Professional Documents
Culture Documents
Strategy and Performance Competing Through Competences (Strategy and Performance)
Strategy and Performance Competing Through Competences (Strategy and Performance)
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
Preface vii
Acknowledgements ix
When to use this book 1
How to use this book 7
Index 177
v
Preface
vii
viii Preface
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
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.
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.
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:
*Companies that have been given fictitious names are identified by an asterisk throughout the book.
3 When to use this book
Apple Computer
Apple's recovery from near disaster in 1997 is a remarkable story. From net revenues of $11bn in 1995 the
forecast for 1997 was $7bn. Losses were mounting; staff layoffs climbing and factories were sold off.
Pundits forecast the end of Apple – there would be new owners or it would be killed off.
What were Apple's key resources?
First was its distinctive operating system (Mac OS), still superior to Microsoft Windows in feel and 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.
4 When to use this book
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
5 When to use this book
would be recruited because s/he did well in the interview and had passed relevant exams. Following that
s/he would receive product training either locally or at the factory - there were no exams to show how
well the training had been understood and little motivation for colleagues to expose an engineer who was
failing. During the time it takes for the underperforming engineer to be discovered or to leave, much
damage can be done.
In response a set of technical competency tests were designed and psychological tests were used 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.
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
7
8 How to use this book
• What is a competence?
• Competence categories
• Resource and competence architecture
• What is a resource?
• What makes a resource important?
• What makes a competence important?
Competence in this sense is a way of describing how well (or not) your
firm performs its necessary activities.
9
10 Practical competence and resource frameworks
Caterpillar
This large construction plant manufacturer, is recognised as having a competence in supporting cus-
tomers through its worldwide support/maintenance network.
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.
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.
12 Practical competence and resource frameworks
Honda
Honda’s competence in the development of high-performance engines and power trains is well known.
Their moves from motor cycles into lawnmowers, outboard motors and eventually into automobiles were
founded on this technical competence. Honda are also noted for their high competence at managing
their dealer networks. This competence had been of critical importance during the massive growth phase
of Honda motor-cycles in the US. At the time the existing motor-cycle distributorships were 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.
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
Competence Description
category
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:
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
14 Practical competence and resource frameworks
Resource
A
Resource Resource
B C
Strong
ete qua
belief that
nc
quality is key
e: ity pr
Loyal and
l
experienced
SPC staff
duo
knowledge Rigorous
ct
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
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:
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
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
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:
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.
20 Practical competence and resource frameworks
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.
Is it valuable?
There are almost as many ways a resource can be valuable as there are
different resources:
Xerox
At their Palo Alto Research Centre (PARC) Xerox spent the 1960s and early 1970s developing a range of
valuable, scarce and difficult to imitate technological resources. The personal computer; desktop ‘mouse’
coupled with an icon-based, easy to use operating system; ethernet and laser printing were all developed
at PARC. Unfortunately Xerox failed to exploit these technologies because of other, weaker resources:
• No structure existed to promote these technologies.
23 1.5 What makes a resource important?
• Once ‘discovered’ an intensely bureaucratic product introduction process stifled many of them;
• Those finally developed were poorly exploited because management compensation systems were
based, almost totally, on maximising current revenue. Market development for future sales was
almost irrelevant.
The funds generated from the virtual monopoly Xerox enjoyed in the copier business enabled PARC to
excel in many technologies yet, ironically, also bred a set of resources that frustrated their exploitation.
If the resource is difficult to copy its value may last and there are three
reasons why a resource might be difficult to copy:
Caterpillar re-visited
Shortly before the USA entered the Second World War the federal government decided to appoint a single
supplier of construction equipment to build and maintain military bases and airfields around the world.
Following tenders Caterpillar was chosen and the government agreed to pay equipment prices high
enough to enable them to develop a worldwide service and supply network. Unique historical conditions
provided the opportunity for Caterpillar to develop this costly and difficult to imitate competence.
Caterpillar management took advantage of this opportunity by developing appropriate resources: global
reporting structure; global inventory and other control systems; compensation policies to encourage
employees to work around the world, etc.
24 Practical competence and resource frameworks
Mailbox Inc.
Mailbox Inc. is a simple business – it gathers bulk mail from customers (advertisements, free offers, etc.),
sorts it by post-code and then takes it to the post office to be mailed. (The post office charges less for this
sort of mailing when it is supplied in delivery rounds and Mailbox Inc. makes money by charging it’s 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.
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:
25 1.5 What makes a resource important?
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.
26 Practical competence and resource frameworks
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
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.
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?
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 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.
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.
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
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:
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.
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
3
CD
Forms
3 This symbol indicates that a copy of the form or table it accompanies is obtained from the CD.
36 Awareness – what does success look like?
The process:
Take each objective in turn and
• Use the format shown in Table 2.1 to list the main activities that will need to improve
to achieve the objective
• Against each activity list the resources that will need to be improved, acquired or 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
Post-event
contact to
check on
customers’
reactions
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
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
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
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:
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
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.
• 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.
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.
44 Matching problems to analysis methods
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.
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.
• top-down
• bottom-up
• both
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.
46 Matching problems to analysis methods
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.
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?
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?
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.
48 Matching problems to analysis methods
Developing the centre further would be concerned with the competencies of individuals. In so doing the
relative competencies of some individuals would be exposed. The centre leader was unwilling to go into
these areas in public and perhaps wisely, the facilitator did not force the issue and the project stopped.
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.
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.
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
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.)
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
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:
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.
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
Examples
A company’s service competence will depend on the ‘serviceability’ designed into its products as well as
the competencies of its service engineers.
A firm’s perceived on-time delivery competence can be affected as much by the salesman’s reluctance to
mislead customers on delivery times as the operations function’s performance.
A firm’s ability to consistently design eye-catching products will depend on its recruitment, development
and retention of outstanding designers as well as its technical design processes.
4.3 Issues
This section discusses the specific resource- and competence-related
aspects of the management of the project.
In Chapter 2 we suggested the management team as the best group
54 Insight – what focus and scope is appropriate?
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.
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.
CD
Forms
E 1: A service competence
Abacus supply automatic measuring equipment for production lines.
They intend to make a difference in their market through superior
product servicing. The company has three product groups and chooses
the largest, the Delta range, as its product focus. The company has a
56 Insight – what focus and scope is appropriate?
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
business unit or organisation?
What third party organisations are
involved?
List the products involved: The Delta range only
The whole product range?
A defined product range?
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.
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
business unit or organisation?
What third party organisations are
involved?
List the products involved All product groups
The whole product range?
A defined product range?
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:
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.
Resource-coloured spectacles
Identifying
List of resources
resources
New perspectives on current
concerns
Defined focus
Participants
Project organisation
Boundary
The chapter concludes with a summary of the main points covered and
a process review, describing the outputs if you follow the process.
61
62 Insight – where are these resources?
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?
By acquisition:
By accessing:
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
1 We have come across a related idea. Once upon a time when a business made its accounts not
only were the finances recorded but the ‘account’ in the sense story or narrative of the year was
also recorded.
64 Insight – where are these resources?
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.
(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.
66 Insight – where are these resources?
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.
5.3 Toolkit
The toolkit in this chapter consists of two parts:
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.
External
Internal
Time
CD
Forms
68 Insight – where are these resources?
External
Internal
Time
Figure 5.6 A populated history.
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
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:
70 Insight – where are these resources?
CD
Forms
Three events and a comment combine to produce a wide-ranging service standard and yearly
auditing system resources.
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.
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
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
74 Insight – where are 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).
Resource-coloured spectacles
List of resources
New perspectives on current
concerns
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:
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.
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.
Value Sustainability
Resource 1 1 2
Tangible
Resource 2 2 4
resources
Resource 3 5 5
Skill, knowledge
and experience
Systems and
procedures
78 Insight – how important are these resources?
RGX continued
Six weeks after the original strategy workshop, all project teams reported their progress and plans to the
board and their peers. Unfortunately the presentation did not go well for the competence team:
We explained that the ‘verified technical analysis’ competence was much more than just the engineering
analysis department but most of them ignored that. They preferred to think we were saying that 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.
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:
Licensable
intellectual
property rights
Very easily Quite easily Only if they were looking for it It’s invisible
<1 month 1–8 month 8–24 month 2–5 month <5 years
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.
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?
To a significant
extent Partly Not at all
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
82 Insight – how important are these resources?
6.3 Outcomes
The analysis classifies four kinds of important resources and compe-
tences as well as ordinary resources, see Table 6.2:
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
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.
84 Insight – how important are these resources?
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).
• 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
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
86 Insight – how important are these resources?
Tips Some questions may simply not apply to the resource you are considering, if so, tick
the ‘Not applicable’ column. The answers to some questions may not be known, if
so, tick the ‘Unknown’ column. This generally occurs on some of the Value questions,
sometimes because the resource has not been exercised but could provide a valuable
contribution.
Value
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.
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
subtituted by another extent
resource/competence? 丣 丣 丣 丣 丣
Sustainability summary Low Medium High Unknown
88 Insight – how important are these resources?
S U S TA I N A B L E ? Not
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?
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
subtituted by another extent
resource/competence? 丣 丣 丣 丣 丣
Sustainability summary Low Medium High Unknown
90 Insight – how important are these resources?
S U S TA I N A B L E ? Not
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 take <1 month 1–6 6–24 2–5 <5 years
a competitor to imitate? months months years
What proportion of <0.5% 0.5–1% 1–5% 5–20% >20%
sales 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
subtituted by another extent
resource/competence? 丣 丣 丣 丣 丣
Sustainability summary Low Medium High Unknown
91 6.5 Summary
• 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
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:
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:
Resource assessments
Ideas for improvement
from 'Insight'
93
94 Building a resource and competence base
• 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.
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.
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.
96 Building a resource and competence base
programmes. To improve information, it introduced new underwriting guidelines and new information
systems to provide more accurate historical and industry data.
In addition, the insurer changed its measures and incentives to reward underwriting quality rather than
volume. It revised its organisational structure, creating an underwriting manager in each office to break
the link with branch managers, who were always under pressure. At headquarters, it made changes in the
actuarial and underwriting policy departments, set up an underwriting audit team, and improved links
with the claims department. Within three years, the insurer had improved its underwriting relative to the
industry by the equivalent of an extra 15 per cent return on equity.
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:
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.
Cu
sto
me
Resource
r
A
pe
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i
ved
com
pe
ten
ces
Resource Resource
B C
Tec
hn
So
ica
cia
l su
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Resource
pp
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pp
ive
or
tiv
co
ec
mp
Resource
om
ete
pe
ten
nc
e
ce
Resource
Y
Resource
Resource
P
R
Competence improvement
Resource fit
Resource health
Co-ordinate, co-ordinate, co-ordinate
Rationale
Tangible ideal
Learning process
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.
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.
100 Building a resource and competence base
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.
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.)
101 7.3 Resource enhancement
• 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.
‘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.
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.)
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:
>5 years 2–5 years 6–24 months 1–6 months <1 month
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.
3Leonard-Barton, D. (1992) Core capabilities and core rigidities: a paradox in managing new
product development, Strategic Management Journal, 13, 111–132.
105 7.3 Resource enhancement
Yes, many
No, supportive Some new existing
resources are resources resources can
unavailable are needed be used
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.
106 Building a resource and competence base
• Macro co-ordination
• Micro co-ordination
• Enablers of co-ordination
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:
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
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
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
109 7.4 Co-ordination, co-ordination, co-ordination
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.
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
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.
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
113 7.4 Co-ordination, co-ordination, co-ordination
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:
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.
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.
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.
116 Building a resource and competence base
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,
Administrative Science Quarterly, 38, 357–381
The bos’n puts his various crews in different situations from which they
will learn from experience. During the day’s operations he knows that his
weakest crews, especially those placed on infrequently exercised tasks will
probably need his help most. This is part of his heedful co-ordination.
Managers attempting to develop more heedful co-ordination at
operational levels in the most differing cases we could find must have a
significant teaching competence. This normally means they can carry
out all aspects of the activities they manage and can teach them by
demonstration rather than instruction. Managers also need to be able
to test understanding by Socratic questioning – ‘What happens if?’
‘What do you do if?’ etc.
A powerful learning process is evident in Toyota, the rules raise problems in order to
solve them in a way that moves performance closer to the ideal. On the
carrier the process is different but no less powerful. Detailed de-briefing
of every shift and especially important or new situations experienced
are the norm in military organisations.
Co-ordination cannot be improved without a powerful learning
process, and therefore relies on a degree of repetition.
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.
7.6 Toolkit
The toolkit in this chapter is presented in three parts:
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)
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
Note 1:
Large-scale macro co-ordination efforts may also reduce sustainability by:
• Attracting competitor attention
• Over-riding existing micro 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
122 Building a resource and competence base
• co-ordination of competences
Table 7.2 Assessment of exploitability, versatility and co-ordination of resources and competences CD
Resource/competence name ...................................................................................... Catalogue
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
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
124 Building a resource and competence base
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
Value
Sustainability High Medium Low Unknown Negative
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-
126 Building a resource and competence base
7.7 Summary
The main points raised in this development chapter are:
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.
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
• 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
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.
p
nce im
rforma anc
e
ing pe
Improv ng per
for m
Achieving performance Accelerati
• 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
Innovation and
learning
Appraisals completed on time
Training plans completed
New products on time
Figure 8.3 The competence and resource framework and its financial analogy.
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.
Resource
1
Resource Resource
2 3
• ‘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
139 8.3 Using the competence and resource measurement frameworks
Outcome measures
• The profitability of orders by market and product
• Successful projects
• Customer satisfaction
• Repeat business
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
140 Measuring competence and resource development
arrival of new Sales engineers, the launching of new products and the
changes in the marketing strategy.
As a result of this work, over 20 resources were identified. During the
evaluation of these resources, the team decided to focus on the key
aspects which the Sales team could directly influence and to leave other
factors, such as product performance, for another debate. From this
analysis, five key resources were identified:
• Company reputation
• Customer relationship
• Application knowledge
• Selling skills
• Knowledge of customer buying procedures
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
141 8.3 Using the competence and resource measurement frameworks
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
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.
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
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.
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).
Competence measures
Using the process framework the competence measures chosen were:
Input
• Number of applicants
• Percentage of offers accepted
• Number employed
144 Measuring competence and resource development
Process
• Variety of projects offered
• Percentage of projects successfully completed
• Cost per project
Output
• Value of business improvement achieved
• Number of graduates placed
Outcome
• Number of project alumni still employed by GKRR after five years
• Mean value of alumni seniority
• Mean time to reach level 3 managerial position
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:
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
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.
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
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.
148 Measuring competence and resource development
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:
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.
149 8.3 Using the competence and resource measurement frameworks
Goal:
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
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:
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.
The resulting resource measures are shown in Figure 8.14, with com-
ments in the table.
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
Product
manufacturing Percentage of BOMs Less data held in individual heads
knowledge complete
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.
8.5 Toolkit
The toolkit consists of:
• A method for designing detailed 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
Measure The title of the measure; a good title will indicate by itself what is being measured
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.)
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.
154 Measuring competence and resource development
Materials
You will need blank copies of the resource measure record sheet, (see Figure 8.2)
ideally on overhead projector transparencies so that you can display the finished
measures to the rest of the team for comment and agreement.
Process
Fill in a blank resource measure record sheet for each measure on copies of the
form, using the guidance notes provided. An example is shown in table 8.3.
Tips Everyone talks about measures in terms of the title followed by the target. The title is
therefore very important.
The target is highly dependent on how it is measured and so the formula is critical.
Specify the formula precisely, don’t leave it for everyone else to try and guess what
you mean.
Remember, the formula drives behaviour so be precise and think about the 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?
CD
Forms
155 8.6 Summary
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
156 Measuring competence and resource development
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?
• 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.
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.
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
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
160 Closing thoughts
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
Market D
events A
E
B
C
C
Your resources evolving through time Time
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?
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:
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.
166 Closing thoughts
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.
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:
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.
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.
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
2 Kennedy, A. (2000) The End of Shareholder Value, Orion Business Books, London.
3 Guardian, September 16, 2000 p. 27.
170 Closing thoughts
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
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
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.
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 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:
9.5 Summary
Porter, M.E. (1980) Competitive Strategy: Techniques for Analyzing Industries and
Competitors, Free Press, NY.
capability, dynamic see dynamic capability design for manufacture (DFM) procedure 16
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
Mac
• Insert the CD in your drive.
• The Mac_Readme file will open automatically and explain how to
use the CD.