Centre for Strategy and Performance

Competence, capability and resource analysis

Background

Practically all firms base their business objectives on satisfying their customer needs. This is a valuable initial approach for aligning products, services and objectives with existing markets. It is based on the Opportunities and Threats half of a SWOT* analysis. However, most firms neglect the other half of the analysis. They do not identify the sources of their Strengths and Weaknesses. For example, all firms in a market may wish to reduce their new product lead-times but one will do so more quickly and reliably than others. Why is that? Is it because of the market? No - it is to do with the resources each company can access (cash, knowledge, equipment, values, reward systems etc.) and the effectiveness of their management and co-ordination of those resources into a competence or capability for reducing their lead-time and sustaining that reduction.

Why do firms neglect to analyse their strengths and weaknesses? Partly because it is much easier to analyse markets that are, so to speak, "out there" than to speak about strengths and weaknesses which are "in here, in you, round this table and just outside that door". It is also because there are few pragmatic methods to help managers and because those that do exist do little to reduce the inherent subjectivity in managers looking at themselves.

There is evidence, presented in " Competing Through Competence" .that strongly suggests that resource-based strategies are important for manufacturing companies seeking above average profits and/or return on investment. This may be especially so in firms undergoing fast technological development partly because these are just the conditions under which new opportunities and new markets are created.

Further support for the importance of resource-based strategies in manufacturing firms comes from the theory itself. Manufacturing companies tend to be socially and technically complex, employing many people with widely contrasting educational and skill backgrounds. Some manufacturing and development processes are still regarded as black arts. Logically such environments provide a fertile environment for the emergence of idiosyncratic and difficult to imitate resources, the very stuff of establishing unique and sustainable competitive advantages.

(* SWOT stands for - Strengths, Weaknesses, Opportunities, and Threats)

Aims

Our overall aims are twofold:

1. For managers and consultants we aim to construct theory based, tested methods for accessing and analysing the strengths and weaknesses of organisations. This implies providing tools which help tackle a range of business issues that are strategic with a capital "S":
   • Make more reliable and insightful choices between capabilities to build for the future, those to sustain and those to discard
   • Access value previously hidden in under-utilised and unrecognised resources
   • Improve their judgements on how to build and sustain a competitive advantage leading to faster benefits in volume and/or profit growth
   • Take safer decisions on divestment and make versus buy, reducing "hollowing out" risks
   • Improve their choice of acquisition targets, joint venture partners, suppliers and distributors
   • Capture more reliably the value of resources and competences lying outside traditional company boundaries through improved management of such relationships
   • Reduce downside risks when choosing new markets to enter and new technologies to access and develop

2. For academe we seek to extend resource and competence theory and extend knowledge on how these theories can be put in practice.

Results to date

In the book, "Competing Through Competence" we describe two methods which concentrate on the analysis of a firm’s Strengths and Weaknesses. The issues here are less to do with the markets the firm is in and more to do with the company itself. What are they good at and not so good at? What are the important differences between one firm and its competitors? We believe every firm is unique. And it is on the peculiarities that make a firm unique that sustainable competitive advantages can be based. The processes help to understand a firm’s potential and actual strengths and weaknesses. They show how managers can build a more sustainable competitive advantage by revealing the unique resources that underlie their firm’s strengths and weaknesses. Improving these resources and managing them more effectively will reinforce their strengths and ameliorate their weaknesses and thereby improve their competitive position.

In a more generic sense these tools enable managers and consultants to study any problem where an understanding of a firm’s resources and competences is crucial.

Current projects

A study of innovation competence, completed November 2001.

A generic architecture of competences and resources is being developed to enable:

pictorial representations of competences and resources

theory development on the structure and typology of resources and competences

A study of the competence required by pharmaceutical companies to achieve and retain Federal Drug Authority (FDA) approval for their drugs. This study aims to produce a performance measurement system for the key resources underlying this competence and their co-ordination. Planned completion 2004.

Proposed project

One project (of several) under consideration is described below. Companies interested in learning more and potentially collaborating on the project should contact John Mills .

Resource analysis outside current firm boundaries

Research Questions

• How can our generic resource identification and analysis methods be applied and refined to:
• Improve the choice of acquisition targets, joint venture partners, suppliers and distributors?
• Capture more reliably the value of resources and competences lying outside traditional company boundaries through improved management of such relationships ?

Sponsors and Partners

AI Qualitek

BAE Systems

Domino Printing Sciences plc

Engineering and Physical Sciences Research Council

Rolls-Royce Aerospace

Thomas Group

T&N Technology

TWI

Researchers

John Mills

Markus Erlich

Abeer Pharaon