competence based strategic mangement
DESCRIPTION
"This presentation provides an introduction into Competence-based Strategic Management. Competence-based Strategic Management is a relatively new way of thinking about how organizations gain high performance for a significant period of time. Established as a theory in the early 1990’s, competence-based strategic management theory explains how organizations can develop competitive advantage in a systematic and structural way. In other words, a competent organization has the ability [being capable of] to structurally and systematically coordinate and commit resources for respectively the realization of the organizations goals and objectives and the creation and distribution of customer value, in order to develop competitive advantage. For developing an integrated system of resources, management needs extraordinary analytic and appraisal skills. Furthermore, the idea behind competence-based strategic management is that the difference of the mix available resources between organizations, the speed with which resources are exploited and are develop, plus the costs which are involved, is determinative for the realisation of the organizations competitive advantage. Resources are all elements, tangible or intangible, which an organization can use for the arrangement of products and bring services on the market. The resources an organization can use may be either organization-specific of organization-addressable. An organization from a competence-based perspective is seen as an open social system. Open social system = dynamic and complex collection of elements, interacting as a structured functional entity that continuously interacts with its environment. Five challenges play a central role in the application of competence-based strategic management in order to realize continuous value creation and distribution [strategic logic]: - Recognize market opportunities - Define product offers that create value for customers with targeted preferences - Attract, retain and improve the best available resources for creating and realizing product offers - Manage uncertainties in creating and realizing product offers - Distribute value created to providers of required resources When managing these challenges management can choose two approaches: statically and dynamically. The focus of the static approach to competence-based management is at entirely exploiting existing resources to develop competitive advantage in the short term. In this case strategy means a maximum exploitation of the current organizational competences of the organization. Answering the three central questions from the static interpretation the central issue is to maintain the existing resources of the organization in order to develop competitive advantage. The primary aim of the dynamic approach of the competence-based management is realising competitive advantage by constantly improving the existing resources and obtaining new resources. In this case strategy means a fit between exploiting the available resources and obtaining and developing [modify] new resources. At answering the three central questions from the dynamic interpretation the central issue is not only to maintain the existing resources of the organization but also the replacement or modification of these resources, in order to develop competitive advantage."TRANSCRIPT
Arjan Vernhout
Competence-based strategic management
A competent organization has the ability to structurally and systematically coordinate and commit resources
for creating and distributing value to customers and stakeholders
▪ Strategic management
▪ Strategic logic
▪ Systems thinking
▪ Hierarchy of assets
▪ Manager as a puzzler
▪ Organization as an open social system
▪ Competence modes
▪ Competence leveraging vs. developing
▪ Strategic working with competences
Topics
Strategic management
Art & science of structurally and systematically discovering strategic options and formulating, implementing and evaluating cross-functional decisions…
▪ specifying the role and objectives▪ developing policies and plans ▪ allocating resources to implement policies and plans…
For creating and distributing value to customers and stakeholders
STRATEGIC ANALYSIS
STRATEGIC CHOICE
STRATEGIC IMPLEMENTATION
Strategic management - Overview
From: R. Sanchez, A. Heene [2004], The new strategic management: organization, competition and competence
THEORY OF COMPETENCE-BASED
STRATEGIC MANAGEMENT
An integrative strategy
theory that incorporateseconomic,
organizational and behavioral
concerns in a framework
that is:
• DYNAMIC
• SYSTEMIC
• COGNITIVE
• HOLISTIC
INDUSTRIAL ORGANIZATION ECONOMICS
INDUSTRY STRUCTURES
STRATEGIC GROUPS
VALUE CHAIN ANALYSIS
FIVE FORCES ANALYSIS
RE-ENGINEERING
RESOURCE-BASED VIEW
CORE COMPETENCES
EVOLUTIONARY THEORY
DYNAMIC CAPABILITIES
LEARNING ORGANIZATION
THEORY OF THE GROWTH OF FIRMS
GENERAL MANAGEMENT [HARVARD]
BUSINESS POLICY
LEADERSHIP
STRATEGIC HRM
1990s1980s1970s1960s1940s-50s
ECONOMIC PERSPECTIVES
BEHAVIORAL AND ORGANIZATIONAL
PERSPECTIVES
Strategic logic
From: R. Sanchez, A. Heene [2004], The new strategic management: organization, competition and competence
Recognize market opportunities
Strategic logic
for continuous value creation and distribution
Attract, retain and improve the best available resources for creating and
realizing product offers
Define product offers that create value for customers with targeted preferences
Distribute value created to providers of required
resources
Manage uncertainties in creating and realizing
product offers
5 2
34
1
Strategic logic - Starbucks Coffee
Around 25 new stores a week with the goal to open 25.000 stores worldwide in the next 10 years
Starbucks Hear Music™ Coffeehouses and Media Bars and opened a special Starbucks Entertainment area at iTunes. Also customers can wirelessly browse, search for, preview, buy and download music from the iTunes Wi-Fi Music Store in several Starbucks stores
Starbucks is Fair Trade Certified™, Starbucks initiated C.A.F.E. [Coffee and Farmer Equity] Practices, Black Apron Exclusives™
1.
2.
3.
Strategic logic - Starbucks Coffee
Starbucks management is constantly improving training resources, not only at the product knowledge level, but also in areas that help store partners take ownership in the business….. employee turnover rate, according to some reports, is 120% less than the industry level
Starbucks paid on average, $2.64 per kg for high-quality coffee beans. This was 74% higher than the commodity market’s price during the year. Other examples are: partnerships with firms like Johnson Development Corporation, acquired businesses like Ethos Water and started the Starbucks Foundation
4.
5.
Systems thinking #1
An organization from a competence-based perspective is seen as an open social system
Open social system = dynamic and complex collection of elements, interacting as a structured functional entity that continuously interacts with its environment
▪ energy, material and information flow between the different elements that compose the system
▪ feedback is used to regulate the dynamic behavior of the system: feedback is a process whereby some proportion of the output signal of a system is passed [fed back] to the input
Systems thinking #2
Environment
Organization
Assets Process Products/Services CustomersResources
Stakeholders
Competitors
Hierarchy of assets #1
Core competences
Competences
Capabilities
Skills
Assets
Resources
Hierarchy of assets #2
Assets
Tangible assets Intangible assets
Physical Financial Human Technological Reputation
▪ characteristics production facilities▪ location▪ production flexibility ▪ capacity surpluses▪ property and equipment
▪ receivables from clients▪ cash and cash equivalents▪ liabilities▪ equity
▪ knowlegde and expertise▪ adaptability▪ loyalty▪ availability▪ performance
▪ patents, copyright, company secrets▪ R&D facilities▪ qualifications of employees
▪ brands▪ corporate image▪ corporate identity▪ relationship with suppliers▪ customer satisfaction
Hierarchy of assets #3
Skills are special forms of capability, usually embedded in individuals or teams, that are “useful in specialized situations or related to the use of a specialized asset”
Capabilities are repeatable patterns of action in the use of assets to create, produce and/or offer productsto a market. Capabilities arise from the coordinated activities of groups of people who pool their individual skills in using assets to generate organizational action
Hierarchy of assets #4
Competence is the ability [being capable of] to apply assets in a coordinated way [interaction and integration of capabilities] in order to reach a certain aim. If this coordinated interaction and integration of capabilities leads to reach a certain aim [e.g. introduce new products successfully] then these capabilities lead to a competence
Furthermore a competence is related to processes and interaction between the assets in an organization and lies generally embedded in certain organizational units, such assales, marketing, logistics or production
Hierarchy of assets #5
Core competences is defined as an unique combination of knowledge, capabilities, structures, technologies and processes in an organization, which makes it possible to provide products or services which absolutely no otherorganization can produce in the same way, at the same moment and at the same speed
Core competences and competences add the most value to the realization of the organization goals and objectives
From: Sanchez, R. [2002], Understanding competence-based management Identifying and managing five modes of competence, Journal of Business Research, Volume 57, pp. 518- 532
Manager as a puzzler
“He who wants to understand how the organization achieves competitive advantage, must search for the system resources”
For developing an integrated system of resources, management needs extraordinary analytic and appraisal skills
A certain model for the puzzle of an organization system of resources that can be imitated does not exist
If managers want to develop an integrated system of resources, the pieces of the puzzle eventually have to fit
Organization as open social system
Mode 1
Mode 2
Mode 3
Mode 4
Mode 5
From: Sanchez, R. [2004], Understanding competence-based management Identifying and managing five modes of competence, Journal of Business Research, Volume 57, pp. 518- 532
Strategic logic
Management processes
Intangible assets
Tangible assets
Operations
Product offers
Product markets
Firm
-ad
ressab
le re
sou
rces
Borders of the
data
data
data
data &Competitors
decisions
policies & procedures
budgets
revenue
org
an
izatio
n
Competence mode #1
Cognitive flexibility to imagine alternative strategic logics:
Depends on managers ability to perceive market needs and identify specific market preferences the organization might serve, to determine the characteristics of products and services that can satisfy those needs and preferences, to design supply chains and select appropriate distribution channels for realizing new products, and ultimately to define product offers that will be perceived by markets as having attractive net delivered customer value
1.
Competence mode #2
Cognitive flexibility to imagine alternative management processes:
Depends on managers ability to identify the kinds of resources [assets, skills and capabilities] required to carry out a given strategic logic, to create effectiveorganization designs [allocations of tasks, decision making and information flows] for the processes that will use the required resources and to define appropriate controls and incentives for monitoring and motivating the value-creating processes envisioned by a given strategic logic
2.
Competence mode #3
Coordination flexibility to identify, configure and deploy resources:
Depends on the ability of a firm’s managers - in this case, usually the midlevel managers of larger firms, but also top managers of smaller firms - to acquire or access, configure and deploy chains of resources for leveraging product offers capable of creating value in the markets targeted by the firm. These resources may include both firm-specific resources that are acquired and become internalized by a firm and firm-addressable resources that the firm can access but that remain external to the firm
3.
Competence mode #4
Resource flexibility to be used in alternative operations:
Depends on the managers ability of the resources in an organization’s resource chains to be used in alternative ways. In essence, within the resource chains available to an organization, the intrinsic resource flexibility of the resources composing those chains will constrain the different ways in which the organization’s available resource chains can be used
4.
Competence mode #5
Operating flexibility in applying skills and capabilities to available resources:
The operating flexibility depends fundamentally on the skills and capabilities an organization can apply at the working level in using its available resources. This mode is therefore expressed by the operating flexibilities that result from the collective capabilities of a firm’s human resources - in this case, primarily its front-line managers and employees - to sustain efficient use of available resources when facing a range of variations in inputs, in required outputs and in the environmental conditions affecting the operations of the firm
5.
Competence leveraging vs. building
Competence developing
Creation of new strategic options
Competence leveraging
Realization of strategic options
Internal cashflow
From: R. Sanchez, A. Heene [2004], The new strategic management: organization, competition and competence
Strategic working with competences
Define the role of the organization within the social-economic environment
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Phase 6
Phase 7
Determine the goals and objectives of the organization
Determine the need for competences of the organization
Inventory the present competences of the organization
Analyse the ‘fit’ between the present and needed competences
Competence-based training and development
Determine to what extent the goals and objectives are realised
Determine effective work behaviour based on the formulated objectives
Performance appraisal and competence-based rewarding
Phase 8
From: Vernhout, A. [2004], Strategisch werken met competenties: theorie en praktijk van het competentiedenken
Management exists for the sake of the institution’s results and performance.
It has to start with the intended results and has to organize the resources
of the institution to attain these results
~
Peter F. Drucker
Management…..
Further reading
R. Sanchez, A. Heene [2004], The new strategic management: organization, competition and competence
A. Heene, S. Vermeylen [1999], De stille kracht van de onderneming: competentiedenken in strategisch management
A. Vernhout [2004], Strategisch werken met competenties: theorie en praktijk van het competentiedenken
www.competentiedenken.nl/downloads