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