
disagree
• other parts of the 丣丣丣丣丣
business
• other markets 丣丣丣丣丣
E X P LO I TA B I L I T Y Low Medium High Unknown
S U M M A RY
V E R S AT I L E ? Closely tied Partly tied Easily Not

How deeply is it portable Unknown applicable
tied to its
surroundings? 丣丣丣丣丣
How long would
it take to reproduce
elsewhere in-house? >5 years 2–5 years 6–24 years 1–6 months <1 month
Is its operation Not at all Partly documented Fully understood
understood? partly understood and documented
丣丣丣丣丣
V E R S AT I L I T Y Low Medium High Unknown
S U M M A RY
CO-ORDINATED Not at all Yearly Monthly Weekly Daily Not

How often is its Unknown applicable
operation reviewed? 丣丣丣丣丣
Strongly Disagree Neither Agree Strongly
There is a strong disagree agree nor agree
rationale for high disagree
performance 丣丣丣丣丣
There is a tangible
ideal performance 丣丣丣丣丣
level
CO-ORDINATION High Medium Low Unknown
OPPORTUNITY
123 7.6 Toolkit
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 CD
Resource/competence name ...................................................................................... Forms
R E S I S TA N C E ? No, supportive Some new Yes, exist- Not

Can it be built resources are resources ing resources- Unknown applicable
on existing strategic available are needed can be used
or non strategic -
resources? 丣丣丣丣丣
Not
Could it conflict with: Definitely Partly Not at all Unknown applicable
• existing, highly
valued resources? 丣丣丣丣丣
• the firm’s traditions? 丣丣丣丣丣
Will it replace any
resources important
to the firm’s operation
or identify? 丣丣丣丣丣
S U M M A RY D E G R E E High Medium Low Unknown
O F R E S I S TA N C E
CURRENT Yes, this project No discernable Yes, this project Not

O P P O RT U N I T I E S ? undermines effect will strengthen Unknown applicable
Is it affected by current this resource this resource
or planned projects?
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
Table 7.4 Format for assembling all metrics with relevant action notes
Resource, compet-
ence or supportive Sustain- - Action
competence name Value ability Exploitability Versatility Coordination Resistance Opportunities notes
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, especial-
ly 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 reduc-
tion. This explanation is intended as much for those who have completed the analy-
sis 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 straight-
forward, though it is very helpful to focus on the micro co-ordination of implemen-
tation. 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 com-
petence 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 assem-
bled 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.
125 7.6 Toolkit
Table 7.5 Abacus – improving individual resources
Value
Sustainability High Medium Low Unknown Negative
Shared memory of a disastrous

High
new product introduction
GTS knowledge of people and 300 Service engineers Taken for

product worldwide granted
Training programmes – product ENGINEER EVALUATION AND that
and foundation HELP WITH RECRUITMENT products
Medium will fail
Directors believe service really UK service engineers aver-
matters age seven years with the
Spares organisation company
Installed printer base, include In house developed service

consumables supply system for small distributors
Key performance measures PEER to PEER TRAINING ON Group

plus targets SERVICE MANAGEMENT technical
district sales management METHODS AND APPROACHES services
technical managers meeting, test rig
NEW ACCOUNTING SYSTEM
FOR SERVICE established 1992, has
developed from a technical
Low gripe session to a forum for
ideas
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 relation-
ships 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 trum-
peting about, walls have ears. You may be right, but you do need a reason-
ably wide repository for this kind of knowledge because the evidence sug-
gests most damage to a firm’s competence and resource base is self-inflict-
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
127 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, 111-
132.
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
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
8 resource development
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 meas-
urement 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 devel-
opment 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:
• It allows you to balance the short term with the long term
• It focuses on the resources which help you improve rather than just the
targets you are trying to meet
• It increases your understanding of the key drivers of performance
• If you don’t measure resources and competences, actions will tend to
129
130 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 appli-
cation 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 discre-
tionary 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 expen-
diture delayed and the result was damage to the company’s reputation.
This is how tomorrow's performance is traded to meet today's short-
term 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
131 8.1 Why should we measure resource and competence development?
financial performance, but also for the resources and competence per-
formance 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 under-
lying 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 clear-
ly 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 sup-
plier 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
people became familiar with these methods, the speed of the improvement accelerated.
t
Performance Performance Performance

en
m
ve
ro
p
nce im
rforma anc
e
ing pe
Improv ng per
for m
Achieving performance Accelerati
Time Time Time
Figure 8.1 Improving performance.

Ideally, improvement should progress as shown in the right-hand dia-

gram of Figure 8.1. The first graph shows the usual way a target is dis-
played, 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 occasion-
ally 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 require-
ments as well as better control over the scheduling of orders through manufacturing. However, the speci-
fication 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 com-
pany 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 pen-
cil 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 depart-
ment, 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 sys-
tem. It also meant that the software skills were rapidly transferred into the business. The initial pro-
grammes 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 prac-
tice, 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.
133 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 improve-
ment 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 indi-
cated by the performance measures. This leaves little time for experi-
mentation, 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 per-
spectives, each one representing an important face of the organisation:
• 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 per-
spective, 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 fun-
damental 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 Order conversion rate
Customer complaints On-time delivery
Customers lost/won Cost of non-conformance
Sales from new products Leadtime
Innovation and
learning
Appraisals completed on time
Training plans completed
New products on time
Figure 8.2 A typical balanced scorecard.

135 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 com-

ponents, 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 compa-
ny 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 com-
petence-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 per-
formance 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 there-
fore 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.
1. Inputs 2. Processing 3. Outputs 4. Outcomes 5. Goal

system
• Skilled, • Design of • Products • Delighted Repeat
motivated happy products/ • Services customers business
employees A services B • Financial C • Customers' D
• Customer • Production services needs met Long-term
requirements of products survival
• Raw materials • Performance
• Components of services
• Capital • Delivery/
distribution
• Servicing
A. Input B. Process C. Output D. Outcome

measures measures measures measures
1. Employee 1. Processes/ 1. Product/ 1. Customer
satisfaction operational service quality satisfaction
2. Supplier 2. Safety/ 2. Financial
performance environmental performance
3. Financial 3. Financial
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 per-
formance, 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 compe-
tence 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 compe-
tence 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 interac-
tion 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
137 8.3 Using the competence and resource measurement frameworks
Resource
1
Resource Resource
2 3
Resources 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 meas-
ures. 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 demon-
strate 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.
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 depart-
ment), 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 com-
prehensive 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
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 Process Outputs Outcomes
• Enquiries • Number of visits • Order value • Profits

• New leads • Number of quotations • Order quality • Successful projects
• Value of quotations • Satisfied customers
• Order conversion rate • Repeat business
Figure 8.6 Competence/process measures for winning business.
However, not only did the organisation measure these different fac-
tors, they also linked the measures together. For example, through regu-
lar assessment of the measures over a period they found that the num-
ber 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 peo-
ple to start playing games. That is to say, they start making inappropri-
ate 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 dis-
cussed 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
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 cus-

tomer 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 cus-
tomer relationship can be used to extend the Sales engineer’s knowl-
edge 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 meas-
ures reflect the operation of the whole order winning competence – they
Number, spread
and strength of
Lost and won key contacts
orders Company
reputation
Co les' c winn
Sa order
mp on
to
ete trib ng
Customer
nc utio
relationship
e:
i
Application Customer
n
knowledge Selling buying
skills procedure
knowledge
Value of orders won

vs. area potential Sales forecast accuracy

Company reputation Lost orders? The ratio of the number of orders lost to existing
customers was seen as an indicator of company
reputation
Orders won? Orders won from competitors was seen as an
indication of increasing reputation.
Invitations to quote In this market this may be a better measure of
reputation
Customer relationship Number, spread and There is a need to understand who the key
strength of key contacts decision maker is
Application Assessment Assessment was considered the only method of

knowledge measuring the development of this resource
Selling skills Value of orders won This is an outcome measure, alternatives might
against the sales territory include time invested in sales training
potential
Customer buying Sales forecast accuracy The ability of the Sales engineer to accurately
procedure knowledge 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
Number, spread
and strength of
Lost and won key contacts
orders Company
reputation
Co les c winn
Sa order
mp ont
to
ete ribu ng
Customer
nc
relationship
e: tion
i
Application Customer
knowledge Selling buying
skills procedure
knowledge
Value of orders won

vs. area potential Sales forecast accuracy
• Enquiries • Number of visits • Order value • Profits

• New leads • Number of quotations • Order quality • Successful projects
• Value of quotations • Satisfied customers
• Order conversion rate • Repeat business

Company reputation Lost orders? The ratio of the number of orders lost to existing
customers was seen as an indicator of company
reputation
Orders won? Orders won from competitors was seen as an
indication of increasing reputation
Invitations to quote In this market this may be a better measure of
reputation
Customer relationship Number, spread and There is a need to understand who the key
strength of key contacts decision maker is
Application Assessment Assessment was considered the only method of

knowledge measuring the development of this resource
Selling skills Value of orders won This is an outcome measure, alternatives might
against the sales territory include time invested in sales training
potential
Customer buying Sales forecast accuracy The ability of the Sales engineer to accurately
procedure knowledge 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 com-
petence will change and develop the customer relationship, application
knowledge and company reputation resources, as described earlier.
Case 2. Measuring support processes – recruitment and development

This example is taken from GKRR plc, a major multi-national engineer-
ing company which had developed a scheme for recruiting and devel-
oping 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 three-
year 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 Quality of

Training costs
graduates recruited project results
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
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 under-
pinned it:
• Many companies in the UK had experienced difficulty in recruiting
high-quality graduate engineers. In contrast, at GKRR, central recruit-
ment had been built up over the last 15 years and nobody in the com-
pany 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
• No. of applicants • Variety of projects • Value of business • No. of people

• % offers accepted • Successful projects improvements still employed
• No. employed • Cost • No. of graduates placed • Mean level reached
• Mean time to level 3
Figure 8.10 Competence measures – recruitment competence.

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 operat-
ing 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 man-
aged progression and mentoring through simple to more complex proj-
ects 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 recruit-

ment 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 undertak-
en 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
Very good
Co
reputation
in-house
mp
e
ten
ce
: r
ec
Project
group
rui
alumni
tm
Evidence of Long-lived
relationships
en
international
with university
t
projects and
promotion staff
Training
processes
The staff Recruitment
group 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 under-
way. 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 manage-
ment 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.
Internal
customer
Co
Very good
satisfaction reputation
mp
in-house Alumni measures
ete
nc
e:
rec
Project
group
rui
Evidence of alumni Long-lived
tm
Number of
en
international relationship
up to date
t
projects and with university
promotion staff student career
Training profiles
Staff processes
The staff Recruitment
measures group processes
• No. of applicants • Variety of projects • Value of business • No. of people

• % offers accepted • Successful projects improvements still employed
• No. employed • Cost • No. of graduates placed • Mean level reached
• Mean time to level 3

A very good in-house Internal customer Critical for new projects and for ensuring the
reputation satisfaction survey graduates obtained their first line positions
Documented Number of up to date Seen as important by potential recruits and

evidence of 'student career profiles' university contacts. Perception is important,
international projects hence the measure, but need to check for
and promotion in the quality
form of "student
career profiles"
The training process Staff experience (no. of An essential ingredient in supporting

tutors x length of service) stretching projects with low risk of failure.
Difficult to measure quality here, but useful as
an initial measure
Long lived Staff relationships (no. of Important for recruiting the best and getting
relationships with staff x length of staff insights. Difficult to measure quality here,
university staff relationship) but useful as an initial measure
The project alumni Project alumni seniority An indication of the potential support from the
group score (no. of people x alumni
level in the organisation)
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 unno-
ticed simply because they are being used so well that they never come
to anyone’s attention.
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 fulfil-
ment 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

• 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
• 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
Creating the statement which captured the objectives of the order fulfil-
ment process was not easy. Although the on-time and customer prod-
uct 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.
Goal:
To fulfil orders in a timely fashion, with a supply of high-quality

products, at consistent costs in response to a volatile demand
• No. of orders • Suppliers on time • Completion on time • Customer satisfaction

• Order quality • Re-work • Cost • Customer returns
• Order mix • % to standard time • Right-first-time on test • Customer complaints
• Schedule adherence • Sales value/employee • Profit margin
• Labour availability
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 prod-

ucts 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 pro-
duction 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 oper-
ations culture. In this case, the operations culture was a problem
resource, in particular the belief that things could not be improved.
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 consider-
able 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 prob-
lems. Prototypes will always have initial teething problems and proto-
types 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 com-
ments 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 sus-
tainability. In Chapter 7 means of assessing versatility and co-ordina-
tion 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
Co
Multi-skilled
mp
workforce
e
ten
ce
Operations
:
ord
culture
er
Manufac-
ful
turing
f ilm
procedures
en
Product
t
Procurement manufacturing
knowledge knowledge
Completed
BOMs
• No. of orders • Suppliers on time • Completion on time • Customer satisfaction

• Order quality • Rework • Cost • Customer returns
• Order mix • % to standard time • Right-first-time on test • Customer complaints
• Schedule adherence • Sales value/employee • Profit margin
• Labour availability

Multi-skilled workforce Skill matrix Ensuring availability of suitably skilled staff to
ensure quality and flexibility
Bill of materials Percentage of BOMs Ensuring accuracy of information on products

complete infrequently manufactured
Operations culture Quality attitude in staff Undermine current attitudes to quality

survey
Product
manufacturing Percentage of BOMs Less data held in individual heads
knowledge complete
Procurement On-time delivery of An indication of the ease of procurement –

knowledge procured items 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 discus-
sion 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.
• Resource measures can usually give an early warning of future compe-

tence improvement.
• It must be remembered that measures are a tool. They provide an indi-
cation 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 inter-
act. Measurement, therefore forces us to try to understand how a com-
petence 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:
• 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
How? 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.)
153 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
Assumptions why this resource is believed to be important, which competence (s) it underpins and
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 devel-
oped 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
Formula measure is consistently calculated and partly as the formula communicates precisely what is
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.
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 conse-
quences 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 consis-
tent 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
155 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.
This measure will able us to monitor whether the actions we are taking are having a
Purpose
positive effect on attitudes to quality.
This measure is only an indication of the attitude and shouldn’t be confused with
Limitations 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 focuses on the resources which help you improve rather than just
the targets you are trying to meet
• It will increase your understanding of the key drivers of performance
• 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
• Examples have been provided of the measurement of different compe-

tences 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
• Developed a theory or set of assumptions on how the current perform-
ance of the competence in question is achieved
• Documented those assumptions in the resource and competence meas-
ures framework
• Devised detailed performance measures using the Toolkit.
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 strategy-
making; and finally we speculate on what’s next – what other develop-
ments 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 fur-
ther 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 pos-
sible 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
158 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 cus-
tomer 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 new-
product 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 fol-
lows that for some (lucky?) firms the degree of superiority they demon-
strate 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 identi-
cal taste in all five of its breweries six weeks from a decision to respond. Using Kirin's extensive distribu-
tion 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 com-
petence 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 prod-
uct Sony's next (even smaller) product appears, retaining the highest price while the ‘superseded’ prod-
uct’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
159 9.1 Health warnings
product before absolutely necessary reduces margins. Sony seem to work within their design and manu-
facturing miniaturisation competences.
Sergei Bubka, the Russian pole-vaulter had the same strategy. Frequently working well within his pole-
vaulting competence he set 35 world records in a 15-year career (18 indoor, 17 outdoor) and was reward-
ed 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 ques-
tion - 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. Coca-
Cola 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 sweeten-
ers 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
Another means of appropriating the benefit from an innovation is to

acquire a stockholding in return for out-sourcing. Through that stock-
holding 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 opportuni-
ties 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 owner-

ship 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 indi-
vidual. 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 acquisi-
tion 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 foot-
ball club. More obvious may have been the individual contribution of Magic
Johnson to the LA Lakers. Johnson was therefore in a better position to appro-
priate 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
161 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 sustain-
ability 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 man-
agers 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 valu-
able mechanical watch who did not know a good deal about mechani-
cal 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 strat-
egy-making? Are there company circumstances where resource or mar-
ket-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.
Competitor resources evolving through time
Market D
events 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 spec-
ification 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:

• Considering make versus buy alternatives
• 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 capa-
ble 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 mar-
ket 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 peo-
ple 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 ‘manage-
ment’. 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 com-
plementary resources who can assist in manufacture or marketing, etc.
In all these cases effort must be made to capture as much knowledge as
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 organi-
sation 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 resource-
based 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 com-
parisons 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 busi-
ness 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
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 manage-
ment 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 ‘out-
lier’ where profitability depended three times more on the business unit
itself than on the industry in which it was based. This was unlike indus-
tries 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 opportu-
nities and new markets are created.
Further support for the importance of resource-based strategies in
manufacturing firms comes from the theory itself. Manufacturing com-
panies 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.
9.2.3 Summary
This section has highlighted a range of situations in which resource-
based 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 quali-
ty 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 measure-
ment of company and managerial success and relate that to resource-
based 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 employ-
ing 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 man-
agers 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 share-
holders 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 com-
missions generated by handling these transactions. Financial institu-
tions must seek out shares that provide the highest return to sharehold-
ers so that they can out-perform competitors and attract new investors.
One result of this is that, particularly in the USA, one of the stakehold-
ers 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 divi-
dends 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 sug-
gested by resource-based ideas. CEOs need to be brave and unselfish to
launch programmes from which only their successors will reap the ben-
efit. 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 guarantee-
ing 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 share-
holder 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.
Vodaphone tried to damp down the furore with fudged explanations of their actual intentions, the share-
holder 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 pro-
vided 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 com-
puters. 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 technolo-
gies and one had paid off handsomely, he had continued re-investing substantial proportions of GE prof-
its 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 predeces-
sors. 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 addi-
tion 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.
169 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 divest-
ments, 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 proper-
ty 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 invest-
ment 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 indicat-
ed 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 out-
set 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 nor-
mal financial institutions have no experience in managing businesses, GE can call on a host of manageri-
al 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 Kennedy, A. (2000) The End of Shareholder Value, Orion Business Books, London.
3 Guardian, September 16, 2000 p. 27.
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 suc-
cessful manager. For shareholders over his entire reign Jack has suc-
ceeded – 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 rev-
enues, $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 med-
ical 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 speci-
fication advantages. It has been a persistent claim from commentators
that GE’s R&D investment levels are poor compared to other US compa-
nies and also to Japanese and European companies. Note that competi-
tion 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 techno-
logical 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 Rolls-Royce (1999) annual report.

5 GE 1999 annual report and calculated assuming GECS have had nil R&D expenses.
171 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 re-
investment 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 posi-
tion than when Jack inherited it. Rolls-Royce Aerospace have not fol-
lowed 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 pre-
sented 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.
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-mak-
ing. 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 sup-
port the business (or was it the Marketing?) strategy.
However during the 1980s, in both the USA and Europe, the competi-
tive 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 elec-
tronics 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 compe-
tence of the corporation’ by C.K. Prahalad and Gary Hamel. The article
became the most popular HBR reprint ever. It looked inside the organi-
173 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 com-
panies 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, capabili-
ties and resources provoked great interest, operationalisation of the the-
ories 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 fol-
low 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 writ-
ten 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-
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 compe-
tences ideas. Unless this can be achieved the benefits from these approaches
will be severely attenuated. The fact is that many of the resources that under-
pin 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 compa-
ny 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 neces-
sary to examine the kind of performance measures one might use to recog-
nise and support the development of resources and competences over the
longer term. These performance measures have to compete with the finan-
cial 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.
175 9.5 Summary
9.5 Summary
• Resource-based analysis can lead to:

• over-exercising a competence
• confusing the performance superiority you demonstrate to the mar-
ket 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;
• 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 identifi-
able skills and knowledge that is easily transported to competitors
• And there are other risks:
• 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 situa-
tions, 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 develop-
ment to improve the tangibility of resource-based ideas
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) micro 107–14

resource analysis 45, 70–1, 73 competence
service competence improvement 52, 55–7 appropriability 159–61
service importance recognition 87–90, 102 architecture 14, 17, 18
shared memory 54 categories 12–13
Academic research group (worked example) 90–2 core 77, 172
acquisition approaches, competence improvement 94, 97 definition 9–12
delivered quality 15–19
Agile manufacturing Inc. (example) 64–5, 66
health warnings 157
Anon Inc (example) 2 importance 26
Anonimo Inc. (case example) 37–8 individual levels 100
Anonymous Insurer (example) 95–6 innovation 117–18
order winning (case example) 138–42
Apple Computer (example) 3, 4, 42–3
over-exercising 157–9
assessment, or measurement alternative 150–2 socially supportive 117–18
Awareness method 29–30 technically supportive 118–19
approach 32–4 competence improvement 99
Insight method comparison 41, 48–9 building strategies 94–5
need for 30–2 focus 52, 120
outcomes 34 macro co-ordination 106–7
toolkit 34–7 mechanisms 120–2
micro co-ordination 107–114
balanced scorecard 133–4 performance 94–5
toolkit 119–26
BBC (example) 94
competence and resource measurement framework 135–7
Boston Celtics (example) 44–5
using 137
bottom-up analysis process 45–6
competitive advantage, building 44
boundary
core competence 77, 172
changing 1–2, 52
drawing 53, 55–8 Crown, Cork & Seal (example) 11
brand-based industries, development strategy 165 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 dynamic capability 13

planning 33–4
resistance to 104–5 evolutionary approaches, competence improvement 94, 95–6
Chapparral (example), innovation competence 9, 117
Cisco Systems (example) 118–19 facilitator, using 54
co-ordination improvement
macro 106–7
177
178 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 performance measurement
human resource fit 99–101 aid to understanding 136
competence-based framework 133–4
failure 133
IBM (example) 2, 160 improving 31–2, 131–2
improvement, competence see competence improvement short and long term 130
incubation approaches, competence improvement 94, 96 pictorial histories
innovation competence 117–18 importance 63
picture generation 68–9
Insight method 48–50
preparation 66–7
Awareness method comparison 48–9
boundary 53 profitability, as performance measure 130
facilitation 54
focus and scope 51–3 rationale, performance 114–15
pictorial histories toolkit 65–9
RCA (example) 1
reporting frequency 54
resource identification 61 recruitment and development measurement process (case
resource importance 75–6 example) 143–7
resource-categorisation toolkit 70–3 reference database, as resource 90–2
staff involvement 54 Research Group X (example) 77–8
toolkit 54–8
resistance, change 104–5
Instruments ltd (example) 131, 132
resource and activity capture format 35–6
resource analysis
Jobs, Steve 3, 4 difficulties 77–8
joint venture, entry logic 43 outcomes 82–3, 175
resource and competence analysis
K-Mart (example) 22 bottom-up 45–6
detail 46–8
key customer relationships, developing 37
implementation advice 124–6
Kirin beer (example) 158 reporting frequency 54
Komatsu (example) 24 risks 159–63
top-down 45–6
using 41–5, 175
leadtimes, development 64
resource and competence architecture 14, 97–8
resource and competence database 93–5
macro co-ordination 106–7
acquisition strategy 94, 97
Mailbox Inc. (example) 24 building strategies 94–5
make versus buy decisions 42–3 evolution strategy 94, 95–6
manufacturing industry, development strategy 164–5, 172 incubation strategy 94, 96
market-based strategy-making 161–6 resource and competence development 129
measurement resource fit 99–101

or assessment alternative 150–2 resource health 101–2
performance see performance measurement resource-based strategy-making 161–6
micro co-ordination 107–14 resources
enablers 114–16 acquiring 62–3
assessing value 79–80, 85–6
NGRM Research (example), unit competence 57–8 assessing sustainability 80–2, 85–6
categorisation 20, 70–3
Nucor (example) 9
179 Index
for change activities 33–4 market-based 161–6

definition 19–21 resource-based 161–6
enhancing 99–105 Superlative Delivered Quality Inc.(SDQ) (case example) 15–19
evaluation 75, 83–6
sustainability
identifying 61–3, 75–6
increasing 102
importance 5, 6, 21–5
resource importance 21, 23–4
for improved operational activities 33
increasing sustainability 102 sustainable advantage, building 52
increasing value 96–102
increasing versatility 102–4 teamwork competence 117
measurement framework 129, 136–7, 141
top-down analysis process 45–6
measures toolkit 152–5
total productive maintenance (TPM) program 65
retail banking (example) 76
Toyota (example)
return on capital employed (ROCE), as performance measure
competitive advantage 158
130
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
value see resources, assessing value
service importance 88–90
versatility
shared memory, as resistance 87 increasing 102–4
shareholder value 166–8 resource importance 21, 24–5
General Electric (case example) 168–71 Virgin (example) 25
single minute exchange of die (SMED) techniques 64 Vodaphone AirTouch (example) 167–9
Sony (example) 158–9
Stable and Enduring Inc. (example) 30, 130 Wal-Mart (example) 22
start-ups Welch, Jack 168–71
development strategy 163
resources review 5–6
Xerox (example) 22–3
strategy-making
future trends 172–3
The Strategy and Performance CD
Mac
• Insert the CD in your drive.
• The Mac_Readme file will open automatically and explain how to
use the CD.
PC Win 95, 98, NT

• Insert the CD in your drive. The Windows installer will automati-
cally run to take you through the installation process. (Note:
There is a README.txt file on the CD with more detailed infor-
mation.)
To use the blank PDF versions of forms on the CD

• Insert the CD in your drive.
• Cancel the auto-installation process.
• Right-click on your CD drive icon and select ‘Explore’ from the
menu.
• Open the folder ‘Pdf forms’ and double-click on the file
‘FormsIndex.pdf’.
(Alternatively, copy the folder ‘Pdf forms’ onto your hard drive
first.)

Strategy and Performance Competing Through Competences (Strategy and Performance)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Strategy and Performance Competing Through Competences (Strategy and Performance)

Uploaded by

Copyright:

Available Formats

This page intentionally left blank

Competing through competences

Cambridge University Press

© Cambridge University Press 2002

This book is in copyright. Subject to statutory exception and to the provision of

First published in print format 2002

ISBN-13 978-0-511-06868-3 eBook (EBL)

ISBN-13 978-0-521-75030-1 paperback

Cambridge University Press has no responsibility for the persistence or accuracy of

Chapter 1 Practical competence and resource frameworks 9

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

This book is designed to help company managers and directors make

1 SWOT – strengths, weaknesses, opportunities and threats.

The two processes we describe aim to redress this imbalance by con-

There are five general circumstances

1. When you are considering changing the boundaries of your business,

Taking each in turn:

Changing your business boundaries

A smaller way of changing your boundary is in the creation of dealer-

Larger boundary changes take place during acquisitions and divest-

• What are the resources that underlay your past strengths?

Building a more sustainable advantage

Fresh insights on how to improve

Taking account of your resources in the decisions to achieve your

An aside for small companies and start-ups

This book is designed with two aims in mind:

• First to make the ideas of resource-based strategy available to you

This is not a text-book full of dry theory. It is a document built from

Each of chapters 4 to 6 poses a question; provides tools to address

What is a competence? Are there different types? How do competences

The chapter ends with a summary and a background reading list.

1.1 What is a competence?

A company has a strength or a high competence activity if it can out-perform most

A company has a weakness or a low competence activity if it under-performs most

USX, Chaparral and Nucor

However the word competence is also used to replace ‘high competence

Overall, competence is best thought of as a variable, rather than an

Table 1.1 Competence with respect to competitors

Well below Below

Strength or Significant Weakness Neither Strength Significant

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

Crown, Cork & Seal (CC & S)

Table 1.2 Business process checklist

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

• How does this fit with core competences?

The next section addresses these questions.

1.2 Categories of competence

Table 1.3 Simplified competence categories

Ordinary resources Those currently on a par with competitors’ resources

Table 1.4 Competence categories

Core competence Usually refers to high competence activities important at a firm’s

We have to be willing to cannibalize what we’re doing today in order to

staff, engineers, managers and operators in terms of what they do and

Undoubtedly this section has raised more questions in your mind:

• How are competences and resources related?

The next section addresses these questions.