Strategy 1

When to use this book
There are five general circumstances
1. When you are considering changing the boundaries of your business,

for example:
By acquisition or divestment
Entering joint ventures or other partnership arrangements
Considering Make versus Buy alternatives
Entering new markets
Taking on new technologies
2. When disaster is at hand
3. When you are trying to build a more sustainable competitive advantage
4. When you need fresh perspectives on how to improve your business
5. When you wish to take account of your resources in plans to achieve
your objectives
Taking each in turn:
Changing your business boundaries

Copyright 2002. Cambridge University Press. All rights reserved.
There are large and small ways of altering your business boundaries but
each can be strategically critical.
It may be very tempting to stop manufacturing some of your compo-
nents and buy them from specialists but will this be wise in the long
run? Make versus buy decisions need information and insight into the
current and potential long-term value of the resources that will be lost.
Down this road can lie over-dependence on suppliers and eventual
hollowing out.
RCA
RCA began out-sourcing the metal parts for the electron guns in TV tubes because it cost less, then they
out-sourced the gun assembly for the same reason, But with it their capability to design electron guns
slid away. Their cheap supplier was Sony, who actively built on knowledge supplied by RCA and invented
the Trinitron system the rest is history.
Mills, John, et al. Strategy and Performance : Competing through Competences, Cambridge University Press, 2002. ProQuest Ebook Central,
http://ebookcentral.proquest.com/lib/britishcouncilonline-ebooks/detail.action?docID=217861.
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2 When to use this book
IBM
Even more dramatic examples were IBMs decisions to outsource their PC operating system to a firm
called Microsoft and to out-source the microprocessor design to Intel.
A smaller way of changing your boundary is in the creation of dealer-

ships to break into new, foreign markets. How would you choose
between alternatives? The quick advice is choose a firm that is like you,
that values the same things you do because they will be developing your
reputation and brand in that country, see the experience of Anon Inc.
Anon Inc.*
A firm set up a number of distributors in different parts of the world to sell and service its products. A key
customer segment was food and drink manufacturers, a sector dominated by multi-national giants.
Unfortunately two of the distributors were much more interested in selling products than servicing. Their
service departments had poor facilities and it was difficult to convince the distributors owners that good
service could make money. They were only interested in the chase for the next order. Inevitably that atti-
tude created problems for the firms service reputation in those countries. Unfortunately that reputation
propagated through a key multi-national customer and affected sales in countries that were actually
being serviced well.
Larger boundary changes take place during acquisitions and divest-

ments. Here it is critical to assess the strengths and weaknesses of the
target, your organisation and the resulting combination. In divestment
decisions, just like make versus buy decisions, it is crucial to make sure a
valuable resource is not being discarded along with low-value resources.
Disaster is at hand
It could be that prospects in your current markets and/or current technolo-
gies look bleak, there is little growth and competition is intensifying. Entry
into new markets and/or adopting new technologies appear to be the only
ways forward. But this can be a dangerous strategy, how can you minimise
the risks? There is a saying that when disaster strikes an individual they are
thrown back on their resources. This is also true for companies:
What are the resources that underlay your past strengths?

Can they be configured to provide value in another market?
Is some of your knowledge of technology X transferable to technology Y?
Can your knowledge of particular customers be used to create a partic-
ular niche based on a set of customer needs that you can meet?
*Companies that have been given fictitious names are identified by an asterisk throughout the book.
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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 Apples previously
loyal customer base had abandoned Apple hardware to follow the Mac OS onto Motorola and other clone
hardware surely this proved licensing was a route to disaster. By the end of 1998 all licensing agreements
had collapsed, the clone makers had gone and the Mac OS was available on Apple hardware exclusively.
Not only that, between Autumn 1997 and Autumn 1999, four significant upgrades to the Mac OS had been
released. These were just what the customer base liked, instead of infrequent blockbuster upgrades Jobs, it
seems, had gone for regular incremental releases, each of which had a group of must have developments.
What about the brand? Most brand positioning copy focused on the exclusivity angle. The think differ-
ent campaign associated Apple buyers with independent minds of the past, from John Lennon to Ghandi
to Einstein. Jobs refusal to take a salary for almost two years could also be regarded as thinking different at
the core of Apple. (Though a grateful board put that right with the gift of a jet plane in early 2000.) Perhaps
more risky was the abandonment of the characteristic rainbow Apple logo for a silver Apple. But the
embodiment of the brand was the product and those distinctive design resources were also exploited to
the full.
The iMac and iBook changed the look of desktop and portable computers. Apple then had the hardware
of choice for computers in TV programmes and advertisements. These products also contained a series of
technological firsts from faster interfaces and the death of the integrated floppy disk drive to the first
desktop computer cooled by convection rather than a fan.
Building a more sustainable advantage

Managers face a consistent drive to improve on performance metrics like
delivery leadtime and quality, delivery reliability, rate of cost reduction
and so on. Many of the means of improving are, to a degree, generic best
practices that all firms pursue. This can become like a treadmill with little
relief. Your competitors are improving by incorporating the same
improvements you are. In contrast resource-based analysis concentrates
on finding the differences between firms, especially those differences that
it is difficult for competitors to copy. The aim is to base a competitive
advantage around those differences so the advantages generated last
longer, they are more sustainable.
The Apple computer example shows how a firm with unique
resources in its market that were difficult and expensive to copy can
survive and prosper in a fast-moving market. The trick seems to be that
you have to understand and remember what those resources are and
continue to exploit them. One of Apples founders, Steve Jobs, remem-
bered them very well he would wouldnt he? He was the one who bor-
rowed the graphical user interface from Xeroxs PARC laboratory and
had it designed into the first Mac OS.
Fresh insights on how to improve

Resource-based thinking offers you a new perspective on your business,
a new way of looking at your firm. In our experience it is inevitable that
with that fresh view a group of important improvement ideas are crys-
tallised. This tends to happen early in the analysis at the point where
your resources are first identified.
Abacus*
A worldwide supplier of industrial measuring equipment, Abacus, had already decided to gain an advan-
tage over competitors through improving the competence of its service activities. This included installa-
tion, service and repair, consumables supply, customer training, advice and maintenance contract nego-
tiation. Their first improvements were to product training, defining service engineer toolkits and indeed
defining what good service was from health and safety issues to dress code, all were documented in a
service standard. The standard was audited yearly within fully owned and third party sales and service
organisations. Standards were improving, metrics showing service response times were also improving
what else should be done?
A resource analysis revealed some areas that had not been tackled. One example was the central role of
the service engineer to offering good service. Competent service engineers can solve technical problems
and some of the social problems caused if a machine breaks down. Customers can get frustrated and
annoyed and it is difficult to recruit staff that can handle these two aspects of the job. But Abacus had no
way of testing how competent new recruits or experienced staff actually were at these skills. An engineer
would be recruited because s/he did well in the interview and had passed relevant exams. Following that
s/he would receive product training either locally or at the factory - there were no exams to show how
well the training had been understood and little motivation for colleagues to expose an engineer who was
failing. During the time it takes for the underperforming engineer to be discovered or to leave, much
damage can be done.
In response a set of technical competency tests were designed and psychological tests were used routine-
ly during interviews to test basic technical understanding and to identify traits useful for dealing with
customers. The technical tests are used throughout the world, while outlets have the freedom to use more
culturally coherent psychological tests where available. The resource analysis also showed that in wholly
owned service centres if an engineer settled in the chances were s/he would stay on average seven years,
rather higher than usual in these positions. Recruiting better engineers could therefore pay off for a con-
siderable time.
Taking account of your resources in the decisions to achieve your

objectives
Not many managers consciously build their firms resources, resources
like a large manufacturing plant are regarded as means not ends. They
are needed to achieve business objectives like growth, low leadtimes,
continually falling prices. It is, however, well worth thinking about the
resources youll have when your objectives are achieved. Are these
resources in a better state than when you set out to achieve your objec-
tives? Any manager has a duty to shareholders to steward a firms
resources, to leave them in a better state than he received them as well
as to exploit those resources to generate cash for dividends and share
price growth. There is significant evidence that many US companies

have been placing too much emphasis on current shareholder benefits
to the long-term detriment of their companies. We shall return to this
theme in Chapter 9.
All these circumstances benefit greatly from an understanding of the
resources that underlie your firms strengths and weaknesses. Not only
that, changing your firms boundaries, developing new markets or tak-
ing on new technologies and facing up to potentially catastrophic mar-
ket changes are strategic with a capital S. They are amongst the most
difficult, risky and potentially rewarding decisions you will take.
An aside for small companies and start-ups

If you are in a small or start-up company you may be assuming that this
book is meant for medium to large companies. If so, you are wrong.
(Although sizable companies that have not taken a close look at their
resources recently are almost sure of surprises.)
For the start-up and small companies the issue is lack of resources,
of a need to grow your firms resource and competence base and espe-
cially to grow the resource of management. Start-ups, in particular, are
practically by definition focused on their resources and competences.
For it is these that differentiate them from competitors the new idea,
perspective and knowledge that others do not possess, the ability to
move faster and to more proactively address the implications of new
ideas without the encumbrances of a past history. These are the
resources and competences that make your firm useful and valuable to
larger firms. They are your firm. Your challenge is to exploit them most
effectively and that is a matter of management, the resource of manage-
ment. This book and the resource analysis approaches it suggests are
certainly valuable for organisations short of resources they are the
ones who arguably need to understand their resources and resource
development needs the most.
How to use this book
This book is designed with two aims in mind:
First to make the ideas of resource-based strategy available to you

Second to help you use these ideas in your businesses to improve your
competitive position and your firms longevity
This is not a text-book full of dry theory. It is a document built from

the experience of applying resource-based theory in a variety of indus-
trial settings. For that reason it contains many insights from practice
what happens when you apply these ideas alongside a supportive the-
oretical base. As Kurt Lewin put it, Theres nothing so practical as a
good theory and resource-based theory is a very good one. We have
tried hard to cover any necessary theory in a pragmatic and jargon-free
manner and have assumed you are quite unfamiliar with resource-
based ideas. The book contains many case study examples at a rather
more detailed, yet pragmatic, level than most books on the subject. In
particular there are tools we have developed and tested that enable you
to use the ideas.
Chapter 1 is devoted to explaining resource-based ideas and the defi-
nitions we use. To understand later chapters, Chapter 1 is essential even
if you believe you are familiar with the ideas.
Chapter 2 takes a top-down excursion into resource and competence
analysis describing a method suitable for management teams. We have

called this approach Awareness because it provides you with a practi-
cal understanding of resource and competence ideas. It is especially
helpful for making resource-aware choices in plans to achieve your
business objectives.
In Chapter 3 we review the pros and cons of the Awareness method
and explain the need for a more detailed bottom-up method capable of
making a detailed evaluation of the resources your firm uses. Which are
the most important? Which hold you back? Which can take you for-
ward? We have called this second approach Insight because it gives a
more in-depth understanding of your resource base. It is intended for
project teams sponsored by board directors.
Chapters 4 to 6 describe the three steps of the Insight approach. This
method provides an analysis of your current resources and practical insight
into gaining a sustainable advantage and the issues surrounding make ver-
sus buy, acquisition, divestment, new market entry, taking on new tech-
nologies and facing large unfavourable dislocations in your markets.
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8 How to use this book
Each of chapters 4 to 6 poses a question; provides tools to address

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

based ideas and finally thoughts on other recent developments in strat-
egy-making and the future role of resource-based ideas.
Practical competence and
1 resource frameworks
What is a competence? Are there different types? How do competences

and resources relate to one another? What makes a resource important?
This chapter provides you with a pragmatic background to resource and
competence ideas. The structure is as follows:
What is a competence?
Competence categories
Resource and competence architecture
What is a resource?
What makes a resource important?
What makes a competence important?
The chapter ends with a summary and a background reading list.
1.1 What is a competence?

A competence is an ability to do something, when applied to compa-
nies we say:
A company has a strength or a high competence activity if it can out-perform most

competitors on a competitive factor that customers value.
A company has a weakness or a low competence activity if it under-performs most

competitors on a competitive factor that customers value.
Competence in this sense is a way of describing how well (or not) your
firm performs its necessary activities.
USX, Chaparral and Nucor

USX, a large integrated US steel producer has been saddled with organisational cultures, values and man-
agement practices that have prevented it from adopting new technologies in a timely and efficient man-
ner. Its low performance (or competence) in this area put USX at a considerable competitive disadvan-
tage compared to mini-mill producers like Chaparral and Nucor. The highly innovative mini-mill produc-
ers used cheap scrap steel to produce low-margin rebar steel and continued to climb inexorably up the
metallurgical quality scale to produce high-margin structural and sheet steel from cheap scrap.
9
10 Practical competence and resource frameworks
However the word competence is also used to replace high competence

activity. Thus companies having high competence activities in micro-
processor design, optics design and precision mechanical design are
said to have competences in microelectronics, optics and precision
mechanics. We shall use that short hand frequently.
Caterpillar
This large construction plant manufacturer, is recognised as having a competence in supporting cus-
tomers through its worldwide support/maintenance network.
Overall, competence is best thought of as a variable, rather than an

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

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

weakness weakness strength nor Strength

weakness
Competence Very Low Low Average High Very High
What are these activities? One useful model is that based on business
processes. Table 1.2, based on the CIM-OSA1 list of business processes
illustrates the wide variety of activities most firms carry out. The struc-
ture given here is suitable for both manufacturing and service-oriented
companies. Different markets impose different needs so we can expect
that the areas of high performance and thus high competence neces-
sary to be successful will vary with industrial sector. The examples in
this section illustrate this.
1 CIM-OSA is the acronym for Computer-Integrated Manufacturing Open-Systems Architecture.
11 1.1 What is a competence?
Crown, Cork & Seal (CC & S)

Whereas most competitors Research and Development (R&D) is independent of specific customer
needs, CC&S only does R&D to meet specific customer needs. Much of its financial success (its rates of
return have been consistently higher than its competitors) is put down to the firms intense customer
focus. Especially significant is the very high competence of CC&Ss sales force in aggressively seeking to
satisfy customers, searching for ways to reduce customer inventory, develop custom solutions, etc.
Table 1.2 Business process checklist
Direction setting
Includes all strategic planning activities including the new-product introduction process:
market research/product specification and design
manufacturing process specification and design
acquisition/mergers/divestment
performance measurement and objective setting
networks with relevant legislators and industry bodies
Order flow products
Begins with the selling of the product and ends with paying in the customers cheque:
order receipt and scheduling
raw material purchase
assembly, testing, delivery
invoicing and money receipt
for custom products contractual matters, project management, commissioning
building customer relationships
Order flow services
Services provided to the customers include:
installation, technical support and repair
spares and consumables provision

warranty management and maintenance contract arrangement
customer training
Support processes
Labour
The processes for recruiting, training, remunerating, motivating, appraising and retir-
ing employees.
Technology
The assessment and development of available technology both within and outside
the company. The installation, maintenance and disposal of plant and equipment.
Supplier
The establishment and development of relationships with suppliers. Choosing new
suppliers and terminating those no longer needed. Includes suppliers of knowledge
like consultants and academics.
Financial
Attracting investment to the firm and providing returns to investors.
Honda
Hondas competence in the development of high-performance engines and power trains is well known.
Their moves from motor cycles into lawnmowers, outboard motors and eventually into automobiles were
founded on this technical competence. Honda are also noted for their high competence at managing
their dealer networks. This competence had been of critical importance during the massive growth phase
of Honda motor-cycles in the US. At the time the existing motor-cycle distributorships were predomi-
nantly hobbyist bikers, who had little respect for the under-powered Hondas. So Honda developed a new
kind of motor cycle dealership, complete with showrooms, repair bays, finance options and an audited
standard of service.
At this point you probably have a few questions in your mind:
How does this fit with core competences?

What about capabilities?
The next section addresses these questions.
1.2 Categories of competence

We could write a lengthy chapter on the many categories of compe-
tences that consultants and academics have described. These defini-
tions may be of interest to you but you are likely to be much more inter-
ested in identifying your firms important resources and competences.
From there you need to know how to care for, manage, develop and
obtain value from them. For these reasons this book only distinguishes
between the two types shown in Table 1.3.
Table 1.3 Simplified competence categories
Ordinary resources Those currently on a par with competitors resources

and competences and competences, there is nothing special about them that
can be identified right now.
Important resources Those which are currently a source of actual or potential
and competences sustainable competitive advantage or disadvantage to your firm.
Table 1.4 gives some definitions of competence categories you will and
wont have heard of. The one definition we would advise you to look at
carefully is the shaded one Dynamic capability.
13 1.2 Categories of competence
Table 1.4 Competence categories
Competence Description
category
Core competence Usually refers to high competence activities important at a firms

corporate level which are key to the firms survival and are central
to its strategy.
Distinctive Refers to high competence activities that customers recognise as
competence differentiating your firm from competitors and that therefore
provide a competitive advantage.
Organisational or The small number of key activities, usually between or three and
business unit six, expected from each business unit in a company.
competences
Supportive An activity that is valuable in supporting a range of other activities.
(or meta) For example, a competence for building and working productively
competences in teams can have a major impact on the speed and quality of
many activities in the company.
Dynamic The capability of a firm to adapt its competences over time.
capability Closely related to resources important for change.
Until now we have not used the word capability since we consider the
words competence and capability to be interchangeable, thus we have
just used one competence. Dynamic capability is an exception it is
the competence that determines the adaptation of all competences or
activities over time and is therefore worthy of a different name. Firms
with a well-developed dynamic capability are aware of the need to
question and adapt their competences. This is not easy, human beings
in general like to relax, to operate in their comfort zone. This is not the
destiny of aware managers in fast-moving industries. As Lewis Platt of
Hewlett Packard put it:
We have to be willing to cannibalize what were doing today in order to

ensure our leadership in the future. Its counter to human nature but you
have to kill your business while its still working.
Lewis Platt, Chairman and CEO, Hewlett Packard, 1994
Reading this book is one way of sensitising you to the need for a
dynamic capability in your firm, using this book will improve the per-
formance and structure of your firms dynamic capability.
There are more competence notions in the human resources and
education literatures where the emphasis is on individual competency
and competencies (rather than competence and competences). This
book focuses on analysing resources and competences at a more global,
organisational level. Clearly, however, improvements to these compe-
tences will need improvements to the competencies of individual sales
staff, engineers, managers and operators in terms of what they do and

how they do it both individually and collectively. We provide linkages to
this individual resource level throughout the book.
Undoubtedly this section has raised more questions in your mind:
How are competences and resources related?

How do competences emerge?
What does the degree of competence depend on?
The next section addresses these questions.
1.3 Resource and competence architecture

Any activity or competence draws on a set of building blocks called
resources. Consider Figure 1.1, the triangle represents the boundary of
an activity, within that are the resources on which that activity depends.
As indicated by the arrows on the sides of the triangle, these resources
are co-ordinated in a particular way.
Resource
A
Resource Resource
B C
Figure 1.1 A representation of a competence.
This representation of the relationship between resources and compe-

tences will be used in the following case to develop a basic resource and
competence architecture. The analysis of Superlative Delivered Quality
Inc.s delivered quality competence shows how resources combine to
build a high-performing competence.
15 1.3 Resource and competence architecture
Superlative Delivered Quality Inc. (SDQ)*
SDQ is a supplier to car and truck OEMs (original equipment manufac-

turers); it has a very good reputation for the delivered quality of its
products, in the last three years only one batch has been returned by a
customer. Figure 1.2 shows the primary resources that underlie its com-
petence at delivering quality product:
A set of beliefs at top management level that delivered quality is a key

differentiator in the market
A performance measurement and reward system that valued delivered
quality highly
Statistical process control (SPC) knowledge and expertise built over sev-
eral years
Rigorous ISO 9001-based quality systems, with effective concentration
on correcting root causes
An increasing customer focus value within the workforce, built over
many years and driven by extensive training, visits to customers pro-
duction lines, and ongoing contact with peers on customer production
lines. (Operators know why it is important to pack products in a partic-
ular way because they have seen how they need to be loaded onto the
customers production line)
A reliable manufacturing system
Neglecting those leaving within six months of joining, the average
length of service is approximately 12 years, hence another resource was
loyal and experienced staff
Co iverin
de
mp g
l
Strong
ete qua
belief that
nc
quality is key
e: ity pr
Loyal and
l
experienced
SPC staff
duo
knowledge Rigorous
ct
and skills ISO 9001

Performance procedures
measurement
Customer focus
and reward system
a strong value
Figure 1.2 Primary resources underlying the delivered quality competence.
Co liverin
de
mp g
Strong
ete qua
belief that
nc
quality is key
e: lity pr
Loyal and
SPC experienced
knowledge staff
du o
and skills
ct
Performance Rigorous
measurement
ISO 9001
and reward system procedures
Reliable manufacturing Customer focus
system a strong value
Co sign cturin
de nufa
mp of p g
ma
ete rod pro

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

Figure 1.3 The role of the product and process design competence.
But that does not explain all of their performance, Figure 1.3 shows that
their product and manufacturing process design is also performing at a
high-competence level necessary to maintain the reliability of the manu-
facturing system, and this further underpins the quality performance.
Underlying that competence we find another set of resources:
A design for manufacture (DFM) procedure optimised for their products

Skills and experience built from practicing the DFM procedure (seven
or eight new products per year)
A large production engineering group with automation design knowledge
Is the high-performing quality competence fully explained? Not yet, there is

one more step. A further high-performance competence feeds both the
quality competence and the design of product and manufacturing process
competence. That competence, shown in Figure 1.4, is in building and work-
ing productively in teams, the resources that underlie this competence are:
17 1.3 Resource and competence architecture
Co liverin
de
mp g
Strong
ete qu a
belief that
nc
quality is key
e: ity pr
Loyal and
l
SPC experienced
knowledge staff
duo
and skills
ct
Performance Rigorous
measurement ISO 9001
and reward system procedures
Reliable Customer focus
manufacturing system a strong value
Co sign cturin
de nufa
mp of p g p
ma
Co
ete rod ro
mp
nc
ete
e: uct a ess
nc
e:
for
Design
mi
nd
c
for manufacture
ng
procedure
an
do
pe
ra
In-house
ti
Skills in using
ng
automation
DFM procedure Multi-disciplinary
in
and design
tea
knowledge personnel
ms
Skills in using Structured problem
problem solving methods solving methods
Appraisal system
values teamwork
Figure 1.4 The Architecture of SDQs competence at delivering quality products.
An appraisal system that values an individuals ability to work in teams

Structured techniques for problem solving acquired through regular training
Problem solving skills developed through application of these techniques
Multi-disciplinary personnel. (This depended on a system of job transfer
and rotation that meant most engineers and managers had worked in
three functions from Quality, Line management, Manufacturing engi-
neering and Logistics.) They could understand one anothers problems.
So while a competence will always, in the end, be supported by

resource building blocks other supportive competences may be
Cu
sto
me
Resource
r
A
pe
rce
i
ved
com
pe
ten
ces
Resource Resource
B C
Tec
hn
So
ica
cia
l su
lly
Resource
pp
su
X
or t
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ive
or
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ec
mp
Resource
om
ete
pe
ten
nc
e
ce
Resource
Y
Resource
Resource
P
R
Fig 1.5 Extended competence architecture.
involved. This is particularly so for competences that customers recog-

nise, like rapid new product introduction or, in this case, a competence
for delivering high-quality products. These competences are often
reliant on supportive competences which lie deeper in the organisation
and which are much less obvious to customers.
We can therefore extend our competence architecture as in Figure 1.5.
In general technical supportive competences support the maintenance
and/or development of particular technical resources in the SDQ
example the design of product and manufacturing process compe-
tence supports the Reliable manufacturing system resource. They are
therefore drawn with their apex penetrating the triangle immediately
under the resource concerned. Socially supportive competences gener-
19 1.4 What is a resource?
ally assist in the coordination of one or more competences. They are

therefore drawn with their apex intersecting the co-ordination triangle
of those competences they affect.
But what determines the performance of a competence? The degree
of competence displayed by the activity depends on at least five aspects:
The health of the resources

The appropriateness of the resources to the particular activity
The way the resources are co-ordinated and managed
How often the activity is exercised (practice can make perfect, but not
with inappropriate or unhealthy resources)
The performance of supportive competences
Note also that the resources in our example are not necessarily tied to
these competences alone. The workforce is involved with a multitude of
activities, from scheduling batches through the factory to disposing of
waste material. They have other deep-rooted values as well as customer
focus. For instance the wage bargaining in this company is often a highly
contentious matter as the workforce attempt to get their share of the
results of the firms competitive advantage. So the performance of a com-
petence can often depend on the attention and priority managers give to it
compared to other activities in which the same manpower and perhaps
different knowledge and expertise are required. This suggests a sixth factor:
The priority given to the activity, particularly where shared resources

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

A resource is something your organisation owns or has access to even if
that access is temporary.
Resources can be either tangible or intangible.
Tangible resources are relatively obvious, examples include buildings, plant, equip-
ment, exclusive licenses, patents, stocks, land, debtors, employees
generally tangible resources can be touched or felt, they have a physical
shape.
Intangible resources are, by definition less easy to recognise. They include skills, experi-
ence and knowledge of employees, advisers, suppliers and distributors.
Skills, knowledge and experience can also be held or embodied in sys-

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

Tangible resources Buildings, plant, equipment, employees, exclusive licenses,

geographic position, patents, stocks, land, debtors more or
less anything with a physical form.
Knowledge resources, An important set of often unwritten, tacit resources whose
skills and experience holders may not even know that they possess.
System and A wide range of tangible, documented resources from recruit
procedural resources ment and selection systems to performance measurement
and reward systems, order processing systems etc. These doc-
uments and the computer resources they run on are tangible.
But the efficient running of these systems requires inter-
twined intangible resources like the knowledge and experi-
ence of the operators and users of the system.
Cultural resources One type of intangible resource often developed over long
and values periods and often dependent on the attitudes of the founder(s) and
past events. This category includes memories of cathartic situations
as well as values, beliefs, preferred behaviours etc. The beliefs of
powerful individuals can be critically important resources.
21 1.5 What makes a resource important?
Table 1.5 Cont.
Network resources Interest groups within the company, networks involving compa-
ny personnel with suppliers, customers, legislative authorities,
or advisers. We include reputation and brand in this category.
Resources important A key resource area related to recognising when valuable
for change resources have become out-dated and need to be changed or
even destroyed. Examples here are the beliefs of influential
workers and managers, the existence of resources for imple-
menting change (like cash for investment).
Do not make the mistake of thinking that these resource types are sepa-
rable. That a resource is either tangible or not, or that a resource is
knowledge-based or system-based. Resources can be mixtures of
knowledge, system and physical hardware that are not easy to separate
with neat definitions.
Do not ignore yourself here because you, as a manager, are a highly
valuable resource that is key to identifying the need for change in your
company, assessing the direction of that change and carrying it out. But
at the same time you are maintaining the competences on which your
competitive position depends through the organisation of your under-
lying resources. Experienced managers are particularly complex
resource bundles. They are typically tangible, part of many networks,
are influential holders of cultural resources, have a wide set of knowl-
edge assets and are certainly important for change.
1.5 What makes a resource important?

Important resources are, or could be, sources of sustainable competitive

advantage or disadvantage to a firm.
In order to simplify discussion we shall concentrate on the resources
that are sources of advantage. Three metrics are used to assess the
importance of resources:
Value The performance made possible by the resource pro-

vides a competitive advantage that is valuable to cus-
tomers
Sustainability This performance advantage must be, to a degree,
sustainable or lasting
Versatility The resource should be versatile and therefore useful
across many product areas and even in new markets
These metrics will now be described in more detail.
Is it valuable?
There are almost as many ways a resource can be valuable as there are
different resources:
An in-house manufacturing process may deliver product specifications

more economically than competitors and thus reduce costs.
A strong brand name may increase revenues through its ability to pro-
vide premium pricing.
Long-lived personal contacts and networks with key suppliers, cus-
tomers and/or legislative authorities are examples of resources which
enable access/influence on customer/legislative requirements or speci-
fications. Even if threats cannot be defused, those with superior net-
works of this kind have most notice of market change.
Scarce resources also tend to be valuable. Examples vary from oil fields
to prime locations for retail stores to an intensely customer-focused cul-
ture which enables superior access to customer requirements.
Wal-Mart and K-Mart

Much of Wal-Marts continuing competitive advantage in discount retailing comes from its early entry
into rural markets in the southern USA. To make these locations profitable Wal-Mart developed appropri-
ate reporting structure and compensation resources and sophisticated point of sale inventory control sys-
tems. The inventory control systems were an important resource, rare amongst its competitors, kept
product availability high, inventory costs low and could be used to predict demand.
K-mart, a major competitor has been copying these point of sale resources and should overcome their
disadvantage in this area. However, it may be more difficult to imitate Wal-Marts prime store locations
based on early entry to the market. These geographic resources may prove to be a more sustainable com-
petitive advantage for Wal-Mart than point of sale systems.

Both retail chains have some thinking to do as more and more goods are bought over the internet. It is
feasible that these prime locations will become of less and less value to the stores.
Remember that out of date or otherwise inappropriate resources and

capabilities may produce nil or negative value they are weaknesses or
incompetences and produce disadvantages for a firm. Xeroxs inability
to turn excellent research into products was a case in point.
Xerox
At their Palo Alto Research Centre (PARC) Xerox spent the 1960s and early 1970s developing a range of
valuable, scarce and difficult to imitate technological resources. The personal computer; desktop mouse
coupled with an icon-based, easy to use operating system; ethernet and laser printing were all developed
at PARC. Unfortunately Xerox failed to exploit these technologies because of other, weaker resources:
No structure existed to promote these technologies.
Once discovered an intensely bureaucratic product introduction process stifled many of them;
Those finally developed were poorly exploited because management compensation systems were
based, almost totally, on maximising current revenue. Market development for future sales was
almost irrelevant.
The funds generated from the virtual monopoly Xerox enjoyed in the copier business enabled PARC to
excel in many technologies yet, ironically, also bred a set of resources that frustrated their exploitation.
Is that value sustainable?

For a resource to be important its value must also be sustainable. For it
to be sustainable:
Competitors should have difficulty in copying the resource

Competitors should also have difficulty in finding substitute mecha-
nisms for rivalling the advantages it provides
The firm itself should not undermine, destroy or otherwise allow
resource values to depreciate
If the resource is difficult to copy its value may last and there are three
reasons why a resource might be difficult to copy:
First, it may be difficult because competitors cannot recognise the

resource it is invisible to them.
Second, the resource may have been generated by unique historical
opportunities that will never be repeated. Caterpillars service network
is an example.
A third source of problems is a lack of understanding, ambiguity or con-

fusion over how the resources actually work as in Mailbox Inc.
Caterpillar re-visited
Shortly before the USA entered the Second World War the federal government decided to appoint a single
supplier of construction equipment to build and maintain military bases and airfields around the world.
Following tenders Caterpillar was chosen and the government agreed to pay equipment prices high
enough to enable them to develop a worldwide service and supply network. Unique historical conditions
provided the opportunity for Caterpillar to develop this costly and difficult to imitate competence.
Caterpillar management took advantage of this opportunity by developing appropriate resources: global
reporting structure; global inventory and other control systems; compensation policies to encourage
employees to work around the world, etc.
Mailbox Inc.
Mailbox Inc. is a simple business it gathers bulk mail from customers (advertisements, free offers, etc.),
sorts it by post-code and then takes it to the post office to be mailed. (The post office charges less for this
sort of mailing when it is supplied in delivery rounds and Mailbox Inc. makes money by charging its 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 DallasFort 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 Mailboxs success derives from doing the thousands of things required to run a
bulk mailing organisation well. Each is easy and cheap to imitate but as a whole their operation is costly
and difficult to imitate. Managers in Mailbox find their success difficult to explain, what chance do com-
petitors have of understanding what to imitate?
If your competitors can recognise your valuable resources yet face high costs
or long time-scales to acquire them they may think twice before trying to
copy. If they face high costs and long time-scales your competitors are even
less likely to copy, for in the time needed to catch up your performance can
improve further and the competitive landscape can always change.
However competitors may be able to get round this problem by sub-
stitution. Can its advantages be substituted? Some advantages can be
undermined by competitors who change the rules of the game. While
Caterpillar have promoted their worldwide support competence a sig-
nificant competitor has still emerged.
Caterpillar and Komatsu

Komatsu have competed successfully with Caterpillar by substituting some of the advantages of a global
network support competence with equipment that breaks down less frequently. One of their compe-
tences is to design very reliable mid-size, construction equipment.
Finally, a firm can destroy its own resources particularly quickly, espe-
cially resources that naturally depreciate quickly. The value of some
knowledge resources can decline quickly in fast-moving, high-technolo-
gy industries. In the communications sector an engineers knowledge
gets out of date as new electronic components and system standards
are introduced. This is one example of a host of resources that can
decay if left alone unused or unmaintained. The longer a resource can
endure without attention the more sustainable it can be.
Is it versatile?
A versatile resource can be used in a number of places outside its cur-
rent application. However some resources are not versatile, there are
three potential reasons for this:
First, the resource may only be valuable in combination with other

resources. For example, a skilled engineer may be much less valuable
when divorced from an existing support structure where his/her abilities
are allowed to blossom while their weaknesses are compensated by other
engineers. This is the idea of complementary resources. If three people
each have a third of a safe combination they are truly complementary
resources since each alone is next to useless and all three are necessary
to rapidly open the safe. In practice it is often the case that the most
obvious and valuable resources need to be accompanied by complemen-
tary resources if they are to be used outside their current situation.
Second, the resource may be tied to its geographic surroundings. For
example an expert in a particular technology may not move to your new
research laboratory because s/he looks after an aged parent. Natural
resources like oil fields or copper mines are similarly tied to particular
geographic positions.
Third, the resource may take a very long time to replicate or may be vir-
tually impossible to replicate. For example, though you might wish to
use a particular Engineering manager for his current role and also in
another of your business units our current knowledge of genetics has
yet to make that a possibility.
If a resource is codified within databases or in-house developed soft-

ware it is probably well understood. (Note. This may mean it can also be
copied or stolen, see above.) Resources embedded in tacit knowledge
and skills will be much less understood. The more codified and under-
stood a resource becomes the more versatile it may be.
If the resource can be used in new markets its importance is further
heightened. Brand image is a good example of a versatile resource. But

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

There are three basic ways for a competence to become important:
The first is simply for it to be underpinned by one or more important

resources. It is these important resources, which score well on the value, sus-
tainability and versatility metrics, that are the source of competitive advan-
tage. However, it is the co-ordination and management of those resources in
a competence that can be recognised by customers as high performance in a
particular competitive dimension. Note that it is perfectly possible for impor-
tant resources to lie unused and even unrecognised playing no part in a
companys strategic competences, see the Xerox case on page 22.
Second, it is feasible, see Mailbox Inc. page 24, that a firm can co-ordinate
and configure a large number of individual resources into an important
(valuable and sustainable) competence. None of these resources appears
important, but together they can form an important competence. In this
case the important resource is the coordination itself.
Third, a competence can be important because rather than a particular
resource being rare and valuable the combination of resources on
which the competence draws is rare and valuable. No competitor pos-
sesses this range of resources.
We end Chapter 1 at this point and will begin to use these ideas to help
your business, in the next chapter.
1.7 Summary
The major ideas covered in this chapter are:
Resources are the building blocks that underpin the activities in a com-
pany, they come in many shapes and sizes.
A competence is an activity performed at a range of levels, there are a
number of different types.
Dynamic capability is the ability within a firm to adapt its competences
over time.
To distinguish between a competence and a resource ask whether the
item in question is something the organisation has or has access to? If
so its a resource and will be best expressed as a noun. Or is it some-
thing the organisation does? In which case its a competence and will be
best expressed as a verb.
The performance of a competence is dependent on
the health and appropriateness of its underlying resources
on your management of those resources
27 1.8 Further reading
on their detailed co-ordination,

the frequency of practice
the priority given to the activity especially where shared resources
are involved,
the performance of supportive competences
It follows that your competency as a manager is a vital key to the per-
formance of your companys activities.
Resources are evaluated against three metrics: value, sustainability and
versatility.
Important resources are valuable, but the value they produce should
last for a reasonable period (it is sustainable) because competitors find
it difficult to copy, imitate or substitute for it. Ideally the resource can
be used in more than one product or service context.
Important competences
contain one or more important resources and are, by definition,
managed and co-ordinated in an effective manner compared with
competitors
or involve the outstanding co-ordination of many, otherwise ordi-
nary, resources
or are composed of a rare combination of resources
Important resources and competences are sources of actual or potential
sustainable competitive advantage or disadvantage to your firm.
1.8 Further reading

Barney, J.B. (1996) Gaining and Sustaining Competitive Advantage, Addison-

Wesley, Reading, MA.
Especially chapter 5 Evaluating firm strengths and weaknesses: resources and
capabilities.
Grant, R.M. (1991) The resource-based theory of competitive advantage: impli-

cations for strategy formulation, California Management Review, Spring,
114135.
For one of the best overviews of the area.
Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation
Harvard Business Review, MayJune, 79-91 (reprint # 90311).
For why managers got excited about the internal analysis of firms.
Stevenson, H.H. (1976) Defining corporate strengths and weaknesses, Sloan

Management Review, Spring, 5168.
For the best description of the political and cognitive problems involved in
strengths and weaknesses analysis.
Teece, D.J., Pisano, G. and Shuen, A.(1997) Dynamic capabilities and strategic
management, Strategic Management Journal, 18, (7), 509533.
A classic paper which, prior to its publication in 1997, might well have become
the most photocopied working paper in the history of strategy research.
Awareness what does
2 success look like?
How can we connect your business improvement with resource and

competence ideas?
The methods described in this chapter take a practical, initial look at
resources and competences important for your firm. The aim is to sen-
sitise you to think of improving your firms resource base at the same
time as achieving the improved performance implicit in your current
business objectives. The process is called the Awareness method and is
suitable for management teams.
Awareness is a good introductory route into resource-based thinking. It is
a top-down journey, which begins with a firms business objectives. The out-
comes concentrate on improving, creating and co-ordinating desired
resources in order to achieve your business objectives. This route can also
focus on the Change competence of your organisation in resource terms.
New change and
Current change Resource and improvement
and improvement competence activities aimed at
activities building competence and
resource building
Vision of required
resources and competences
Existing change and

Envision the
Business improvement activities
resources underlying
objectives with resource and
the achieved objectives
competence objective
Figure 2.1 Awareness.
The starting point, illustrated in Figure 2.1, is a well-articulated set of

business objectives1 which have taken care to combine customer
requirements (current and expected future) with stakeholder require-
ments (shareholders, employees, government, customers, community,
suppliers, etc.). As Figure 2.1 shows the outputs are a vision of the
improved resources and competences on which the achievement of the
objectives would depend. They are fed into the resource and compe-
tence building process covered in Chapter 7.
1 There are many ways of generating a set of business objectives, see either of the accompanying
books, Creating a Winning Business Formula and Getting the Measure of your Business.
29
30 Awareness what does success look like?
The chapter is organised as follows:
The need: it is very easy to damage a firms resources, even if you do not
intend to
The approach: a description of the methods used and the thinking
behind them
Outcomes: opinions from managers using the approach
Toolkit: tools that help structure the discussion and debate
The chapter ends with a summary of the main ideas raised in the chap-
ter and a process review that describes what you will gain from actually
using the Awareness method.
2.1 The need

There are good reasons for sensitising managers to a resource-based
view of their plans, Stable and Enduring Inc. is a case in point.
Stable and Enduring Inc. (SEI)*

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

More generally it is obvious that resources which can take many years
to build can be demolished in a very short time. And at the heart of all
strategy making is a trade off between financial performance now and
in the future. Rolls-Royce Aerospace chairman, Sir Ralph Robins illus-
trates the point:
1999 was a successful year for Rolls-Royce in challenging conditions. We

again achieved our financial target of double-digit earnings growth and
continued to invest in improved efficiency and new products and services
31 2.1 The need
to ensure long-term growth. We have transformed our business over the

last decade. During this period Rolls-Royce has invested more than 5 bil-
lion in research and development and 1.5 billion in capital expenditure
to establish a leading position in civil aerospace, defence, marine and
energy. These are growing markets in which we are gaining market share.
Rolls-Royce plc Annual Review and Summary Financial Statement (1999), p. 2
Long-term holders of Rolls-Royce shares have made no fortunes from

these shares over that ten-year period. Resource aware strategy-making
tends to reduce current profit by investing in resource development
that supports future profits. This can provide a dull ride for investors at
times but Rolls is one of the least risky shares around and one day
Overall our contention is that if a companys performance improvement
actions are assessed for their resource impacts, then:
Resource-aware actions can provide improved long-term performance

for all stakeholders from an improving resource base
The risk of damaging important resources and competences will be reduced
There is a higher chance of innovative strategies being discovered and
followed
Our experience as managers and researchers suggests we do not go

about improving our resources because resources are regarded as
means not ends. Rather we go about trying to survive and, when we
look up, we try to achieve the objectives set for us and set by us. Some
of our personal objectives are related to the firms business objectives
which are usually about growth, reducing costs, shortening leadtimes,
speeding up responses to customer changes and so on. They tend not
to be about building a better resource base for the future. We are aware
that there are other measures of achievement the owner of a vineyard
aims to pass it on to the next generation in a better condition than
when s/he took it on. In modern business life, particularly in the USA
and, to a lesser extent, the UK, a more short-term view of share price is
demanded. There are problems with this balance of thinking:
It promotes a short-term view (two years at maximum)

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

resources as they decide how to reach their business objectives is a use-
ful contribution. What is necessary, and illustrated in Figure 2.2, is to
view business objectives in resource and competence terms as well as
simply measures of performance improvement and thus enable man-
agers to visualise the impact of different options on achieving their

objectives and on their resource base.
Improved performance
"Profit and loss"
Coherent
Business implementation actions
objectives
"Balance sheet"
Improved assets/abilities
for further performance
improvement
Figure 2.2 Actions that improve performance and the resource base.
The analogy used in Figure 2.2 compares the outcome of improved per-
formance (leadtime, growth, etc.) with the yearly profit or loss. An
improvement in resources and abilities can be compared with an
improvement in the balance sheet but is rather more difficult to meas-
ure. We shall return to the measurement issue in Chapter 8. Importantly
your future balance sheet, resources and competences are fundamental
to the performance improvements you will be able to achieve in the
future. We shall also return to the concentration on share price as a
measure of company performance in Chapter 9.
2.2 The approach

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

Change activities that underlie the change itself
Figure 2.3 illustrates these different kinds of activities and, for both
types, we can look at the resources needed to underpin them. We shall
be concentrating on the improved operational activities.
2Most companies have more than one product market group, for example many manufacturing
companies have a spares market as well as an original equipment market. Though related, the
business objectives of each group will be very different.
33 2.2 The approach
What resources
Change underpin these
activities activities?
What Resources
Business activities are required
objectives to achieve these business
objectives? Resources
Improved What resources

operational underpin these
activities activities?
Figure 2.3 Change activities and more competent activities.
Resources underpinning more competent operational activities can be accessed by

the following questions:
What new resources have been acquired or accessed?

new machinery?
new engineer recruits?
new sales staff?
new suppliers or advisors?
Which resources have been improved?
staff via training/mentoring?
machinery via refurbishment?
systems have been improved e.g. by automation or simplification?

How have actions have been better co-ordinated?
by re-organisation
by employing a more competent manager?
These questions require you to think about how your firm works in an
operational sense. The outcome is a vision of the resources and compe-
tences required to support improved performance and provide a fur-
ther platform from which even better performance can be achieved.
Resources underpinning the change activities are more subtle. There are often prob-
lems in changing organisations:
Planning change needs joined up thinking. If the teamworking prac-

tices within your organisation are poor change may be slowly and mini-
mally achieved.
Extra resources are invariably needed for change and initially change
usually costs money. If resource availability is very tight, again there will
be delays in the act of changing.
Consultants are often used to make up for either or both of the above
problems. Here change happens but it may not last.
An important aspect to note here is that there are socially supportive or

unsupportive competences (see Chapter 1). There are competences and
resources that can support or provide substantial roadblocks to change,
for example:
performance measurement and reward systems
recruitment and selection systems
appraisal systems
stories and myths that illustrate the behaviours that are valued in your
company
It is these systems and the beliefs and values that underlie them that
need attention if a firms 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 firms performance
It inserts a longer-term component into their strategy making by sug-

gesting the continuity and improvement of a firms resource base
It can help to assess whether stretch targets might be achieved by
building on old resources or developing anew
It can assist managers to make resource-aware decisions
Managers find the discussions on their change competence valuable
2.4 Toolkit
The toolkit consists of:
A method called Awareness for creating and organising a resource and
competence perspective from a set of business objectives
Worksheet examples
35 2.4 Toolkit
2.4.1 Awareness
Aim To create an understanding of the desirable resources and competences that

should underpin the achievement of your business objectives.
Why? To enable you to take resource-aware decisions to achieve your business objectives.
How? Participation
This approach is designed for management teams and for full value the whole team
should attend. This is because the method develops a language and understanding
of resource-based thinking. A facilitator is a worthwhile investment, so that the
whole team can have their say.
Time
Depends on the number of business objectives. Two hours would cover up to four
objectives. Practice does speed up the process considerably.
Materials
Flipcharts, or better, a large electronic whiteboard in the format of Table 2.1.
Table 2.1 Format for resource and activity capture
Knowledge System and Cultural Resources

Tangible skills and Procedural resources Network important
Activity resources Experience resources and values resources for change
3
CD
Forms
3 This symbol indicates that a copy of the form or table it accompanies is obtained from the CD.
The process:
Take each objective in turn and
Use the format shown in Table 2.1 to list the main activities that will need to improve
to achieve the objective
Against each activity list the resources that will need to be improved, acquired or bet-
ter co-ordinated to achieve the objective (use the resource category headings (Table
1.5) to prompt the different kinds of resource)
When complete, look for areas of conflict and resolve them.
Further analysis normally suggests itself, for example:
Draw together all the cultural resource developments
Draw together system improvements and prioritise
Draw together knowledge needs to suggest appropriate training
Compare current improvement plans with the desired resources:
Will these plans deliver these resources?
Will some plans undermine needed resources?
Tips:
Use the sheet as a working document, it will need to be re-formatted and tidied
up after the session.
Good prompt questions, mentioned earlier are:
What new resources have been acquired e.g. machinery, engineers, sales staff, suppli-
ers, advisors ...?
Which resources have been improved e.g. through training or refurbishment?
Which systems have been improved e.g. by automation or simplification?
What actions have been better co-ordinated e.g. by re-organisation or
employing a more competent manager?
What current problems have been reduced or eliminated and how exactly
was this achieved?
Get the team to close their eyes and try to visualise whats different. Are people
running about faster? Staying at work longer? Or are tasks being accomplished
more effectively?
37 2.4 Toolkit
Case example: Anonimo Inc.*
A. Develop and improve relationships with key customers

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

Major messages Up to date Contacts Provide time Appoint a

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

used to promote directors must tem prior to recognised as
the company understand major events very important
the order of opportunities
military ranks
Post-event
contact to
check on
customers
reactions
B. Improve the co-ordination of the design and build process

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

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

design/build tems adjust- design and
process ed to reflect build teams
the impor-
tance of Leadership
teamworking moving from
design to
production to
commissioning
over the pro-
jects lifecycle
Worryingly this analysis identified no internal resources in the

Resources important for change column except for PRTM consultants.
2.5 Summary
The main ideas in this chapter are:
It is easy to destroy most resources
Often it doesnt even take much time
Regarding resources purely as means and not ends leads to:
A short-term view
Resource development being ad hoc
Resource insensitive decisions being made
The Awareness method sensitises you to develop your resource base at
the same time as achieving your business objectives
Resource-aware actions will provide
39 2.6 Process review
Improved short- and long-term performance from an improving

resource base
Reduced chance of a disaster occurring
A higher chance of innovative strategies being discovered and followed
The method can also be used to investigate your firms ability to change
its change competence
2.6 Process review

At the end of this chapter you will have:
Gained a resource- and competence-based perspective of your current
business objectives
Almost certainly improved the relevance of one or two of your business
objectives
Formulated some resource aware plans in your mind, if not on paper
Have the information to use Chapter 7 to build your resource and com-
petence base
But beware you are only sensitised to the resources and competences
important for achieving this set of business objectives. You have other
important resources that have not been documented.
Matching problems to
3 analysis methods
The Awareness method is useful:
When you need fresh perspectives on how to improve your business

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

for example:
By acquisition or divestment
Entering joint ventures or other partnership arrangements
Considering make versus buy alternatives
Entering new markets
Taking on new technologies
When disaster is at hand
When you are trying to build a more sustainable competitive advantage
For all these areas it is essential to identify your firms current resources
and to assess their value and sustainability. The Awareness method
does not identify your current resources, it helps you to visualise the
connection between achieving your business objectives and the
resources needed to underpin improved performance. Indeed it sensi-
tises you to protect and develop resources relevant to your current busi-
ness objectives. You almost certainly have important resources that are
not attached to your current objectives. Awareness does not identify
them so they are still in danger from your action plans.
So while the Awareness method offers a good introduction to resource-
based thinking and can help protect and develop some important
resources, a further method is required to tackle the first three areas, above,
and to supplement Awareness. In this chapter we develop a second process,
called Insight which enables us to tackle these other strategic issues.
41
42 Matching problems to analysis methods
This chapter is divided as follows:
Boundary change decisions, disaster, and sustainable advantage: what

are the requirements for resource analysis?
Top-down versus bottom-up processes: which is most appropriate here?
The level of detail required: achieving a balance which enables action-
able outcomes
Insight: an overview of the second approach
We conclude with a summary of the main ideas in the chapter and a list
of further reading so those interested can study the ideas more deeply.
3.1 Boundary change decisions, disaster and sustainable

advantage
To tackle these strategic issues any analysis must identify the compe-
tences and resources relevant to your particular focus and then assess
them for their value, sustainability and versatility, for example:
In a make versus buy decision the resources relevant to the particular
decision need to be identified and assessed. This is because you need to
know whether any of these resources are strategically important.
Deciding to buy rather than make usually applies to services and com-
ponents commonly available where the particular skills and equipment
used are neither valuable nor do they offer any sustainable advantage.
Examples are commodity components like fastenings, raw plastics and
steel plate, and services like payroll, distribution and some training.
Deciding to make rather than buy usually applies to services and com-
ponents designed specifically for your business. If the component con-
cerned plays a fundamental role in providing any important perform-
ance attributes of the final product (or service) it is likely to be retained
in-house. Some of the design and/or production skills needed may be
rare and therefore valuable. Manufacturing skills may be intertwined
with product design skills in such a way that design skills ebb away if
there is no in-house manufacturing skills to support them.
Apple Computer
Apple designs its own hardware and its software operating system (the Mac OS). This, says the CEO, Jobs,
enables Apple to be fully in control of the users 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 Apples key
43 3.1 Boundary change decisions, disaster and sustainable advantage
resources and is strongly related to the Apple brand and its loyal user base.
Many WIntel PC manufacturers do little more than assemble boards and mouldings from Taiwan, install
software from Seattle and then market and distribute their products. They are not in a position to inno-
vate technologically since the majority of the product is out-sourced. Their innovations have been in
manufacturing cost reduction and low-cost distribution.
Charles Fine has shown that the implications of buy versus make deci-
sions on the supply chain can have long lived effects which may be very
difficult to predict.
By outsourcing to Japanese aerospace suppliers (e.g. Mitsubishi), Boeing

planted the seeds of various competences that grew under their own
power, eventually beyond the ability of Boeing to control them Boeings
subcontracts had a positive impact on the size and technological capabili-
ties of the Japanese suppliers, which in turn increased Japanese industry
autonomy and ultimately the ability of that industry to demand more crit-
ical work. In addition, the suppliers gained in their appeal as subcontrac-
tors which, in turn won them more contracts. On the US side, fewer con-
tracts resulted in a shrinking in size and capability, which, in turn reduced
the suppliers attractiveness and encouraged Boeing to shift even more
business away from them in subsequent contracts.
Once such a dynamic process is initiated, it can take on a life of its own
and evolve far beyond the control of the initiator. In Boeings case, this
process has unfolded over a period of 25 years or more, far exceeding the
duration of any individual Boeing employees executive career.
Furthermore, although the BoeingJapan relationship has been fruitful
for all the players involved, one must ask whether this relationship con-
stricts Boeing as the company attempts to trade production for sales in

the emerging markets of China and India, for example
C.H. Fine, (1998) Clockspeed, Perseus Books, NY, pp 1634
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 ventures 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 partnerships resources and the potential risks of your
partners accessing resources you wish to keep to yourself.
Versatile Resources will be the most difficult to protect.
When disaster is at hand, perhaps because your product range is being superseded by
substitutes using a different technology, one aim would be to assess
your ability to take on the new technology and how your existing cus-
tomer network and other distribution resources might be used to delay
the competitors progress.
Taking the technology on-board may be possible by licensing or even
a buy out if the competing firm is willing. It is important not to under-
estimate the value of your market knowledge and distribution networks
in these situations.
Failing this, another route is to identify which of your resources are
versatile, so that they can be used in adjacent markets or technologies
related to the ones currently in difficulty.
Perhaps you are just becoming less successful in a highly competitive
market. In resource terms there are two common explanations for this:
Like Apple you may have forgotten your most vital resources (see
above) and have stopped using them to the full. This is most likely when
there have been regular changes at the top of the organisation. In the
Apple case one of the founders, Jobs, returned to the company knowing
exactly what was important. The answer was get back to your strengths.
Unlike Apple you may be leveraging your important resources big time.
The trouble is time has moved on and these traditionally valuable
resources are not so valuable in the customers eyes as they had been.
Other aspects of your product or service package have become impor-
tant, and you have not reacted to that. Chances are there are a number
of people who, sotto voce, have been proposing what to do about these
trends but no-one has listened.
Building a sustainable competitive advantage depends on identifying resources that

are sustainable (that competitors will find costly or time consuming to
copy or substitute for), and then increasing their role in providing per-
formance advantages that customers recognise. It can also involve a
level of co-ordination that competitors cannot equal, often this kind of
co-ordination is called teamwork. Good teamwork needs clear and sig-
nificant goals, individuals competent at the relevant skills and at collab-
orating effectively with one another. Outstanding teamwork also needs
members to be unified towards the achievement of the common objec-
tive, where individual agendas are put to one side.
Boston Celtics, Yankees, Leeds, Liverpool and Manchester United

The most imposing winning skein in sports is owned by the Boston Celtics. From 1957 to 1969, the Celtics
won the NBA Championship eleven times, without once having a player among the top three scorers in the
45 3.2 Top-down versus bottom-up processes
league. It was much the same with the 1949-53 Yankees, who won five World series with players who never
led the league in any major batting. Their lineup never was as strong as Bostons or Clevelands, never had
the punch of the Dodger teams they beat three times in that span.
S. Cohen, (1982) A monkey on the back, a lump in the throat, Inside Sports, 4(4),20
Somehow these teams worked well together. In soccer as in basketball when you have the ball you can shoot or
pass. The soccer teams in the UK that have had sustained success Liverpool, Leeds and, coming on at the mil-
lennium, Manchester United have all been passing teams. Co-ordinate until a shot has good odds and then
shoot.
Taking these issues into account we need another resource and compe-
tence analysis method that provides enough detail in the strategic decision
area of interest. It will need to identify relevant resources and assess their
value, sustainability and sometimes their versatility. Developing a new
method involves choosing between a top-down and a bottom-up process.
3.2 Top-down versus bottom-up processes

In general a resource and competence analysis can be:
top-down
bottom-up
both
There is plenty of evidence that top-down analysis of a firms current

resources and competences carried out by senior managers is likely to
produce little new data. The output is likely to reinforce the status quo
regarding the firms strengths and weaknesses; after all analysing your
strengths and weaknesses is a political matter. Generally the power and
influence around a boardroom table is closely connected to the percep-
tions of what is important. However, since company boards and man-
agement teams can rarely find time for detailed analysis, top-down
methods are most appropriate for them to use themselves. Care has to
be taken in designing such methods to try to avoid managers falling
back on old scripts, arguments and positions.1
Bottom-up approaches have considerable strengths but they are also far
from perfect. Table 3.1 summarises the trade offs between the two approaches.
1Awareness is a top-down method specifically designed not to look at your firms current
resources. Instead it focuses on resources you can build a future set of desirable resources
that align with achieving your business objectives.
Table 3.1 Pros and cons of alternative directions of analysis
Direction of Advantages Disadvantages

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

large, multi-unit organisa- managers
tion may be addressed Weaknesses may be ignored
New corporate directions in the search for consensus
and opportunities may be A feel-good exercise may
identified result where the status quo is
Consensus, overall, may not questioned
be achieved
Bottom-up Generally more reliable Becomes time consuming if

data, since those actually the scope of the unit of
involved in the area have analysis is wide and the
to be involved to access the number of resources is large
detailed data Not always understood by
Firmer basis for further work those not involved in the
Capable of identifying process
unsuspected and poten-
tially valuable resources
It is the third option, both top-down and bottom-up that promises most
success. Senior managers should be able to identify (top-down) the key
competences or decision areas for analysis and the actual analysis is
best carried out involving the staff who know the area (bottom-up),
assisted by an external facilitator and a sponsoring senior manager.
3.3 The level of detail required

Figure 3.1 shows how, with the same input of effort on a project, the detail
reached on a resource analysis of the corporation is going to be much lower
than on an analysis of a particular activity or business process.
Unless you are prepared to spend a great deal of your own time or a
lesser amount of your time and a great deal of money on consultants,
then an analysis of the core competences of your corporation is likely to
yield rather generalised answers. Consider the resource detail given for
Canon in Prahalad and Hamels HBR2 article The core competence of
the corporation. (MayJune, 7991).
2 This article, as of April 2000, was the most reprinted article from the Harvard Business Review
ever (reprint # 90311).
47 3.3 The level of detail required
High High
Department?
Detail Business The need

in the process Business for business
analysis unit context
(for equivalent
effort)
Corporation Low
Low
Narrow Wide
Focus
Figure 3.1 Project scope and level of detail reached.
Canon
When Prahalad and Hamel wrote The core competence of the corporation they drew attention to the
ideas of competence. In their examples they informed us that Canon had core competences in microelec-
tronics, fine optics and precision mechanics. Not only that, Canon also had the competence to mobilise
these competences into products across the corporation in its many divisions, from cameras to photo-
copiers. Remember the Xerox example where strong technological competences existed but could not be
mobilised into products.
However, it is not difficult to identify the technological competences in Canon, most engineers could do
that with a cursory look at Canons product range. What is much more interesting and important to
understand is the resource base on which those competences are built. What are the resources in the fine
optics area? Simulation methods? Glass formulation knowledge? Lens grinding expertise? Input of
research from particular universities? And how are these resources configured and managed?
It is important to understand the resources that underlie your impor-

tant competences and that means a reasonable level of detail has to be
uncovered. Thus smaller units of analysis are to be preferred, for they
can yield a level of detail that provides actionable outcomes and real
insight into how the area chosen actually works. There is, however, a dif-
ficult, practical issue met when dealing with a small unit of analysis. As
illustrated below the analysis could become very personal.
Anonymous academics*
A university research centre, composed of ten researchers, including PhD students, decided to analyse
their competences and resources. They used the methods in this book.
Over a four year period many resources had been developed, from a frequently visited web site to a com-
prehensive database of articles in their subject area to an inclusive culture that valued individuals. But it
became very clear that the key resources were the individuals involved, some much more so than others.
Developing the centre further would be concerned with the competencies of individuals. In so doing the
relative competencies of some individuals would be exposed. The centre leader was unwilling to go into
these areas in public and perhaps wisely, the facilitator did not force the issue and the project stopped.
So beware of choosing very small or very large areas of interest. The

analysis can either become very personal or too general.
This implies our new bottom-up method needs to put a boundary
around the area of interest in order to achieve the right balance of
scope and detail. It now needs three steps define the problem and
draw the boundary, identify the resources and competences, and then
assess them. Well call this bottom-up process Insight.
3.4 Insight
The Insight method is aimed at providing an understanding of your firms
current resources which helps to tackle the first group of issues listed earli-
er changing boundaries, facing disaster, creating a sustainable advantage
or looking for improvement ideas. As well as helping managers to make
resource-aware decisions the method provides real insight into how their
organisations work and the prospect of more creative strategy-making.
The contrast between Insight and Awareness is described in Table 3.3.
Table 3.3 Comparing Insight and Awareness
Method Strengths Weaknesses

Insight Suitable for those involved in the area Slower route

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

Appropriate for management teams results lower than
Insight.
Provides a good, practical feel for
resource-based ideas Very low chance of iden-
tifying under utilised
Capable of sensitising managers to make
resources or unsuspect-
resource aware decisions
ed valuable resources
Can be used to examine a firms change
competence
49 3.4 Insight
In practice Awareness is a good introductory route into resource-based

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

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

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

Step 3 takes the resource listing and assesses them for value and sus-
tainability against documented scenarios. It is described in Chapter 6.
Both Insight and Awareness use the resource and competence building
process to review results, test and implement alternative resource-
aware actions. It is described in Chapter 7.
3.5 Summary
The major points covered in this chapter are:
There are two sets of problems which resource-based ideas can help
tackle.
The first set focuses on resources and competences that will be needed
to achieve current business objectives. The Awareness process is suit-
able for this task
Awareness begins with a firms business objectives, envisions the
resources and competences needed to achieve those objectives and
uses this vision to produce resource-aware action plans.
The second covers changing boundaries, facing disaster, creating a sus-
tainable advantage or looking for improvement ideas. These issues
require an analysis that focuses on existing resources and their assess-
ment. Insight is designed to help tackle these decision areas.
There are pitfalls when choosing very large or very small areas of inter-
est large areas can lead to insufficient detail, small areas can become
highly personal.
Insight takes a bottom-up approach. (Choosing well-defined problem

areas, searching for relevant existing resources, assessing them for value
and sustainability and, finally, devising action plans to tackle the partic-
ular strategic business issue. These steps are explained and illustrated
in detail in the next four chapters.)
3.6 Further reading

Fine, C.H. (1998) Clockspeed, Perseus Books, NY.
For interesting insights on supply-chain dynamics related to make or buy
decisions.
Probert, D.R. (1997) Developing a Make or Buy Strategy for Manufacturing

Business, The Institution of Electrical Engineers, London.
For a process approach to make or buy.
Insight what focus and
4 scope is appropriate?
This is the first step in the Insight method, where the aim is to docu-
ment the focus and scope of the analysis. The inputs may be a desire to
achieve a previously developed business objective, to tackle particular
resource- and competence-sensitive decisions or just plain curiosity. As
Figure 4.1 shows the outputs are a defined focus; an estimate of the size
of the task, measured by the number of participants; a boundary round
the analysis; and an organised project.
Curiosity
Achieving a
business
objective
Defined focus
Defining
Business Participants
decisions
project scope
Project organisation
and focus
Boundary
Figure 4.1 Deciding the focus and scope of the analysis.
This chapter is structured as follows:

Deciding the focus, positioning the problem in a business framework

Drawing a boundary, identifying the problem area
Project issues, covering external facilitation and reporting frequency
Toolkit, tools for defining the focus and scope
It concludes with a summary of the main points covered and a process

review, describing the outputs if you follow the process.
4.1 Deciding the focus

As can be seen in Figure 4.1 the inputs to defining the projects scope
and focus are the need to achieve a particular business objective, par-
ticular decisions that need to be made, and plain curiosity. In Chapter 3
the issues that match the Insight method were discussed. Here we
examine the degree of focus each issue entails:
51
52 Insight what focus and scope is appropriate?
Boundary changes: By their nature boundary changes are usually easy to focus upon,
taking on a new technology or investigating a particular make versus
buy issue are cases in point. Both acquisitions and divestments are also
normally easy to focus upon since there has to be considerable clarity
on what is to be bought or sold.
When disaster is at hand: In contrast here we have an unfocused, open problem. The
place to start may be unclear but in the worst case the best start is likely
to be identifying the activities that have been strengths:
Are these strengths still valuable in the current market?

Are these strengths valuable in other markets?
Building a sustainable advantage: The key here is to find valuable and sustainable
resources. In the Abacus case the thought that service provision could
become a sustainable advantage was suggested by some market data
about current advantages and the beliefs of senior managers that serv-
ice was vital.
Abacus Ltd
Abacus, suppliers of automatic measuring equipment to the fast moving consumer goods industries had
surveyed the sales and servicing performance of its rivals and itself. The results showed a set of small
advantages over rivals in the service area. High reliability was a given in their industry but the board
believed that from their current position they could differentiate themselves from their competitors on
product service. How could they improve their service competence? Firstly by providing a much more
supportive infrastructure, including training, a definition of what good service was and a service audit
system. With new ideas in short supply it was decided to carry out a resource analysis.
Needing a fresh perspective on improvement: Take one of your current business

objectives, re-frame it as improving your competence at the activities
that underpin achieving that objective. For example, an on-time deliv-
ery objective will need to address the order-flow process and the raw
material supply processes as a minimum. Here is a clear focus, one that
will enable you to understand the resource-based view and produce
actionable proposals for improvement.
Curiosity: Your management team, maybe even you, are simply curious about
resource-based ideas. There may be a proposal that you need to identify
your core competences. Such a project can become vast and be carried
out at a level of generalisation that is unhelpful and unsatisfactory. One
aim of this chapter is to steer you toward smaller units of analysis. In
this way actionable outcomes will be achieved in short time-scales and
your understanding of resource and competence analysis can be built
up. Having improved your knowledge, you will then be able to tackle
53 4.3 Issues
larger units of analysis such as a large business unit or a corporation

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

Drawing a boundary around the problem is useful for scaling the task and
checking who should be involved. It is also vital to make sure the study is
not artificially restricted by organisational boundaries. As Chapter 1
makes plain, important resources are often accessed by a business. They
can lie outside your organisation, be they with customers, suppliers, head
hunters, other advisers or independent distribution channels.
Unless your company is organised along business process rather
than functional lines, the boundaries on an organisation chart are
unlikely to be useful for drawing boundaries in this context. Your focus
will be on one or more activities within your company and usually
those activities cross functional borders. Drawing a good boundary
depends on an understanding of the flows in organisations. The sort of
understanding that derives from viewing the firm as a set of business
processes is useful for this, see Table 1.2.
Examples
A companys service competence will depend on the serviceability designed into its products as well as
the competencies of its service engineers.
A firms perceived on-time delivery competence can be affected as much by the salesmans reluctance to
mislead customers on delivery times as the operations functions performance.
A firms ability to consistently design eye-catching products will depend on its recruitment, development
and retention of outstanding designers as well as its technical design processes.
4.3 Issues
This section discusses the specific resource- and competence-related
aspects of the management of the project.
In Chapter 2 we suggested the management team as the best group
for carrying out an Awareness study. In contrast the majority of an

Insight analysis needs to be done by staff having a detailed knowledge
of the areas of interest, ideally led by a senior manager. The very nature
of resource analysis generates two further issues:
Facilitation and maintaining objectivity should an outsider be used?

Reporting frequency
Facilitation: An in-company facilitator can be trained to facilitate the methods used in

this book. An external facilitator is often preferable to help the analysis
in two areas. First to help the team be as objective as possible. Second to
help identify some of the taken-for-granted resources that are often hard
for insiders to recognise or articulate.
Abacus Ltd
Every time the launch of PPk36 was mentioned eyes narrowed and people seemed to look inside them-
selves. It had been a near disaster hundreds of products that failed for reasons they did not understand.
The company had almost gone bust, everyone had suffered, they had stared into the abyss. The company
now had a powerful resource the shared memory of a disastrous product launch. It was something no
competitor would want to imitate but it was there and they could use it to their advantage.
The Abacus example illustrates a resource that was difficult for insiders
to articulate let alone use. They did not wish to even speak about it.
Reporting frequency: Resource-based analysis provides a different perspective on your

company that grows in power and insight over the period of the project.
Those outside the project group do not have this experience, resource-
coloured spectacles cannot be obtained without detailed experiential

work on competence and resource ideas. This means that the reporting
frequency needs to be high, senior management need to be taken along
with the analysis. During the next few chapters we shall return to this mat-
ter and suggest specific means of reporting back to senior management.
For now we continue by describing tools for defining the focus and
scope of the study.
4.4 Toolkit
The toolkit covers methods for defining and putting a boundary round
the focus area.
55 4.4 Toolkit
Drawing a boundary
Aim To agree the activities and organisations relevant to the analysis and the participants
in the analysis.
Why? This step helps to ensure that:
the scale of the analysis is understood
relevant participants are identified
the area of interest is seen in a business context
How? Use the format shown in Table 4.1 to record the activities covered by the competence
area, with their organisational and product scope, and finally list those people who
need to be interviewed.
Table 4.1 Defining the boundaries
What major activities are included in

the area of interest?
Use the business process checklist,
Table 1.2 as a prompt
What is the organisational scope:
All activities in the organisation?
OR a set of activities across a number
of business units or organisations?
OR all activities within a single busi-
ness unit or organisation?
OR a set of activities within a single
business unit or organisation?
What third party organisations are
involved?
List the products involved:
The whole product range?
A defined product range?
Given the above who should be inter-
viewed?
CD
Forms
E 1: A service competence
Abacus supply automatic measuring equipment for production lines.
They intend to make a difference in their market through superior
product servicing. The company has three product groups and chooses
the largest, the Delta range, as its product focus. The company has a
mixture of wholly owned subsidiaries and third party distributors who

sell and maintain its products worldwide. The organisational scope is
chosen to include the central service support activity and district sales
support to these distribution channels. One subsidiary, the UK service
organisation and one third party distributor will be covered and a range
of customers will be surveyed. See Table 4.2.
Table 4.2 Defining the boundaries second attempt Abacus
Organisation Abacus Ltd Date June 1998

Focus Service Competence
What major activities are included in Installation, repair and service, technical
the area of interest? support, spares and consumables provision,
Use the business process checklist, customer training, maintenance contract
Table 1.2, as a prompt. sales and visits
New product introduction. (Recruitment,
training and motivating of Service staff,
omitted from first attempt)
What is the organisational scope: Central Service support
All activities in the organisation? District Sales management
OR A set of activities across a number of UK Service organisation
business units or organisations? One European third party distributor
OR All activities within a single business A range of customers
unit or organisation?
OR A set of activities within a single
involved?
List the products involved: The Delta range only

Given the above, who should be inter- The analysis will cover about 15 intervie-
viewed? wees and the study will be carried out
by a consultant.
In their first attempt at drawing a boundary the major activities relating

to the recruitment and training of service personnel were not included.
However, these activities are clearly relevant to an analysis of Service
competence. Often the main activity focus is on the order flow of prod-
ucts or services (see Table 1.2). But just as important are the support
activities, for example recruitment methods, training provision and tech-
nology support.
In general the labour support activities (see Table 1.2) are always
important in a resource and competence analysis. This is certainly so if
57 4.4 Toolkit
we consider Service personnel they have two problems to solve when

they arrive to repair a machine. First they need to get the machine
going, a technical problem. They also need to tackle the frustration cre-
ated by the breakdown a social repair involving the reputation of your
company. This could consist of advice on how to maintain the machine
perhaps the customer would like to take out a service contract, per-
haps a training session for his plant engineers. Such behaviour requires
a wide variety of skills. Can your recruitment methods identify candi-
dates with these skills or capable of learning them?
The organisational scope is straightforward, Abacus has no corporate
centre, it is a medium sized business with three product groups. The
organisational scope has been restricted to the central support group,
the wholly owned UK service organisation, a European third party dis-
tributors service organisation and the District Sales management
organisation which co-ordinates all third party distribution. A range of
customers will be interviewed by a market research company.
The analysis has been further restricted to the largest product group,
the Delta range.
From this data the number of interviewees can be estimated and it
has been agreed to use a consultant to carry out the project.
E 2: Research unit competence

NGRM supplies components to truck and automotive OEMs interna-
tionally. Much of its research effort is centralised in the UK where a staff
of 200 supports the companys five main product groups. The research
centre board returned from a strategy away-day with a clutch of five
projects. Of these one aimed to identify the core competences of the
research centre.
The boundaries are shown on Table 4.3, the major activities to be
covered are all those carried out by the research centre. The organisa-
tional scope is the whole research centre plus a representative from
each of the five product groups.
The product scope covers all product groups. A representative group of
six managers led by a Director will be assembled on the main project
and data is expected from 30 others.
This example illustrates a project that is likely to identify compe-
tences within the boundaries of the research laboratory but miss com-
petences lying partly outside its borders, perhaps with particular sup-
pliers or the development departments of certain product groups.
These competences could be much more important to the business as a
whole than some identified within the research unit.
Drawing a boundary too tightly runs the risk of failing to identify
important resources and competences.
Table 4.3 Defining the boundaries NGRM Research
Organisation NGRM Research Date November 1999

Focus The core competences of the whole research centre
What major activities are included in All activities within the research centre:
the area of interest? agreeing projects with their product group
Use the business process checklist, customers
Table 1.2, as a prompt. carrying them out
reviewing them
giving advice
labour support
technology support
What is the organisational scope: The whole of the central research and
All activities in the organisation? development unit and one customer per
product group
OR A set of activities across a number of
business units or organisations?
OR All activities within a single business
unit or organisation?
OR A set of activities within a single
involved?
List the products involved All product groups
The analysis will involve a core team of
Given the above, who should be inter-

viewed? six, representing the different parts of the
organisation and interviews with 25 more
internally and five product group represen-
tatives
59 4.6 Process review
4.5 Summary
The main ideas raised and advice given in this chapter are:
Define the focus carefully at the outset.

Initially, if possible, choose small, but important areas to focus on
develop those resource-coloured spectacles.
If in doubt, focus on one or more of your competences at meeting cus-
tomer performance requirements e.g. low leadtimes, low costs or high
product reliability.
Do not draw the boundary too tightly important resources like advis-
ers and suppliers lie outside traditional organisational boundaries.
Use an outsider to keep you objective, otherwise youll fail to identify
some important resources, this is particularly important in the next two
parts of Insight (Chapters 5 and 6).
Consider the competencies of the people carrying out the activities in
the focus area.
Consider the systems that select, recruit, and train those people.
4.6 Process review

Defined the focus for analysis

Identified the activities within that focus
Identified the organisational and product/service scope of the analysis

Agreed the participants in the analysis, including interviewees and proj-
ect members
Insight where are these
5 resources?
This is the second step of the Insight method. The aim is to identify and
document the resources relevant to the main activities defined in the
previous chapter. The inputs will be a defined focus, an organised proj-
ect, a list of participants and a defined scope, measured by the products
and organisations involved. As Figure 5.1 shows, the outputs are a cate-
gorised list of resources and the beginning of a set of resource-coloured
spectacles for those most involved.
Identifying
List of resources
resources
New perspectives on current
concerns
Defined focus
Participants
Project organisation
Boundary
Figure 5.1 Identifying resources.
This chapter is structured as follows:
Whats the problem? Managers often find it very difficult to identify

their resources
Identification a new angle, perspectives that help managers to identify
their resources
Toolkit, tools that help to identify and categorise the resources present
The chapter concludes with a summary of the main points covered and
a process review, describing the outputs if you follow the process.
5.1 The need

Most writers on resource and competence ideas appear to believe that
resource identification is a straightforward matter. All you have to do, it
61
62 Insight where are these resources?
seems, is become familiar with the ideas of resource-based theory sup-

plemented with a few high-profile examples, much as they are present-
ed in Chapter 1, and then have a brainstorming session. At the end of
which you will have identified and listed the most relevant resources in
your area of interest next step assess them.
Our experience suggests that it is much more complex than that. There
are two main difficulties:
First, managers are very close to their own resources, some of those
resources are part of them and their colleagues. They are particularly
close to the values within the company, attitudes toward customers,
change and quality, for example. They are just as close to deep-seated
assumptions about, for example, the market, parts of the manufactur-
ing process, or design limitations on products. For instance in one firm
we found a widely held belief that a certain type of product would
always fail. This belief could prevent the firm from aiming for high relia-
bility in this product range while its competitors, with no such belief
would have no such problem. Such beliefs and values are very impor-
tant resources, because they distinguish your firm from others and
because values and beliefs are difficult to copy.
Second, such is the variety of resource types how can one have any con-
fidence that the most important resources have been identified?
These difficulties are addressed in Sections 5.2 and 5.3 respectively.
5.2 Identification a new angle

In the previous chapter we suggested an experienced outsider would be

better qualified to identify cultural resources. However it has become
increasingly clear that an introduction to resource-based thinking fol-
lowed by a brainstorm round a flipchart with groups or individuals,
even supported by an experienced outside facilitator, was an unsatisfac-
tory method. Better methods needed to be developed and tested.
This meant finding a different angle on resources. Instead of asking
managers What resources do you have? an alternative approach was
needed. Resource-based theory suggests that resources are the result of
ordinary managerial actions. There are many ways in which resources
can be intentionally acquired, improved or left to waste away:
By acquisition:
Purchase of machinery or licences

New recruits with new knowledge
63 5.2 Identification a new angle
By accessing:
Know-how from consultants through fees

Know-how from customers, suppliers etc. through networks
By internal development:
Training courses
Gained through repeated, analysed experience
Adaptation of machinery to meet particular requirements
Through systems which aim to hold and/or acquire knowledge, for
example order processing systems which naturally update customer
addresses or sales histories and surveys, used to acquire customer, sup-
plier or employee opinions
Resources can also be acquired through chance:
An unusual order that stretches and improves resources

A remarkable success that legitimises a change in strategic direction
An unfortunate accident that creates the memory of behaviour to be
avoided
In a nutshell, resources and the level of competence performance they

enable are built up or decay over time through your normal managerial
actions. Your resource base evolves continually over time. History matters so
a representation of your firms history1 should help identify your resources.
The improved method, described in detail in the next section, con-
sists of drawing a pictorial history of the internal and external events
that are relevant to the focus area. The rich picture produced helps you
to identify your resources because, for example, it details training given,

the assets purchased and modified and other critical events. The ques-
tion becomes What resources have been acquired, developed or thrust
upon us by these events?
Drawing a history also helps to access those taken-for-granted
resources since we can ask Why did you do that? How did that come
about? The values and beliefs discussed earlier are often bound up in
why particular decisions and directions were taken.
To give you an insight into how the past determines a firms
resources lets look at the case of Agile Manufacturing Inc. (AMI).
1 We have come across a related idea. Once upon a time when a business made its accounts not
only were the finances recorded but the account in the sense story or narrative of the year was
also recorded.
Agile Manufacturing Inc. (AMI)*

After a long and successful history as a metal components supplier AMI found itself pressured on mar-
gins and competing with companies that provided much lower leadtimes than AMI could normally pro-
vide. Every job became a rush job, overtime and stocks rose. The answer could not lie in working harder,
AMIs methods had to change. Their first step, shown in Figure 5.2, was to explore the use of single
minute exchange of die (SMED) techniques. It seemed to suit AMIs manufacturing requirements small
batches moving through one to four shaping processes. Changing the tools on each machine was a
lengthy business so generally AMI had over-produced against a customers order and supplied a large
proportion of orders from stock.
This had the disadvantage of tying up cash in stocks and high write off costs. Reducing tool changeover
times would increase overall capacity and enable AMI to produce more batches to order.
The initial training, provided by an outside company, led from an exploratory project to a host of ideas
for reducing tool changeover times. As they were implemented lead-times and work in progress stocks
reduced. To underpin this success the performance measurement system was amended to emphasise
the importance of reducing leadtimes and crucially the production control system was enhanced to
accept leadtimes in days rather than weeks. Instead of trying to fool the system the production controller
could now represent
what was really hap- Training on Production
pening on their sys- SMED. control system
tem. As time went by New skills amended to accept
further improve- lead time in days
ments were made,
see Figure 5.3, just in
time (JIT) techniques
were adopted around Lead times
bottlenecks; sales- and WIP
men were trained in reduce
how to sell shorter
lead times; and an

automation of the
ordering system
Ideas for
meant orders could
quick-change
be placed on the
tools developed.
master production Performance
Knowledge
schedule in one day developed measurement
rather than three. By through system amended to
this time, some two exploratory emphasise lead time.
and a half years project New skills
since they had
begun, the problem Time
had changed their
system was capable = value to the business
of lead times below
the competition but
Figure 5.2 Developing a competence for low and reliable lead times at AMI, first steps.
it was sensitive to
(WIP stands for work in progress.)
machine breakdowns.
65 5.2 Identification a new angle
Instead of delivering in six weeks fairly reliably, AMI now promised deliveries in two weeks but often
delivered in three. The performance measurement system was amended to emphasise delivery on time
and a total productive maintenance (TPM) program began. The first task in the programme was to sys-
tematically strip, clean and effectively bring each machine to an as new standard over a series of week-
ends. Maintenance items were identified and placed next to the machines, operators were trained to
carry out routine lubrication and filter changes and the story continues.
Training on Production New skills and Performance measurement

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

and WIP WIP reduce again. Lead times reduce
reduce JIT training begun further as new tooling
speeds changeovers and
Sales start to JIT implementation spreads
increase
Ideas for Business being won
quick change from competitors
tools developed.
Performance
Knowledge measurement
developed system amended to Salesmen
through emphasise lead time. trained to sell Speed of response improved
exploratory JIT training begun. short lead times. through automation of ordering
project New skills New skills system. New skills
(Competitors Time
begin to copy)
= Value to the business
Figure 5.3 Developing a competence for low and reliable lead times at AMI, the story
so far.
Many firms could tell a story like this. The story can be represented in a
historical picture like Figure 5.3. It is not difficult to go from this history
to the model of a competence based on a group of interacting
resources. Figure 5.4 shows the history interpreted into AMIs compe-
tence for short leadtimes and reliable delivery.
Co
mp
Co d reli
e
an
ten
JIT
mp abl
ce
knowledge
ete e d
Resource
and skills on
nc eliv
A
ef
the shopfloor
or ery
sh
or t
Initial TPM knowledge
le
Resource Resource
ad
Production Sales
B C
tim
control system skills and
es
knowledge
Quick
change SMED knowledge
tools especially tool design
Performance Order
measurement system acquisition system
Figure 5.4 AIMs competence for short leadtimes and reliable delivery, the underlying
resources.
Indeed the picture of AMIs history also improves our understanding of

resources as evolving entities growing stronger or weaker depending on
the changes a firm undergoes and managers like you and your col-
leagues implement. The method has been tested in dissimilar case
contexts and appears to provide a more comprehensive identification of
resources than previous methods. It also appears to provide a valuable
new perspective on current concerns in the area of interest.
In the next section, the methods for producing a pictorial history,
deducing relevant resources, and testing the comprehensiveness of the
resource list are described.
5.3 Toolkit
The toolkit in this chapter consists of two parts:
A method for generating a pictorial history of the areas relevant to the

problem, there are two parts preparation and picture generation
A resource-categorisation tool that helps document the resources found
in the picture and gives an indication of the comprehensiveness of the
resources identified
67 5.3 Toolkit
5.3.1 Pictorial histories - preparation
Aim To construct a skeleton picture of past events, changes and assumptions in the
area of interest.
Why? Resources evolve over time, through the intentional and unintentional acts of man-
agers, changes in the environment etc. Representing these events over time helps
you to recognise the activities that help build resources and the current state of your
resources.
How? Draw a skeleton picture as shown in Figure 5.5
Materials:
Flipchart sheets, pens, Post-it notes
Tips Generally going back four to five years with an extra column for significant events
further back in time is about right
Allow 12 inches per year
Allow a column for next year to accommodate planned events in the area of interest
Allow one third of the vertical axis for external events since most events tend to be
internal
Label the time axis in 1/2 years. This is as accurate as you need to be
An edited example of a completed history is shown in Figure 5.6. You arent supposed
to be able to read it it is intended to give an idea of the result, in this case around
70 Post-its.
Year Year Year

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

June June June June June June
External
Internal
Time
Figure 5.6 A populated history.
5.3.2 Pictorial histories picture generation
How? Participation is key

Those involved in this phase, particularly when revealing the resources, will develop a
deep understanding of the area of interest, so the relevant senior managers should be
involved. Since an historical picture is being developed some participants must have
had a long or past association with the area.
There are two options
The picture can be completed by a group or by a set of interviews with the interview-
er assembling the final picture and then checking it with interviewees. Note that
eight participants is as many as most facilitators can manage (if a group is the
chosen route).
Time
For a group approach set aside approximately two hours, depending on the scope of
the analysis and how much history you include. It can also be convenient to construct
these histories in hourly time slots (perhaps over a couple of sandwich lunches).
What is an event?
Events are factual descriptions of what has happened or is planned to happen. The
description should include its approximate date in case the post-it becomes
detached from the sheet. The event must also be relevant for the activities of interest.
Therefore an analysis of a firms customer service activities could include:
training courses for Service engineers

a new product introduction
severe field problems with a new product
69 5.3 Toolkit
changes to the way of delivering technical bulletins

changes to the spares ordering system
setting a dress code for service engineers
changes to the performance measurement system
Assumptions?
It is essential to record comments and opinions on the area of interest and place
those on the history. Generally we place these along the bottom of the history and
include its source since this is important context to the comment. Case examples
include:
These products are very sensitive to environmental conditions
The service function is a lot more respected round here than in my last company
Beginning
A useful start point is for all participants to fill out an event which sets their first
memory of the area of interest. That may be when they joined the company or when
they joined one of the relevant organisations. These first post-its are fixed to the
chart, just inside the internal level and around the date when they joined. From here
the routine to follow is:
Write the event description on a Post-it, making sure the group understand it
The facilitator usually positions the Post-it; events incorporating internal and exter-
nal features are placed on the boundary
When to pause
Check back to the boundary definition to check whether relevant events have been
captured from all the main activities. Check back to Table 1.2 to make sure all rele-
vant main activities have been covered.
Tips At the end of this stage:
Make sure the history is checked with interested parties who were not present
Feedback this picture to the steering group or project sponsor. This is an important
part of keeping this constituency on board. Encourage them to add events that have
been missed
Use the CD to make a fair and storable copy
5.3.3 Extract, list and categorise the underlying resources.
How? The history generated in the previous section contains many of the resources directly.
They can be accessed by asking:
What tangible resources are contained in the history?
What systems and procedures are referred to in the history?
What knowledge, skills and experience have been built by training courses or collect-
ing and analysing data? Other resources, particularly concerned with the values and
culture of the company and their relation to the area of interest are more subtle,
sometimes captured comments give clues to cultural issues. The following questions
are also useful:
How interested are senior managers in the area?

Has interest and expenditure in the area been high?
How is this area viewed in the company?
Is there high or low labour turnover in this area?
Have there been cathartic events involving this area?
Use the format shown in Table 5.1 to deduce resources:
Table 5.1 Format for recording the deduction of resources
Event Comment Resource deduction
CD
Forms
Extracting resources examples

These examples are taken from the Abacus case, an investigation into the
service competence of a major international supplier of production
measurement equipment.
First survey in the UK shows

our service provision is a
potential strength THA (1996)
Service has good status
compared to other compa-
nies Ive worked for, AM
Total Care policy begun by The board have always been The most senior managers in
the MD (1996) supportive of service, JW Abacus believe service matters
a lot
Two events and two comments lead to the deduction of an important set of shared beliefs among
senior managers.
71 5.3 Toolkit
Discovered after difficult

product launch that
Service knowledge was not
as good as it should be.
JW, NP (1995)
Team consisting of JW, DS,

NP, TN, DC charged with
What needs improving in
Customer Support? (1995)
Service minimum standard
completed the 1996 def-
inition of what good
service was (1996)
. Auditing of the standard Service standard and
begins (1997) audit system
Three events and a comment combine to produce a wide-ranging service standard and yearly
auditing system resources.
Discovered after difficult

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

engineers constructed and

run for the first time (1996)
An event and a comment combine to produce a foundation course resource for Service engineers
which covers and explains the technologies used in products rather than being product centred.
List and categorise the resources identified

Use the format shown in Table 5.2 to list and categorise the resources by
inserting an X in relevant columns. There are two reasons why it is very
useful to categorise the resource:
It makes the description more understandable to those not involved
and, at a later date, to those who were involved.
It is a check that the resource identification has touched all the resource
bases. For example if there are few or zero resources of a particular type
you may have missed some. If you have not captured any resources
which are culturally related you have definitely missed one or more
important resources.
Table 5.2 Format for listing and categorising resources

Resource Tangible skills and procedural resources Network important
description resources experience resources and values resources for change
Comprehensiveness
In Section 5.1, we wondered how to assess whether the most important
resources had been identified. There are two ways of viewing this:
Have examples of all the different resource types been captured? Table
1.5, provides a good checklist if there are gaps try to fill them since
most focus areas contain resources of all these types.
Have all the relevant resources been identified? Well 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

organisations success is increasingly recognised. Surprisingly, labour
support activities like recruitment systems, employee motivation, etc.
are often identified late in resource analysis studies.
73 5.4 Summary
Table 5.3 Extract from Abacus resources underlying a Service competence

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

Established 1992, has developed from a x x x x
gripe session to a forum for ideas
Key performance measures plus targets x x x x
Service standard and audit system x x x
Fault/reliability data and analysis systems x x x x
Training programmes: foundation and product x x
Shared memory of a near disastrous new
x x
product introduction
Taken for granted that the product will fail x x
Directors believe Service really matters x x
Web site and service bulletins x x x
300 service engineers worldwide.
UK Service engineers average seven years x x
with the company
In-house developed service system for
x x x
small distributors (Workman).
Spares organisation
x x x
Architecture
The final step in this stage is to draw an architecture of the resources list-
ed, trying to identify any technically or socially supportive competences,
as shown in Figure 1.4. This may not always be possible but it often
reveals unconsidered resources.
5.4 Summary
The main points covered in this chapter are:
History is important, todays resources have been built from past
actions often unconsciously
Cultural resources can be very powerful, try hard to identify them
Dont worry that a picture of your history might not help reveal your
resources it does, and remarkably well
5.5 Process review

Documented and categorised the resources in the focus area

Developed a new perspective on current concerns arising out of view-
ing your organisation as sets of resources and competences
Improved the focusing of your resource-coloured spectacles
Insight how important are
6 these resources?
The third part of the Insight process tackles the assessment of resources
identified in the last chapter. The inputs are a list of categorised
resources and one or more defined scenarios. The outputs are the
resource assessment, a better focused pair of resource-coloured specta-
cles for those involved, and ideas for improvement see (Figure 6.1).
Alternative Valuing Resource assessments

scenarios resources Ideas for improvement
List of resources
New perspectives on current
concerns
Figure 6.1 Evaluating resources.
The chapter is structured as follows:
Whats the problem? Assessing resources is not straightforward, espe-

cially when it is important to be as objective as possible and the meas-

ures are somewhat abstract
Issues found in practice, good records of the assessment are essential
Outcomes of the assessment, several types of competence and resource
emerge
Toolkit: tools that help the assessment debate, its resolution, and pro-
vide a record of the thinking underlying the assessment
The chapter concludes with a summary of the main points covered, a

process review, describing the outputs if you follow the process and a
reading list for those wishing to study the ideas further.
6.1 Whats the problem?

If identifying your own resources is a problem of familiarity, objectively
assessing them is a problem of politics and of understanding the partly
75
76 Insight how important are these resources?
abstract measures being used. You have, without any analysis, an intu-
itive feel for the importance of the resources in your organisation. This
step sets out a way of verifying that intuition. Where your intuition and
the methods outcomes do not match there is potential for intense dis-
agreement. There are a number of sources of disagreement:
The assessment method does not properly address the importance of

this particular resource.
The resource in question used to be very valuable but over time its value
has decreased and its past glory rather than its current value are being
described.
Past glories
Retail banks have traditionally put great importance on their branch networks. In the age of internet
banking prime high street locations are becoming less and less important. The freeholds may be valuable
in themselves and provide cash to invest in other services. But now profitable current accounts can be
handled without the overhead costs of an extensive branch network.
There can be considerable implications for future resource allocation

and organisational change arising from competence and resource
analysis. The analysis can directly impact on the power and influence of
individuals and groups within an organisation. The temptation to play
politics to retain power can be strong.
Individuals who are not powerful often feel they should defend
resources with which they are involved. A poor assessment might reflect
on them.
The context of the assessment may not be explicit or understood and par-
ticular resources are more important in some scenarios than in others.
Context
Taking the retail banking analogy above, one scenario might be that 20% of profitable current accounts
will move to direct banking over the internet. Another might be that 85% will move to direct banking. In
the former scenario a branch network is likely to remain more important than in the second.
Methods of assessing resources and competences need to take these

sources of potential disagreement into account. Two further issues sur-
face, usually during assessment and also when the assessors report their
findings back to their managers and peers. These are dealt with in the
next section.
77 6.2 Issues in practice
6.2 Issues in practice

Two major issues commonly met during resource analysis are:
The considerable difficulty in rating resources against abstract metrics

Political trouble
To illustrate these difficulties consider the experiences of Research Group X:
Core competence at Research Group X (RGX)*

RGX is the centralised research organisation of a multi-national firm with eight major product lines.
During a strategy workshop the board of RGX agreed six improvement projects, one of which was to iden-
tify six or fewer core competences. A team of five managers joined a director in this endeavour.
Definitions and tests for competences and important resources were made available, much like the back-
ground given in Chapter 1, but the approach and definitions used were not sufficiently understood for
rapid progress. Over the next two meetings, of more than three hours each, the team identified six poten-
tial strategic competences by discussing their activities, organisation, resources, and what, it seemed
from an earlier survey, their customers required and valued. One of these competences was unsuspected
beforehand and seemed to have important possibilities. The team then experimented with the assess-
ment of the resources underlying the competences, see Table 6.1, and, though initial experiments
attempting to evaluate resources against these scales were not too successful, they provided a useful
focus for discussion.
There were difficulties in assessing the resources. For example the idea of sustainability was fine in theory
but difficult to apply in practice. In effect the method RGX used asked managers to rate resources on a one
to five scale based on a description of factors that tended to increase or decrease a resources sustainability.
It is perhaps no surprise that they found this a struggle. A struggle conducted over several three-hour
meetings between a team of managers who tried to come to consensus decisions on each resource. The
tangible results from the debate were two numbers per resource, see Table 6.1 a poor record of their
earnest discussion. No wonder their evaluations would be difficult to explain and justify to their peers.
Table 6.1 The RGX approach to assessing strategic resources
Value Sustainability
Resource 1 1 2
Tangible
Resource 2 2 4
resources
Resource 3 5 5
Skill, knowledge
and experience
Systems and
procedures
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 werent. Which obviously, to them, couldnt
be true.
Individuals in the audience had core competence suggestions of their own but the team felt these sug-
gestions (e.g. project management) were desirable rather than actual competences. It was certainly true
that a good research organisation might be expected to have very good project management skills this
was a desirable competence but it was not a competence RGX currently performed well. The team also
found it difficult to defend and justify their choice of competences and so, over the next month, team
members contacted other managers in RGX to spread their understanding of competence ideas and col-
lect data to test whether the six potential competences so far identified could be core. This lengthy dia-
logue finally led to wide agreement with only one change to the original competence list.
When and how individuals are involved in strategic discussions is often

important. But in resource analysis there is a more severe problem than
usual. First because the word competence means different things to
different people, second because the evaluation metrics are a little
abstract and third because the implications of the analysis on the power
within an organisation are easily understood.
Methods for checking the validity of the competence and resource
evaluations are required which are robust from internal and external per-
spectives. Internally, identified strategic resources and competences need
to be generally credible and, externally, customers need to value them.
It is no accident that the difficulties experienced by those managers

in RGX in reaching their assessments and justifying them are related. If
only the assessment method could be made easier assessors might be
more confident in their justifications. Even better if the logic of the
assessment was self-documenting so those not involved could check
the assessment themselves.
The method we have developed uses both methods of improvement
easier assessment and self-documentation. Multiple questions are used
and in the Toolkit section of this chapter they are gathered on a work-
sheet (Table 6.4) which forms a record of the thinking during evaluation.
A disagreement later, perhaps during feedback on, say, the value of a
particular resource is handled by examining the record sheet. Why was
the resource marked high or low for value? What aspect was missed?
How should it be evaluated?
We are now going to list the questions used to assess a resource or
competences value and sustainability and populate them with examples.

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When to use this book

There are five general circumstances

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

Taking each in turn:

Changing your business boundaries

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

Larger boundary changes take place during acquisitions and divest-

valuable resource is not being discarded along with low-value resources.

What are the resources that underlay your past strengths?

Building a more sustainable advantage

Fresh insights on how to improve

your resources are first identified.

Taking account of your resources in the decisions to achieve your

price growth. There is significant evidence that many US companies

An aside for small companies and start-ups

This book is designed with two aims in mind:

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

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

analysis describing a method suitable for management teams. We have

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

is a discussion on shareholder value, and its relevance to resource-

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

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

1.1 What is a competence?

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

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

USX, Chaparral and Nucor

However the word competence is also used to replace high competence

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

Table 1.1 Competence with respect to competitors

Well below Below

Strength or Significant Weakness Neither Strength Significant

weakness weakness strength nor Strength

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

Crown, Cork & Seal (CC & S)

Table 1.2 Business process checklist

spares and consumables provision

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

How does this fit with core competences?

The next section addresses these questions.

1.2 Categories of competence

Table 1.3 Simplified competence categories

Ordinary resources Those currently on a par with competitors resources

Table 1.4 Competence categories

Core competence Usually refers to high competence activities important at a firms

We have to be willing to cannibalize what were doing today in order to

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

Undoubtedly this section has raised more questions in your mind:

How are competences and resources related?

The next section addresses these questions.

1.3 Resource and competence architecture

Figure 1.1 A representation of a competence.

This representation of the relationship between resources and compe-

Superlative Delivered Quality Inc. (SDQ)*

SDQ is a supplier to car and truck OEMs (original equipment manufac-

A set of beliefs at top management level that delivered quality is a key

and skills ISO 9001

Figure 1.2 Primary resources underlying the delivered quality competence.

ete rod pro

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

Is the high-performing quality competence fully explained? Not yet, there is

problem solving methods solving methods

Figure 1.4 The Architecture of SDQs competence at delivering quality products.

An appraisal system that values an individuals ability to work in teams