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(Editor), Profe sso r of Strate gy, R oya l Holloway, Unive rsity of London Campbell, A ndrew (Editor), Dire ctor o f Ashridge Strate gic Manage m e nt C e ntre
The Oxford Handbook of Strategy
Print ISBN 9780199275212, 2006 pp. -
12 Analyzing Internal and Competitor Competences
Resources, Capabilities, and Management Processes
12.1 The Concept of Competence in Contemporary Strategic Management
The objectives of this chapter are to explain the concept of organizational competences and its central role in contemporary strategic thinking about how a firm creates competitive advantages, to clarify the strategic roles of resources, capabilities, and management processes in creating organizational competences and competitive advantages, and to explain the essential aspects of a competence framework for the strategic analysis of organizations. The emergence of the field of strategic management in the last decades of the twentieth century may be broadly divided into two major periods of development of foundational concepts and theory. Both periods of development have tried to
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contribute to answering the central concern of strategic management, which is understanding how a firm might achieve competitive advantage in its industry. The 1960s to mid-1980s witnessed the adoption of many ideas from industrial economics and game theory that greatly influence the way we think about the structure of industries and how the competitive positions of firms within an industry may result in competitive advantages for some firms. These economic perspectives, useful as they are for describing and analyzing competitive conditions at the industry level, nevertheless do not explain what goes on inside the ‘black box’ of each firm as it tries to identify and respond to opportunities to create competitive advantage in its industry. Beginning in the mid-1980s, a new stream of thinking in strategic management sought to open the ‘black box’ of the firm, to investigate what distinguishes firms internally from each other, and to understand why some firms manage to achieve competitive advantages in an industry while others fail to do so. This more internal perspective on the competitive interactions of firms has evolved into what we now call the competence perspective on strategic management. Our discussion below of the internal analysis of firms generally follows the historical path of evolution of the central ideas that have shaped the way we now think about the sources of any competitive advantages that a firm may create. The first step in this evolution was the emergence in the mid-1980s of ideas about a firm's resources as potential sources of competitive advantage. This perspective was joined in the late 1980s by the recognition that the dynamic nature of a firm's capabilities may also be a source of competitive advantage. In the
mid-1990s, insights into the essential role of a firm's management processes in creating, organizing, and directing its resources and capabilities added the third essential element in today's competence perspective on how firms achieve competitive advantage. Accordingly, our discussion of the competence perspective on the internal analysis of firms is organized in the following way. Section 12.2 discusses resources as a concept for describing and analyzing firms in their competitive environments. We examine the characteristics of strategically important resources and the essential role that such resources play in achieving a sustained competitive advantage. A checklist for identifying and analyzing strategic resources summarizes the main insights into competitive advantage provided by the resource perspective. We also consider, however, why an internal analysis that focuses only on a firm's resources can never provide adequate basis for explaining or predicting the achievement of competitive advantage by a firm. Section 12.3 examines the central ideas in strategic thinking about organizational capabilities as sources of competitive advantage. We consider the strategic importance of learning dynamics in processes of resource creation and use within organizations, and why learning dynamics that drive the creation of organizational capabilities may lead to the creation of sustained competitive advantage. We also caution that in analyzing a firm, not all organizational capabilities that may be identified within a firm should be regarded as potential sources of competitive
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advantage, because a firm's ‘core capabilities’ may also become ‘core rigidities’ that limit a firm's ability to create or maintain competitive advantage. Section 12.4 discusses the analysis of the management processes an organization uses to identify, acquire, deploy, coordinate, maintain, and retire resources and capabilities. We explain why the internal strategic analysis of a firm would be incomplete without careful consideration of the management processes through which resources and capabilities must be transformed into competitive advantages. In Section 12.5 we build on insights from our discussions of resources, dynamic capabilities, and management processes to complete a competence framework for strategically analyzing organizations. The competence framework adds important dynamic, systemic, cognitive, and holistic dimensions of an organization that are essential to understanding how an organization creates and sustains competences and competitive advantages.
12.2 Resources in the Analysis of Firms
Strategic management's interest in understanding the role a firm's resources in achieving competitive advantages is rooted in the work of English economist Edith Penrose (1959), whose research focused on understanding the factors that determine how firms grow. Drawing on her observations of British firms in the 1950s, Penrose proposed that the availability of ‘slack’
Wernerfelt also proposed that resources play a critical role in strategies to create competitive advantage through diversification. Wernerfelt used the term attractive resources to refer to resources whose repeated use leads to lower costs (i.physical and human resources within a firm stimulates a search by managers for opportunities to use available resources to expand a firm's activities. distribution channels or brands). All R ights R e se rve d resources essential for competing in a new product market (e. who was specifically interested in understanding the role that a firm's resources play in creating competitive advantage. learning curve effects) because they are ‘types of resources that can lead to high profits’. Wernerfelt argued that the higher costs faced by firms acquiring and using a given resource for the first time (compared to the costs of the first mover in using the resource) create a resource position barrier that may give the first mover a sustained cost advantage in the use of that resource. the firm may be able to extend its current cost advantages and resource position barrier to new product markets.352 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. Arguing that markets for attractive resources are imperfect . 2011. Wernerfelt proposed that a firm that is a first mover in creating and using a given resource may achieve lower costs as it develops experience in using the resource more and more efficiently.g.ox fo rdhandbook s.com ) © C opyright O x ford Unive rsity Pre ss.e. Penrose's interest in strategic uses of a firm's resources was revived in the 1980s by Birger Wernerfelt (1984). When a firm can combine its current attractive resources in which it enjoys cost advantages with some new end p.
firm attributes. Firm re source s m ust be rare. Barney also described resources as consisting of physical capital resources. In Barney's analysis. 2. Wernerfelt suggested that firms pursue mergers and acquisitions as means to acquire new attractive resources and to create new competitive advantage through new combinations of attractive resources that enjoy cost advantages. Firm re source s m ust be valuable. capabilities. According to Barney. and organizational capital resources. 1. knowledge. etc. in the se nse that the y are not com m only posse sse d by com pe ting or pote ntially com pe ting firm s. or m ore pre cise ly. re source s m ust be strate gically use ful in the se nse that the y can be use d to e x ploit opportunitie s or ne utralize com pe titive thre ats. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness’ (Barney 1991:100). Following on Wernerfelt's analysis. a firm's resources must meet four conditions to be considered heterogeneous and imperfectly mobile and thus a source of sustained competitive advantage. information. organizational processes. Jay Barney (1986.because attractive resources become ‘tied semi-permanently to the firm’. achieving a sustained competitive advantage requires the implementation of a ‘value creating strategy’ that cannot be implemented by current or potential competitors and whose strategic benefits cannot be duplicated by other firms. . Arguing that no firm could implement a strategy that would lead to a sustained competitive advantage in an industry with ‘homogeneous and perfectly mobile resources’. Barney reasoned that only heterogeneous and imperfectly mobile resources can serve as the basis for a sustained competitive advantage. human capital resources. 1991) introduced a broad concept of firm resources that includes ‘all assets.
end p. A firm 's re source s m ust not be substitutable. All R ights R e se rve d The implications of imperfect markets for strategically important resources were further studied by Ingmar Dierickx and Karel Cool (1989). In e sse nce . who investigated ways in which the dynamic properties of processes of firms for building up certain kinds of resources may affect the ‘rent earning potential’ of those resources. Incre asing the rate of inve stm e nt in re se arch and de ve lopm e nt. fo r e x am ple . in the se nse that no e quivale nt valuable (use ful). A firm that alre ady has stock s of re source s in pla ce that are subje ct to tim e com pre ssion dise conom ie s will the re fore e njoy a com pe titive advantage com pare d to com pe titors who face highe r co sts if the y m ust m ove quick ly to build up those re source s. Dierickx and Cool identified four dynamic properties of asset stock accumulation that prevent competitors from perfectly and immediately replicating a firm's endowment of certain resources. 2011. or whe n the use of a re source occurs in a conte x t of‘social com ple x ity’ that com pe ting firm s cannot re plicate . and im pe rfe ctly im ita ble re source s are available and can be use d in lie u of the firm 's re so urce s. 1. Im pe rfe ct im itability can re sult whe n firm re source s have be e n cre ate d or acquire d through unique historical conditions. Referring to a firm's processes of acquiring resource endowments as asset stock accumulation. Based on this analysis. tim e com pre ssion dise conom ie s occur whe n hurrying to put ce rtain k inds of im portant re source s in place raise s the unit costs of building up those re source s.353 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. . m ay le ad to highe r unit costs in building up te chnology re source s and thus to lowe r re turns once those re so urce s are in place . Firm re source s m ust be imperfectly imitable by com pe titors or would-be com pe titors. rare . Barney concludes that a firm's current endowments of such heterogeneous and imperfectly mobile resources determine its potential to achieve sustained competitive advantage.com ) © C opyright O x ford Unive rsity Pre ss.3.ox fo rdhandbook s. Time compression diseconomies cre ate highe r costs of acquiring ce rta in k inds of re source s for com pe titors who try to quick ly re plicate a firm 's stock of those re so urce s. whe n com pe ting firm s ca nnot unde rstand how a firm 's re source s can be use d to cre ate com pe titive advantage . 4.
Asset mass efficiencies m ak e proce sse s for incre asing stock s of ce rtain asse ts m ore e fficie nt as the curre nt stock of that asse t incre ase s.com ) © C opyright O x ford Unive rsity Pre ss. m ay be be tte r able to ide ntify opportunitie s to incre ase its stock of ne w products it offe rs than firm s with low stock s of custom e r loyalty. e x actly how an innovative firm goe s about end p. a firm that alre ady has an inte rnal te chnology re source m ay be be tte r able to ide ntify and re spond to opportunitie s to de ve lop the te chnology furthe r than a firm that curre ntly lack s the te chnology. Asset stock interconnectedness re duce s the difficulty of incre asing the stock of ce rtain asse ts whe n stock s o f othe r asse ts are alre ady significant. Sanchez. the firm 's m a nage rs are not sure how the build up of the re source was accom plishe d—causal am biguity m ay se rve to lim it the ability of the firm to build up additional stock s of the re source . A systems perspective on resources recognizes that resources are normally embedded in a system that includes other resources and that the contribution of a resource to the creation of value depends on the other resources in the system in . and (ii) it m aybe e asie r to inte grate m ore of a re source into a firm once the firm is alre ady using the re source . Morecroft.354 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. acquiring m ore of ce rta in k inds of asse ts costs le ss (pe r unit acquire d) whe n a firm alre ady ha s a large stock of those asse ts in place . As a n illustration of the first e ffe ct.ox fo rdhandbook s. A firm that has m any loyal custom e rs willing to offe r sugge stions for e x te nding its product line s. In othe r words. or de ve lop m ore of the re source . Causal ambiguity in asse t stock accum ulation re sults whe n it is not cle ar— pe rhaps e ve n to a firm that has alre ady built up a stock of a ce rtain re source —what ste ps m ust be followe d to incre a se the stock of that re source . Systems perspectives on resources (Sanchez and Heene 1996. All R ights R e se rve d incre asing its stock of cre ative ide as for succe ssful ne w products. 2011. It is unlik e ly to be e vide nt to com pe titors. 3. for e x am ple . Asse t m ass e fficie ncie s large ly re sult from two e ffe cts: (i) alre ady having som e of a re source m a y m ak e it e asie r to re cognize .2. W he n a firm alre ady has a n e ffe ctive proce ss of re source accum ulation in place . acquire . causal am biguity a bout e x actly how that proce ss work s can m ak e it difficult or im possible for com pe titors to ide ntify and re plicate the firm 's proce ss of re source cre ation. The se cond e ffe ct is e vide nt whe n. 4. Howe ve r.e . and Heene 2001) suggest some further properties of resources that affect their potential to contribute to the creation of competitive advantage. a firm with a large distribution infrastructure alre ady in place in a give n are a e njoys lowe r incre m e ntal costs of adding ne w de ale rs than would a firm that curre ntly lack s significant distribution infrastructure in the sam e are a. for e x am ple . whe n causal am biguity also e x ists within a firm that has be e n succe ssful in building up its stock of an im portant re source —i. for e x am ple .
1 summarizes these ideas in a checklist for identifying strategically important resources in firms. but they may be essential to obtaining the network benefits of rapid global communication that may be crucial to creating and maintaining a competitive advantage. Table 12. In addition.which it is used. some resources that are commonly available. Further. For example. the ability to use a given resource in a system of use will vary directly with the supply of complementary resources in the system. Resources that enable a firm to connect to networks and that thereby enable a firm to capture network externalities may make an important—perhaps even necessary —contribution to achieving competitive advantage. however. phone systems) may not be rare or difficult to imitate. In using this checklist of strategic resource characteristics. it is important to remember that mere possession of strategic resources cannot be a source of competitive . the resources needed to make or use products that can connect to telecommunication networks (the Internet. the embeddedness of a resource may either help or hinder the realization of the potential of the resource to contribute to creating strategic advantage. The foregoing concepts have laid the foundation for our current understanding of the characteristics of strategically important resources and of the ways in which those resources can contribute to creating and sustaining competitive advantage. and perhaps substitutable may also play a necessary role in achieving competitive advantage. Thus. although resources that are rare. and non-substitutable may contribute to creation of competitive advantage. not hard to imitate. hard to imitate.
advantage. end p.e . brand aware ne ss acquisition that incre ase with the spe e d of re source accum ulation) • R e source s subje ct to asset mass Adding m ore de ale rs to an efficiencies (i.ox fo rdhandbook s. and non-substitutable brands • R e source s subje ct to time-compression diseconomies (i. Only the effective use of strategic resources can create a competitive advantage. unit costs Production syste m s that fall with incre a sing e x pe rie nce ) • R e source s that can be com bine d with Efficie nt distributio n syste m s othe r re source s to achie ve re duce d costs that can be use d to distribute in ne w activitie s (i. brand le ve raging of the re source ) • R e source s subje ct to asset interconnectedness (i. costs of re so urce Te chnologie s. de pe nds on syste m of e ffe ctive re source use de pe nds on re source s work ing toge the r re lationships which othe r re source s) Maintaining m ark e t position • R e source s whose value is e nhance d by de pe nds on continuing supply availability of complementary resources of m ate rials for production • R e source s that e nable a firm to capture Standard inte rconne ct protocols be ne fits of network externalities in te le com m unications ne twork s end p.e . All R ights R e se rve d Table 12.e . This essential requirement for creating competitive advantage brings us to our next perspective on the internal analysis of firms—the need to understand the capabilities of firms in using their resources.com ) .e .e .com ) © C opyright O x ford Unive rsity Pre ss.1 Characteristics of resources that are important in creating and sustaining competitive advantage R e source s characte ristics Ex am ple s • R e source s whose re pe ate d use can le ad to learning curve economies (i. difficulty of Loyal custom e rs he lp to ide ntify re source acquisitio n is re duce d be cause ne w product opportunitie s of pre se nce of sto ck s of othe r re source s) • R e source s whose use is subje ct to causal ambiguity (i. through ne w k inds of products diversification) • R e source s that are strategically useful.e . be st m e thods for Innovation proce sse s e ffe ctive use of re source are difficult or im possible to disco ve r) • R e source s whose e ffe ctive use de pe nds High-quality in pro ducts gre atly on the ir embeddedness (i.355 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.ox fo rdhandbook s. W e ll-k nown and re spe cte d imperfectly imitable. costs of re so urce e x isting distributio n acquisition that fall with incre asing stock s infrastructure .356 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.e . 2011.
1997).3 Capabilities in the Analysis of Firms Paralleling the development of ideas about resources in the 1980s was an effort to understand the role of firm capabilities as potential sources of competitive advantage. who investigated how organizational processes of ‘coordination and integration’ and ‘reconfiguration and transformation’ of resources lead to the development of capabilities within firms. build. A number of ideas emerged in the late 1980s and early 1990s that began to shed light on the strategic importance of firms' relative capabilities in creating new resources. Gary Pisano. and capabilities in devising new uses for the resources that a firm currently has or can acquire. a firm's current routinebased capabilities establish boundaries for most of the firm's learning processes and create natural trajectories of capability development within a firm. After investigating processes that led to innovations in some large firms. Nelson and Winter also argued that an organization's learning occurs mostly within its existing routines and becomes largely focused on improving existing routines. and reconfigure’ the organizational routines that embody capabilities was studied by David Teece. and Amy Shuen (1990. A firm's ability to ‘integrate. capabilities in achieving proficiency in using current resources. All R ights R e se rve d 12.© C opyright O x ford Unive rsity Pre ss. They . Richard Nelson and Sidney Winter (1982) proposed that a firm's capabilities become embodied in organizational routines—the repeated patterns of activity that a firm adopts in its use of certain resources. 2011. Thus.
com ) © C opyright O x ford Unive rsity Pre ss. what end p. who pointed out that path dependencies may also lead to longer term competitive disadvantage for firms that currently enjoy a competitive advantage because of their existing capabilities.argued that creating new capabilities requires building on experience gained in using existing capabilities—and therefore that a firm's current capabilities create path dependencies that constrain a firm's ability to change its capabilities in the near term. and because it is easier for firms to build new capabilities that are directly supported by their existing capabilities.ox fo rdhandbook s. and Shuen further point out that path dependencies in capability development make it possible for capabilities to be sources of competitive advantage.357 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. An important cautionary note about path dependencies as sources of competitive advantage was raised by Dorothy Leonard-Barton (1992). because path dependencies limit the ability of competing firms to replicate a successful firm's current capabilities. limit the firm's ability to create new capabilities and new routines—a view that reflects Nelson and Winter's notion of ‘natural trajectories’ that constrain the development of new capabilities. All R ights R e se rve d might be taken to be ‘core capabilities’ of a firm may also become ‘core rigidities’ that limit a firm's ability to develop significantly different . in effect. 2011. A firm's current routine-based capabilities. Teece. Because firms can often reap immediate economic gains by becoming more proficient in using their existing capabilities. Pisano.
scarce. Rafael Amit and Paul Schoemaker (1993) used the term strategic assets to refer to ‘the set of difficult to trade and imitate. that the strategic assets that allow the creation of organizational rents ‘change and cannot be predicted with certainty’ in an industry. combined with the need to start developing today the strategic assets that will be needed in the . They proposed that specific strategic assets will be difficult or impossible to obtain at various points in time—i. and specialized resources and capabilities that bestow a firm's competitive advantage’.e.kinds of capabilities. Organizational rents refer to the economic profits that can be captured by an organization through its use of a resource or capability. Organizational rents result when a firm can use a resource or capability to create value that is greater than the price demanded by the provider of the resource or capability. Whether a specific organizational capability of a firm is a source of advantage or disadvantage in the long run depends on the nature and rate of change in the strategic environment of the firm. however. Deep expertise in a given capability may become a source of disadvantage if a significant change in the environment obsoletes the strategic usefulness of that capability. appropriable. Amit and Schoemaker argued that strategic assets currently subject to market failures will be ‘prime determinants of organizational rents’ in an industry. Amit and Schoemaker cautioned. there will be failures to form efficient markets to supply those assets. Amit and Schoemaker observed that the inability to predict which strategic assets will be capable of generating organizational rents in the future.
358 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. and competences are the abilities of an organization to deploy and coordinate its capabilities in pursuing its goals. capabilities. and for mediating organizational inertia and disputes when a firm seeks to change its set of strategic assets. leads to uncertainty.future. 2011. complexity. skills are the abilities of individuals to perform specific tasks. Managers in firms must therefore develop mutually acceptable processes for identifying possible futures (e. In the vocabulary of the competence perspective. The issue of organizational capabilities addressed by Amit and Schoemaker has been elaborated by researchers in the competence perspective (discussed further below). Thus. for assessing which kinds of assets may become strategic assets in alternative futures.g. as well as to suggest the likely degree of end p. scenarios). Amit and Schoemaker established that the development of new resources and capabilities within a firm depends on cognitive and social processes in managerial decision-making—a perspective on the importance of management processes in developing firm resources and capabilities that we will elaborate in the next section. who have suggested a useful distinction between skills.ox fo rdhandbook s. All R ights R e se rve d complexity of the processes from which a given . This hierarchy of abilities helps to clarify at what level of an organization a key ability exists.com ) © C opyright O x ford Unive rsity Pre ss. and competences in organizations. and social conflict in a firm's managerial processes. capabilities are repeatable patterns of action that groups can perform in using resources and skills.
because key individuals can leave a firm. Table 12. acquire. 12. When competitive advantages are derived from capabilities of groups and from competences of the whole organization.2 summarizes the insights provided by the capabilities perspective in the form of a checklist for identifying and analyzing the strategically important capabilities of firms. In dynamic competitive environments in which technological and market opportunities and threats are changing. the internal sustainability of a competitive advantage is comparatively much greater. The sustainability of a firm's competitive advantage is less certain when skills held by a few key individuals are critical to the competitive advantage of the firm. In dynamic environments. internal analysis of firms must include analysis of a firm's management processes that determine today the resources . use. an internal analysis that looks only at current stocks of a firm's resources and capabilities will not develop insights into the sustainability of any competitive advantages a firm may have. the capabilities perspective helps us to identify the characteristics of the strategically important capabilities through which organizations develop and use resources to create competitive advantage. In the internal analysis of firms. and improve strategically important resources and capabilities.4 Management Processes in the Analysis of Firms The resources and capabilities that a firm has available to it at any point in time depend directly on the specific management processes the firm uses to identify.organizational ability is derived.
com ) © C opyright O x ford Unive rsity Pre ss. managerial cognitions. analyzing. develop.and capabilities the firm will have at its disposal tomorrow. Prahalad and Hamel proposed some characteristics of an organization's ‘core competences’ that began to suggest end p. The competence perspective emerged in the 1990s as an approach for describing.359 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. se gm e nt) is m ost se nsitive to and only firm s that go through ce rtain has le arne d to addre ss those proce sse s can cre a te the capability) conce rns e ffe ctive ly .ox fo rdhandbook s. and managing the complex interplay of resources. and use resources and capabilities is a central interest of the competence perspective in strategic management. Development of this integrative and essentially organizational perspective was originally stimulated by C.e . management processes. All R ights R e se rve d Table 12. Prahalad and Gary Hamel's (1990. capabilities.2 Characteristics of capabilities that are important in creating and sustaining competitive advantage C apability characte ristics • A natural trajectory of capability de ve lopm e nt alre a dy e x ists within an organization's curre nt routine s (i. K.e . Based on their analysis of globally successful companies. 1993) ideas about the ‘core competences’ of firms as the fundamental sources of competitive advantage. 2011. and economic and social interactions within and between firms that result in competitive advantage. Understanding how management processes select. an organizatio n has alre ady ‘le arne d how to le a rn’ to m ak e its routine s be tte r) Ex am ple s A firm has e stablishe d quality circle s and kaizen proce sse d that ste adily im prove the quality of its production activitie s A firm has discove re d the conce rns • A capability is subje ct to that a large custom e r (for m ark e t im portant path dependencies (i.
In e ffe ct. C ore com pe te nce s are fundam e ntal organizational abilitie s that change m ore slowly than the products the y m ak e possible . 1. Heene.e . In this competence-based perspective on strategic management. 2011. competence is defined as ‘the ability of a firm to sustain coordinated deployments of resources and capabilities in ways that enable a firm to achieve its goals’ (Sanchez.• A capability is not be com ing a core A firm with curre nt capabilitie s in print rigidity (i. and Thomas 1996). and use (i. 2. the competence perspective in the 1990s focused on deepening .com ) © C opyright O x ford Unive rsity Pre ss. a firm 's m anage m e nt proce sse s m ust be able to achie ve an e ffe ctive integration of the re source s a nd capabilitie s ava ilable to the firm . de pe nd just on sk ills of individuals. a firm 's m anage m e nt proce sse s m ust be able to detect and develop fundam e ntal te chnological. Thus. subcontract. but the capabilitie s of the firm in but on capabilities of work groups m anaging prom otional cam paigns and/or on competences of the re sults from the sk ills of m any pe ople organization as a whole coordinate d through supporting firm syste m end p.ox fo rdhandbook s. C ore com pe te nce s are de rive d fro m sets of interrelated capabilities that can be use d in a num be r of products or busine sse s. the organiza tion is still adve rtising is le arning how to capable of changing its adve rtise e ffe ctive ly on the Inte rne t capabilitie s) • A capability can ge ne rate A consulting e ngine e ring firm k nows organizational rents through re source how to se le ct. All R ights R e se rve d some key aspects of the role that management processes play in creating core competences and achieving competitive advantage.e . Extending the Prahalad and Hamel view that competition in product markets is only an expression of the more fundamental competition between firms to develop competences. m ark e ting. Building on these ideas. a general concept of organizational competence was developed in the 1990s. the organization can use organize othe r e ngine e ring firm s in its capability to cre ate value in profitably pe rform ing large e x ce ss of the costs of the e ngine e ring proje cts re source s its use s) A tale nte d cre ative dire ctor of an • An organization' ability doe s not adve rtising firm m ay le ave the firm .360 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. and othe r capabilitie s that can be use d to provide a changing array of products to m ark e ts.
our understanding of the management processes that initiate.1. Sanchez and Heene 1997. and Thomas 1996). Heene.1. the management processes a firm uses are influenced by a firm's ‘strategic logic’. and how a firm decides to respond to perceived threats and opportunities by deploying and coordinating its available resources and capabilities. as indicated by the downward arrows below management processes in Figure 12. which in turn create and sustain a firm's operations and products. Sanchez 2001). Just as management processes drive other organizational processes. direct. which then determine whether a firm achieves competitive advantage in its product markets. Heene and Sanchez 1997. and support organizational processes for setting strategic goals and for building and leveraging competences in pursuit of those goals (Hamel and Heene 1994. and Thomas 1996. Heene. management processes drive the building up and leveraging (use) of resources and capabilities. Thus.361 . Sanchez. The relationship between a firm's management processes and its strategic logic must be seen as interactive—hence. The management processes a firm uses play a central role in determining how perceptions and evaluations of strategic threats and opportunities are generated within a firm. which is the ‘operative rationale’ followed by management in defining the firm's strategic goals and in pursuing the achievement of those goals (Sanchez. the two-way arrow between end p. The central role of management processes in building and leveraging competences is indicated in the representation of a firm as an ‘open system’ of resource stocks and flows shown in Figure 12.
Information generated through management processes (such as assessments of the adequacy of its current resources and capabilities to achieve success in its markets) influences the goals a firm sets and the way it tries to achieve these goals. 2011. All R ights R e se rve d Fig. 12.com ) © C opyright O x ford Unive rsity Pre ss.ox fo rdhandbook s.1.1 View of the firm as an ‘open system’ strategic logic and management processes in Figure 12.PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. thereby shaping the evolving strategic logic of management. careful analysis of the management processes used in a firm can lead to insights into the underlying ‘strategic intent’ (Hamel and Prahalad 1989) of managers that motivates their adopting . Thus.
as noted below. opinions from distributors and suppliers). Fundamentally.com ) © C opyright O x ford Unive rsity Pre ss. management processes consist of a number of key organizational processes. Comparison can be temporal (How does the current measured level or description compare with prior measurements and descriptions?) or contextual (How do our measured levels compare to competitors' levels? How do our processes benchmark against ‘best in world’ processes of other companies in other industries?). end p. Meaning is extracted from some set of measurements and descriptions through processes of comparison with other measurements and descriptions.1 Gathering and Interpreting Data about the Environment of the Firm What a firm perceives about its environment and the firm's internal condition depends greatly on the data that the firm routinely gathers externally and internally. In the open systems view of organizations suggested in Figure 12. All R ights R e se rve d 12.4.362 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.1. employee satisfaction) and descriptions (customer reactions to new products. The sensemaking ability of a firm—its ability to perceive significant changes in the opportunities and threats inherent in its environment . as well as on the interpretive framework the firm uses to extract meaning (interpretation) from those data. 2011. inventory.ox fo rdhandbook s.of goals for creating and using resources and capabilities. data consist of various kinds of measurements (sales. productivity.
and revenues gathered through lower-order control loops.2(a).2(b). and on the relative weight (importance and credibility) the firm's managers accord to the various meanings it derives from its comparisons of available data. 12. Firms whose sensemaking processes are driven largely by data on current production. An essential organizational corrective to the potential for cognitive myopia is establishment of higher-order control loops. that solicit diverse points of view that can challenge the current strategic logic of the firm. market share. as shown in Figure 12.2 Decision-Making about Task and Resource Allocations A firm's sensemaking activities will eventually lead to decisions to respond to perceived opportunities and threats.—therefore depends on the data it gathers. on the comparisons it undertakes to extract meaning from data. that explicitly monitor the larger environment of the firm.4. A key aspect of analyzing the ability of a firm's management processes to support the effective creation and use of its resources and capabilities is therefore understanding the kinds and sources of data and interpretations that a firm's managers pay greatest attention to. The first steps in taking action are decisions about task allocations (assignments of responsibilities to people) and about what resources will be allocated to support the people given responsibility for performing . are likely to suffer from ‘cognitive myopia’ that fails to detect significant changes in the environment of the firm (Sanchez and Heene 1996). as shown in Figure 12. and that compare its management processes to those of‘best in world’ firms both within and outside the firm's industry.
363 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.3 Communicating Decisions Achieving coherence of action across an .end p. All R ights R e se rve d Fig. 12.2a ‘Lower-order’ control loops in the firm as an ‘open system’ allocated tasks. 2011.4.com ) © C opyright O x ford Unive rsity Pre ss. Task and resource allocations reflect a firm's priorities for using and/ or improving its resources and capabilities. 12.ox fo rdhandbook s. The tasks that an organization assigns to those perceived to be its most capable people tend to be those tasks to which current management attaches the greatest importance.
organization requires that management both make coherent strategic decisions about tasks and resource allocations and communicate those decisions clearly to people throughout the organization. 2011.ox fo rdhandbook s. The clarity and thoroughness with which management communicates goals and decisions greatly affects the ability of a firm to use its resources and capabilities to greatest strategic effect. 12.com ) © C opyright O x ford Unive rsity Pre ss. Internal analysis of organizations should therefore include end p.364 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.2b ‘High-order’ control loops in . All R ights R e se rve d Fig.
the firm as an ‘open system’ assessments of the effectiveness (e.g. specificity) of management's communication processes. Some of the resources a firm attracts may become ‘internalized’ within the firm (i. but also external resources which the firm can address when it needs the services of those resources. content. All R ights R e se rve d their services are needed..5 Disseminating Knowledge and Information To assure the greatest possible effectiveness in . while others may continue to reside in other firms but are ‘addressable’ by the firm when end p.4. but also in resource markets. 12. Analysis of a firm's resources should therefore include not just internalized resources.com ) © C opyright O x ford Unive rsity Pre ss. A firm's processes for engaging external resources on an ongoing but ‘as needed’ basis are of particular importance in analyzing the ability of a firm to leverage its own resources and capabilities more widely and quickly through effective use of external resources. come under the effective control of the firm).365 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. 2011.e.ox fo rdhandbook s. 12.4. where a firm must attract the best available resources and capabilities needed in its value-creating processes. frequency.4 Acquiring and Using Resources and Capabilities Firms must compete not just in product markets.
the use of its resources and capabilities. the effective coordination of resources and capabilities in performing tasks requires the dissemination of essential information about how the various resources and capabilities in a firm are expected to interact. archiving. 12. An internal analysis of a firm should therefore include an assessment of its processes for leveraging knowledge and information effectively—i. processes for gathering.e. Monitoring requires establishing processes that can measure and describe other processes that create or use resources and capabilities.7 Designing Incentives to Reward . an organization should have in place processes for efficiently disseminating relevant knowledge resources that may be useful in performing a given task to the people who have been allocated responsibility for that task. 12.4. In addition.4. and redirecting knowledge and information to those people who can benefit from the use of that knowledge and information in performing their tasks. What a firm decides to measure and describe in monitoring its internal processes will both reflect and shape its managers' priorities for developing and using resources and capabilities. management must also establish processes for monitoring how well a firm's various resources and capabilities are actually interacting and performing at any point in time.6 Monitoring the Development and Use of Resources within the Firm In addition to communicating tasks to be performed and the ways in which an organization's resources and capabilities are expected to interact in performing those tasks.
flexible work hours. 2011. they will design incentive systems that provide various forms of performance-based compensation. All R ights R e se rve d Incentives may be broadly construed to include financial compensation. and other kinds of benefits. which are now recognized in contemporary . Analysis of a firm's incentive systems can therefore clarify the kinds of performance that are most valued by the firm (and thus the uses of resources and capabilities to which it attaches greatest importance). promotions. and management processes are essential steps in developing insights into a firm's competences. end p. opportunities for developing new or improved skills. social recognition. capabilities. 12. Table 12.ox fo rdhandbook s.5 Competences in the Analysis of Firms Analyses of a firm's resources. choice of work assignments.com ) © C opyright O x ford Unive rsity Pre ss. as well as the level of concern within the firm about achieving high levels of performance in using its resources and capabilities.366 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.Providers of Key Resources and Capabilities If managers believe that people are motivated by the possibility of receiving extra rewards in return for extra effort and superior performance.3 provides a checklist for identifying and analyzing key aspects of a firm's management processes for acquiring and deploying resources and capabilities in processes of competence building and leveraging.
and holistic view of a firm as a competence building and leveraging entity. we consider the need to understand how the patterns of competence leveraging undertaken by a firm compare to the patterns followed by other firms. Key aspects of a firm's ability to manage the dynamics of its environment include the flexibility of its current resources and capabilities to be redeployed to new uses. however. and the speed and end p.e. cognitive. systemic. 12. the ‘strategic balance’ that a firm maintains in allocating resources to competence building and leveraging.367 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. and how diverging and converging trajectories of competence building give insights into future competitive positions of firms in industries. Developing real understanding of a firm's competences. requires integration of these analyses to compose a dynamic.5. effectively. and at low cost. 2011. the speed with which a firm can acquire new resources and capabilities. We also consider the importance of assessing the relative emphasis that a firm places on competence building versus competence leveraging—i.ox fo rdhandbook s.1 Integrative Aspects of Competence Assessment Dynamic aspects of competence describe a firm's ability to respond to changing opportunities and threats quickly. We next consider these further integrative aspects of a firm that must be understood before any competences a firm may have can be adequately identified and assessed.strategic thinking as the ultimate source of a firm's competitive advantages. Finally. All R ights R e se rve d .com ) © C opyright O x ford Unive rsity Pre ss.
368 Table 12.3 Characteristics of management processes that are importantin creating and sustaining competitive advantage Manage m e nt proce ss characte ristics PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. All R ights R e se rve d effectiveness with which the firm can deploy new combinations of resources and capabilities to meet new opportunities and threats (Sanchez 1995). ‘platform ’ te chnolo gie s for m ark e ting.pe rspe ctive s to the ir curre nt orde r control loops that m onitor curre nt m anage m e nt proce sse s ope rations O bje ctive s of proje cts • The m anage m e nt proce sse s le ad to cle ar unde rtak e n within the firm are task allocations and adequate resource cle arly de fine d and fully allocations to support task s funde d Manage m e nt holds m e e tings • The m anage m e nt proce ss include s to e x plain the firm 's strate gic effective communication proce sse s initiative s to all e m ploye e s. . not just top m anage m e nt A firm e ffe ctive ly use s • The m anage m e nt proce sse s are e ffe ctive re source s in a num be r of othe r firm s in producing. as we ll as lowe r.ox fo rdhandbook s. and othe r capabilitie s future ge ne rations of products • The m anage m e nt proce ss include s higher-order control loops that challe nge the A firm hire s m anage rs from organization's curre nt strate gic logic and othe r industrie s to bring ne w m anage m e nt proce sse s. in acquiring/accessing and using resources inside and outside the firm distributing.com ) © C opyright O x ford Unive rsity Pre ss. 2011. and se rvicing its products A firm has a proce ss for • The m anage m e nt proce ss disseminates codifying diffe re nt form s of knowledge and information to activitie s within k nowle dge it de ve lops and the organization that can apply the dire cting ne w k nowle dge to k nowle dge and inform ation e m ploye e s work ing on re late d topics Pe rform ance obje cts and m e asure s are we ll de fine d • The m anage m e nt proce ss e ffe ctive ly and re vie we d on a re gular monitors task performance basis with e ach pe rson and group • The m anage m e nt proce ss provides Tale nte d pe ople in the ir fie lds appropriate incentives that attract provide rs join the com pany a nd stay of k e y re source s a nd capabilitie s end p.Ex am ple s A firm can coordina te a • The m anage m e nt proce sse s are e ffe ctive ne twork of com pone nt in coordinating inte rre late d capabilitie s supplie rs in de ve lo ping a stre am of ne w pro ducts Manage rs dire ct R &D • The m anage m e nt proce ss detects and inve stm e nts to cre ate develops fundam e ntal te chnological.
accessing. An essential feature of the sensemaking process in a firm is the mental models that a firm's managers use to reduce the complexity of the firm's environment to a cognitively manageable level. A further consideration is the extent to which the mental models of top managers of a firm have or lack congruence and the extent to which processes exist in the firm for discussing and achieving congruence among the mental models of top . In assessing this aspect of competence. Cognitive aspects of competence concern the sensemaking processes of a firm through which its managers and other employees try to understand the strategically important opportunities and threats the firm faces in its environment. and what strategic logic for acquiring and deploying specific resources and capabilities would give the firm its best chance of responding advantageously to those opportunities and threats. and using current and future resources and capabilities. The mental models of managers can be distinguished by the environmental and internal variables that managers are aware of and monitor (as well as by the variables that are not included in a model) and by the ways in which those variables are interrelated in the mental models (as well as by the absence of certain interrelationships between variables in those models). it is essential to evaluate a firm's processes for identifying.Systemic aspects of competence describe a firm's ability to interrelate and coordinate current resources and capabilities in configuring effective systems for acquiring. and coordinating ‘firmaddressable resources’ located beyond the legal boundaries of the firm. as well as the firm's processes for coordinating its own internal resources and capabilities. developing.
5. In essence. the incentives that a firm provides to employees. All R ights R e se rve d leveraging consists of activities in which a firm uses same or ‘like kind’ resources and capabilities that it deploys and coordinates in familiar ways—e. Holisticaspects of competence essentially relate to the need of an organization as an open system of resource stocks and flows to attract strategically useful resources and capabilities on an ongoing basis. Competence leveraging also includes expansionary activities of a firm when the firm is . forthcoming).com ) © C opyright O x ford Unive rsity Pre ss. 2011. attracting strategically useful resources and capabilities to a firm's value-creating processes requires that a firm have effective processes for distributing the value it creates to all providers of resources and capabilities that are essential to maintain its competence building and leveraging processes (Sanchez and Heene. in providing essentially the same kinds of products and services to similar markets.managers. and the community—as well as to providers of financial resources—are important predictors of how successful the firm will be in attracting the best available resources and capabilities.g. Thus. suppliers. customers. 12. Competence end p.369 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.ox fo rdhandbook s.2 Relative Emphasis on Competence Building versus Competence Leveraging Firms can be distinguished strategically by the relative emphasis that each firm places on leveraging existing competences versus building new competences.
A competence building effort.e. . new ways of coordinating. and new uses (products and services) for resources and capabilities.3 represents the essential relationships between the two activities.essentially ‘doing more of the same thing’—such as setting up more retail outlets selling the same kinds of products in the same ways. Competence building occurs when a firm undertakes to acquire and use new kinds of resources and capabilities (i. to offer new kinds of products and services to new kinds of markets. or adding new production capacity using the same technologies and methods to make more of the same products. Figure 12. creates new competences. and/or to deploy and coordinate current or new resources and capabilities in new ways—for example. qualitatively different resources and capabilities). Leveraging those competences creates value in the marketplace that generates flows of resources (cash. if successful. Competence building therefore requires organizational learning about new kinds of resources and capabilities that may be available to a firm. new ways of attracting or accessing new resources and capabilities. An important question in the analysis of firms is the relative emphasis a firm currently places on competence leveraging versus competence building.
If a firm invests adequately in building new competences while it is also leveraging its current competences.ox fo rdhandbook s. a ‘Virtuous circle’ may result in which the firm is able to maintain or . 12.3 Interdependence of a firm's competence building and competence leveraging activities end p. etc. 2011. brand equity. The strategic options (Sanchez 1993.Fig.com ) © C opyright O x ford Unive rsity Pre ss. 1995) of a firm to create and use competitive advantages in the long run depend on the strategic balance that a firm's managers maintain in allocating available resources and capabilities to activities of competence leveraging versus competence building.370 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.) that can then be invested either in more competence leveraging (doing more of the same) or in competence building (learning how to do new things). All R ights R e se rve d reputation.
and so on. assessing a firm's strategic balance in allocating resource flows also requires assessing the timing of the resource flows that . which leads to further loss of competitive advantage. which leads to reduced levels of competence building. Failure to manage the dynamics of resource generation and use can lead to financial crises that can interrupt a ‘Virtuous circle’ of resource development and use and throw a firm into a ‘Vicious circle’ of deteriorating competences. which leads to reduced ability to invest in competence building. When a firm's investments in competence building are not adequate to recognize and respond to evolving opportunities and threats in its environment. Assessing whether a given firm is likely to be engaged in a virtuous or vicious circle of competence leveraging and building in the long run is not simply a matter of comparing its current investments in competence building activities to those of other firms in its industry.even increase its relative competitive advantages in the long run. however. Thus. a ‘Vicious circle’ results in which inadequate competence building leads to gradual erosion of competitive advantage. in a downward spiral of progressive loss of competence and competitive advantage. and (ii) committing current resource flows to competence building to generate new resource flows in the long term. which leads to reduced ability of the firm to generate resource flows through competence leveraging. there will usually be an optimal balance to be struck between (i) committing current resource flows to expansions of competence leveraging to increase resource flows in the near term. Since the generation of resource flows needed to invest in competence building depends on a firm's current competence leveraging activities.
371 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www.com ) © C opyright O x ford Unive rsity Pre ss.5. similar patterns of competence leveraging and building—i. when changes in the opportunities or threats perceived by managers in a firm lead to changes in the firm's goals. 12.can result from current investments in competence leveraging versus competence building. 2011. however. In such contexts. A current competitive context may be considered stable when the competitive interactions of firms follow well established. Competence-based competitive dynamics result.e.ox fo rdhandbook s. In such circumstances.3 Patterns of Competence Leveraging and Trajectories of Competence Building In assessing the sustainability of competitive advantages that may be derived from a firm's competences. a firm's managers may decide to expand the firm's competence leveraging or to . end p. All R ights R e se rve d The essential features of the current competitive environment in an industry will be determined by firms' respective patterns of competence leveraging. each firm competes over time by using essentially the same resources and capabilities deployed and coordinated in similar ways. it is essential to compare a firm's competence leveraging and building activities to those of other firms that are current or potential competitors. the relative competitive positions that firms occupy will be stable and will be determined largely by the competence building activities they have undertaken in the past.
Converging competence groups identify firms that are dissimilar in their current competence-leveraging activities. managers in at least some firms may decide to begin new competence-building activities that have the potential to change the nature of competition in the long run. Expansion of a firm's competence leveraging activities (for example. Figure 12.undertake competence building activities. it is essential to look beyond the current sets of competitors in an industry to identify firms whose converging or diverging competence-building activities suggest significant changes in the future competitive landscape. When demand for the firm's products is already well served. expanded competence leveraging by one firm will change the intensity of competitive interactions in the industry as firms compete more aggressively to attract and retain customers.4 suggests how the future competitive positions of firms can be assessed today based on their current trajectories of competencebuilding activities. through geographical expansion) may have little impact if there is ample unserved demand to absorb the products and services that result from the firm's expanded competence leveraging activities. When firms in an industry are embarking on significant competence-building activities. Diverging competence groups identify firms that currently have similar competences. When confronting increasing intensity of competition in leveraging current competences. but that are pursuing competence-building trajectories that will lead to possession of similar competences in the future. but that are building different kinds of new competences and thus appear to be . however.
4 Classification of future competitors based on competence building activities 12. but also analysis of convergence and divergence in the competence-building activities of current and potential competitors.migrating to different competitive arenas in the future.6 Conclusions This chapter develops a competence framework for the internal analysis of firms and of their .com ) © C opyright O x ford Unive rsity Pre ss. All R ights R e se rve d Fig. end p. Assessment of a firm's competences and the sustainability of any competitive advantages it may derive from those competences therefore requires not just analysis of a firm's current competence leveraging activities.ox fo rdhandbook s. 2011.372 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. 12.
We then considered how capabilities that take time to develop may also help to maintain competitive advantages for firms that were first movers in developing such capabilities. why fully assessing the competences of an organization requires further analysis of end p. We also considered. We concluded by explaining how analysis of firms' diverging or converging competence-building trajectories can yield . We also emphasized the importance of analyzing the strategic balance a firm maintains in allocating resources to its competence leveraging versus competence building activities. cognitive. capabilities. and management systems provide the main building blocks for analysis of organizational competences.ox fo rdhandbook s. systemic.potential to create and sustain strategic competitive advantages. We therefore considered the essential role of management processes in organizational sensemaking (perceiving opportunities and threats and deciding appropriate responses) and action taking (responding to opportunities and threats by acquiring and using resources and capabilities in coordinated processes). All R ights R e se rve d certain dynamic. To create competitive advantage. however. however. and holistic aspects of the way a firm tries to achieve a coherent integration of its resources. and management processes.373 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. resources and capabilities must be deployed and coordinated effectively. capabilities. 2011.com ) © C opyright O x ford Unive rsity Pre ss. Resources. We first considered the characteristics of resources that have the potential to contribute to the creation and sustaining of competitive advantage.
Ham e l. Journal of Management. The Theory of the Growth of the Firm. 32: 1231–41. More croft. 68/3: 79–93. ‘Strate gic Fle x ibility in Pro duct C om pe tition’. Strategic . Capabilities. Gary (1990). Firm O rganization. A Systems Perspective on Resources. Jay B. John. Prahalad. a nd W inte r. ‘Strate gy as Stre tch and Le ve rage ’. Aim é . Mass. Ne lson. Aim é (e ds. O x ford: O x ford Unive rsity Pre ss. Barne y. R afae l. and Schoe m ak e r. Harvard Business Review. ‘Firm R e source s and Sustaine d C om pe titive Advantage ’. Gary. and He e ne . An Evolutionary Theory of Economic Change. and Busine ss Strate gy’. Die rick x . Edith (1959). He e ne . Management Science. —— —— (1993). R on (e ds. Ingm ar. C onn. Competence-Based Strategic Management. Harvard Business Review. Le onard-Barton. Sa nche z. K. ‘Strate gic Factor Mark e ts: Ex pe ctations. R on (1993). and Prahalad. 13: 111–25. Paul (1993). References Am it. Luck . ‘Strate gic Fle x ibility. 35/12: 1504–11. ——— and He e m e . ‘Asse t Stock Accum ulation and Sustainability of C om pe titive Advantage ’. ‘The C ore C om pe te ncie s of the C orporation’. ‘Strate gic Inte nt’. and Ham e l. Harvard Business Review. 9: 251–91. ‘C o re C apabilitie s and C ore R igiditie s: A Paradox in Managing Ne w Product De ve lopm e nt’.: JAI Pre ss. Pe nrose . Strategic Management Journal. ‘Strate gic Asse ts and O rganizational R e nts’.-Apr. ——— (1991). —— (1995). Ne w York : John W ile y & Sons. Sanche z. Dorothy (1992). Competence-Based Competition. (1989). C am bridge . Management Science. R ichard.) (1994). O x ford: Else vie r Pe rgam on. C . and Management Processes. May/June : 63–76. Sidne y (1982).insights into the future evolution of competitive landscapes in an industry. Mar. (1986). 14: 33–46. Strategic Management Journal. Advances in Strategic Management.) (2001).Gre e nwich. Kare l (1989).. K.: Be lk nap Pre ss. and C ool. and Sanche z.: 75–84. 17/1: 99–120. and Manage rial W ork in Dynam ic Mark e ts: A Strate gic O ptio ns Pe rspe ctive ’. R on. C hiche ste r: John W ile y & Sons. Aim é (e ds.) (1997). C .
374 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. 18/7: 509–33. Aim é He e ne .) (2001). 39–62. Strategic Management Journal. Te e ce . The New Strategic Management: Competition. supported by the development of new organizational competences. Pisa no.ox fo rdhandbook s. W e rne rfe lt.Management Journal. David. was able to dislodge Kirin . 2011. Strategic Learning and Knowledge Management. Cooperation. O x ford: Else vie r Pe rgam on.) (1996).). ‘Dynam ic C apabilitie s and Strate gic Manage m e nt’. Howard (e ds. B. —— ——(e ds. and Organizational Competence. Unive rsity of C alifornia. Through a radical change in competitive strategy. O x ford: O x ford Unive rsity Pre ss. Dynamics of Competence-Based Competition: Theory and Practice in the New Strategic Management. 16/Sum m e r Spe cial Issue : 135–59. the Japanese beer industry experienced unprecedented market upheaval. —— ——(forthcom ing). and Shue n.) (1997). (1984). 5:171–80. —— ——and Thom as. Am y (1990). Strategic Management Journal. O x ford: Else vie r Pe rgam on.. Dynamics of Competence-Based Competition: Theory and Practice in the New Strategic Management. ‘A Syste m s Vie w of the Firm in C om pe te nce -Base d C om pe tition’ in R on Sanche z. —— Sanche z (e d. Ltd. Gary. ‘A R e source -Ba se d Vie w of the Firm ’. Be rk e le y. All R ights R e se rve d —— and He e ne . Asahi Breweries. Case Study Changing Competences in the Japanese Beer Industry In the late 1980s to early 1990s. Aim é (1996). C hiche ste r and Ne w York : John W ile y and Sons. W ork ing pape r. and Howard Thom as (e ds. end p.com ) © C opyright O x ford Unive rsity Pre ss. ‘Dynam ic C apabilitie s and Strate gic Manage m e nt’. —— —— ——(1997). Knowledge Management and Organizational Competence. C hiche ste r: John W ile y & Sons.
while allowing Kirin to enjoy strong profitability. Through this ste ady e x pansion of e fficie nt production.000 distributors and re taile rs in Japan to se ll only Kirin Be e r. Kirin succe e de d in pe rsuading m ost Japane se be e r consum e rs that Kirin Be e r offe re d ‘re al be e r taste ’ that wa s supe rior to the ta ste of othe r brands of be e r ava ilable in Japan.375 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. Kirin Beer had steadily increased its share of the Japanese beer market to more than 60 percent. Distribution.Beer from decades of market dominance and become a new market leader in Japan. Given Kirin's highly favorable cost position. 2. and Suntory— competed in the Japanese beer market. Production To se rve its growing distribution cha nne ls as we ll as incre asing consum e r de m and. Kirin work e d hard to e stablish a dom inant national distribution syste m and to pe rsuade its ne arly 100.ox fo rdhandbook s. the smaller beer companies in Japan began to look for ways to compete more . Kirin ste adily e x pande d its production capacity by building a ne w bre we ry ne arly e ve ry two ye ars during the 1960s and 1970s. Sapporo. By the 1980s. Kirin's hugely successful market strategy was driven by careful attention to three competitive factors: 1. From the 1950s to the mid-1980s. while Sapporo held a 20 percent share. and Suntory a 7 percent share. 2011. Asahi. All R ights R e se rve d 3. The capacity of e a ch bre we ry was se le cte d to assure m ax im um e conom ie s of scale .com ) © C opyright O x ford Unive rsity Pre ss. Kirin's managers priced Kirin Beer to assure that the three smaller competitors could cover their costs (at least most of the time). four companies —Kirin. In the late 1970s. Kirin's market dominance was so significant that the price set by Kirin for its beer effectively established the maximum price for all domestic beer sold in the Japanese market. Asahi an 11 percent share. Kirin be cam e the low-cost produce r of be e r in Japan. Brand By m aintaining co nsiste ntly high le ve ls of adve rtising. end p. Kirin also use d its distribution syste m to assure the fre shne ss of all Kirin Be e r products on de ale rs' she lve s.
After doing some basic consumer research for the first time in decades. Describing the new taste desired by the new generation of beer drinkers (including growing numbers of young women) as ‘smooth but sharp’. they turned to new packaging concepts as a possible way of differentiating their products and building brand awareness and market share. After decades of carefully controlling its brewing process to maintain the same taste in its beer. Asahi's brewers. facing growing cost pressures and diminishing profitability. Asahi's marketing staff asked the production staff to produce new beer formulations for market testing. all of which could be quickly imitated by any competitor. Similar efforts to define and establish ‘niche’ markets for beers with unusual tastes also failed to change consumer preferences to any significant extent.effectively against Kirin. In the mid-1980s. the packaging wars' came to an end in the early 1980s without changing the relative positions of competitors. regarded themselves as arbiters of ‘good’ beer taste and largely resisted requests to deviate from the current taste of Asahi Beer. however. . After experimenting with beer cans shaped like rockets or labeled with cartoon characters like penguins and raccoons. Unable to compete on cost. Asahi's marketing staff began to sense that the new generation of Japanese beer drinkers would be interested in a new kind of beer taste unlike the taste offered by Asahi's current beer or the ‘real beer taste’ offered by Kirin. Asahi Breweries decided to launch a ‘frontal attack’ on the mainstream of the Japanese beer market in a perhaps final effort to wrest a profitable level of market share from Kirin. Asahi's managers began to ask if that taste was what the majority of beer consumers still wanted in Japan.
more refined’. 2011. the development team was able to define and develop a new beer taste that both marketing and production staff agreed was ‘sharper. As a result. the product development team was given direct access to top management. Team-building retreats were organized. marketing and production were able to develop a common vocabulary for describing the different tastes and sensations involved in drinking beer.com ) © C opyright O x ford Unive rsity Pre ss.ox fo rdhandbook s. The reaction of Japanese beer .376 PR INTED FR O M O XFO R D HANDBO O KS O NLINE (www. To overcome the traditional separation between marketing and production activities. end p. After a sustained effort. All R ights R e se rve d The new beer was introduced as ‘Asahi Super Dry Beer’ in 1986. Asahi's new managers decided to support the frontal attack on the mainstream of the beer market proposed by the marketing staff and to promote closer cooperation between marketing and production staff. cleaner. a new product development team was created that brought marketing and production staff together for the first time. a first critical activity of the product development team was to develop a new ‘corporate language’ for communicating about the taste of beer. as well as regular meetings of marketing and production staff. bypassing the firm's usual—and typically slow—review and approval process by several layers of middle management.Growing financial pressure led to a change in Asahi management. Because marketing staff used consumer terms and production staff used technical terms to describe beer. To emphasize the strategic importance of new product development within Asahi.
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