Strategy

I wanted to take some time to simplify my discussion of Resource Diversity and Resource Immobility from my post titled “Competitive Advantage and the Resource Based View of the Firm.”

If you’ll recall, Resource Diversity:

pertains to whether a firm owns a resource or capability that is also owned by numerous other competing firms, then that resource cannot provide a competitive advantage.

and Resource Immobility is:

The concept that if a resource is easy to obtain by competitors because the cost of developing, acquiring or using that resource is relatively low, then that resource cannot provide a competitive advantage.

Now…why do we need diversity and immobility? According to the Resource Based View (RBV) of the firm, achieving diversity and/or immobility allows an organization to create competitive advantage. The theory put forth by RBV is that if you can create an organization full of people, technologies and processes that can’t be reproduced elsewhere by assuring that your resources are diverse and immobile, you can create an advantage in the marketplace.

If you’ll remember from my posted titled “Competitive Advantage - The Human Capital approach” I talked about a football team owner trying to create a real competitive advantage. How would you, as the football team owner, create resource diversity and/or resource immobility?

As I’ve already mentioned here, you hire the best coaching staff and players that you can and then allow the coaches and players to build their game strategy to ensure that the strengths are accentuated and the weaknesses are hidden. You then create an environment that makes your players want to stay as part of your team for the long-run, which means that you have to find creative ways to keep your players and coaches engaged and interested in remaining a part of your team.

Let’s look at another example:

You are the owner of an IT consulting firm and you want to differentiate your firm from the hundreds of others out there. What do you do?

If you are like most people, you probably spend a considerable amount of time thinking about your ‘go-to-market’ strategy, building a marketing plan, building a business plan, etc etc. These are all good things and things that are relevant.

But…what about the delivery of services? How will you staff your projects? Which of the following will you do:

(a) hire the best people with the most experience and expertise.
(b) hire junior level staff with a few years experience and train them to do the job.
(c) call the local IT staffing company and bring in contractors

None of the answers are ‘wrong’ but there are better options from a competitive advantage standpoint. Let’s look at the three options:

• If you do option “a” and hire the best people and provide them with what they need to do their job and keep them engaged and interested in remaining a part of your organization, you are attempting to create resource diversity and resource immobility.
• If you do option “b” and hire junior level staff with some experience and then provide them with the training and tools to do their job, then you are also attempting to create resource diversity and resource immobility…but you have to be careful here. These junior level folks have to be good at what they do and training and tools don’t make people want to stay with you…there has to be something that makes these employees want to stay. You must find a way to keep them engaged.
• If you do option “c” and call the local staffing company and hire some contractors, I’d have to say you aren’t creating any advantage with your human capital. You can’t create advantage this way because you are drawing from the same talent pool as the rest of your competition. A contractor in your office today can easily walk away tomorrow and work for your competitor. You don’t create resource diversity or resource immobility using this option.

You’ll notice that of the three options given above, option “a” and option “b” will provide you with similar results if you approach them with the right strategy. Hiring the best and most experience will more than likely cost a lot of money while hiring more junior level folks will be a bit cheaper. Perhaps you pick from both options and hire people of both types and let the junior level folks learn from the senior level folks. Either way, you have to hire the best people you can and keep them engaged in the organization.

I’m sure there are some of you that are saying “wait a minute…what about…” and you might be right. There might be some options where you would want to use contractors for project-based work but you should expect anything more from them than what any of your competitors do.

If you are truly trying to differentiate your firm from your competitors you won’t do it by using contractors. You do it by having a distinct delivery strategy while finding and keeping the best people you can.

In order to truly create sustainable competitive advantage, an organization must have the right strategy, technology and people in place. In today’s world, it isn’t enough to have only one or two of these; an organization must obtain and maintain the mix of the right strategy, the right technology and the right people.

Using Resource Immobility and Resource Diversity concepts can help with attracting and keeping the right people…which will in turn help with crafting the right strategy and developing and deploying the right technology.

[tags] competitive advantage, organization, resource based view of the firm, technology, strategy, people [/tags]

As a follow up to my previous post titled Competitive Advantage - The Human Capital Approach, I wanted to take a second to talk a little bit about the Resource Based View of the firm that I mentioned in the previous post

Most organizations don’t place a high enough focus on human capital management as a component of competitive advantage. In order for an organization to be successful in any market, they must create value for their clients. This value can be created using a new strategy, new technology or some other ‘gimmick’ but in order to sustain this value (and the competitive advantage it brings), organizations must develop and maintain an engaged, knowledgeable and creative workforce (Afiouni, 2007).

To create a workforce that provides sustainable competitive advantage and value creation, an organization must create an environment that allows their human capital to grow, much like money sitting in an interest bearing account does. This growth, expressed within people as increased knowledge, increased motivation, increased engagement, etc can be used to create competitive advantage that would be very difficult for competitors to imitate (Afiouni, 2007; Agarwal & Ferratt, 2001; Luftman & Kempaiah, 2007).

Out of the many theories of organizational behavior, one aligns itself well with the human capital view of people within an organization. This theory, called the Resource Based View (RBV), suggests that the method in which resources are applied within a firm can create a competitive advantage (Barney, 1991; Mata, Fuerst, & Barney, 1995; Peteraf, 1993; Wernerfert, 1984). The resource based view of firms is based on two main assumptions: resource diversity and resource immobility (Barney, 1991; Mata et al., 1995). According to Mata et al. (1995), these assumptions are defined as:

• Resource diversity (also called resource heterogeneity) pertains to whether a firm owns a resource or capability that is also owned by numerous other competing firms, then that resource cannot provide a competitive advantage.
  • As an example of resource diversity, consider the following: a firm is trying to decide whether to implement a new IT product. This new product might provide a competitive advantage to the firm if no other competitors have the same functionality. If competing firms have similar functionality, then this new IT product doesn’t pass the ‘resource diversity’ test and therefore doesn’t provide a competitive advantage.
• Resource immobility refers to a resource that is difficult to obtain by competitors because the cost of developing, acquiring or using that resource is too high.
  • As an example of resource immobility, consider the following: a firm is trying to decide whether they should buy an ‘off-the-shelf’ inventory control system or have one built specifically for their needs. If they buy an off-the-shelf system, they will have no competitive advantage over others in the market because their competition can implement the same system. If they pay for a customized solution that provides specific functionality that only they implement, then they will have a competitive advantage, assuming the same functionality isn’t available in other products.

These two assumptions can be used to determine whether an organization is able to create a sustainable competitive advantage by providing a framework for determining whether a process or technology provides a real advantage over the marketplace.

The resource based view of the firm suggests that an organization’s human capital management practices can contribute significantly to sustaining competitive advantage by creating specific knowledge, skills and culture within the firm that are difficult to imitate (Afiouni, 2007; Mata et al., 1995). In other words, by creating resource diversity (increasing knowledge and skills) and/or resource immobility (a culture that people want to work in), sustainable competitive advantage can be created and maintained.

In order to create human capital resource diversity and immobility, an organization must have adequate human capital management practices, organizational processes, knowledge management practices and systems, educational opportunity (both formal and informal) and social interaction (i.e., community building) practices in place (Afiouni, 2007; Barney, 1991; Mata et al., 1995; Schafer, 2004).

NOTE: I am finishing up a White paper on the topic of Competitive Advantage & Human Capital and hope to have it available within the next week or so…check back soon.

References

• Afiouni, F. (2007). Human Resource Management and Knowledge Management: A Road Map Toward Improving Organizational Performance. Journal of American Academy of Business, Cambridge, 11(2), 124.
• Agarwal, R., & Ferratt, T. W. (2001). Crafting an HR strategy to meet the need for IT workers. Association for Computing Machinery. Communications of the ACM, 44(7), 58.
• Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.
• Luftman, J., & Kempaiah, R. M. (2007). The IS Organization of the Future: The IT Talent Challenge. Information Systems Management, 24(2), 129.
• Mata, F. J., Fuerst, W. L., & Barney, J. B. (1995). Information technology and sustained competitive advantage: A resource-based analysis. MIS Quarterly, 19(4), 487.
• Peteraf, M. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14, 179-191.
• Schafer, M. (2004). Why Workforce Management Is Back In Style. Optimize, 67.
• Wernerfert, B. (1984). A resource based view of the firm. Strategic Management Journal, 5, 171-180.

[tags] competitive advantage, technology, resource based view of the firm, human capital, organization [/tags]

I was asked recently to describe how an organization can use its human capital to create competitive advantage.

I fell into the trap of using Porter’s descriptions and other schemes of describing what it is and how to achieve it and while I was talking I saw eyes glazing over and people losing interest very quickly. I had to find another way to describe competitive advantage and quickly.

The ‘usual’ definition of competitive advantage goes something like this (from QuickMBA):

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.

Michael Porter identified two basic types of competitive advantage:

• cost advantage
• differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.

That’s an awful lot of big words that really don’t provide a lot of actionable information, especially if you are trying to understand how to use people to create sustainable competitive advantage.

I hit upon the following definition and example and these seemed to stick fairly well…these aren’t mind-blowing but they were effective. My definition:

In order to gain competitive advantage, you must do something different than your competitors in such a way as to make it difficult (hopefully impossible) to imitate.

The above definition was easier for the audience to understand but they still wanted an example to help clarify and solidify what it really means to gain competitive advantage.

After thinking for a few minutes, I came up with the following example….maybe its not the best but it definitely helped the audience get a good grasp of how to use their human capital to create sustainable competitive advantage.

Suppose you’re the owner of an American football team and you’re trying to find a way to ensure that your team wins. What do you do?

Do you…

• Spend millions on the best technology?
• Spend millions on a new stadium?
• Move your team to a new city and hope it works out?

These things might help attract a larger fan base and perhaps bring you more revenue but will they help you win? In football, the superfluous things such as technology,stadiums, etc mean nothing if the team is a losing every game. People won’t pay to see your team play if they lose. So what do you do?

You hire the best coaching staff and players that you can. Your coaching staff spends months (years?) ‘training’ and coaching these players to create a cohesive team that works well together. The coaching staff understands the strengths and weaknesses of the individual players and develops offensive and defensive schemes to take advantage of the strengths and hide the weaknesses.

Now…any other team can imitate the plays that your coaches develop. They can try to imitate the coaching style and the players…but they will fail. Unless they take your players/coaches from you, they will never be able to fully imitate your team.

Your competitors can always try to hire better people and develop better schemes but if you are doing your job as the owner of the football team you should be constantly evaluating your team to ensure that you have the right people with the right training in the right places to ensure success.

The ability to create a unique team is one of the most cost-effective ways to create real sustainable advantage in the marketplace (and in my opinion, the only way).

You can try to use technology, marketing or other approaches but unless you develop those approaches internally they will not provide sustainable advantage because your competitors can use the same approaches to match your every move.

Using the people within your organization to create advantage is one of the most overlooked methods in business today. In most organizations I’ve been a part of, the organization try to mold people to fit the organization rather than create an organizational model that fits the strengths and weaknesses of its people.

I’m planning on expanding on this topic a bit more in later posts by discussing a theory called the Resource Based View of the Firm. This theory states that by creating resource immobility and resource diversity, a firm can create sustainable competitive advantage. Check back for more.

[tags] Resource Based View of the firm, Competitive Advantage, Human Capital, organization, HR,people, strategy [/tags]

Due to the length of this post, I’ve created a PDF version for those that would like to download it and/or print it out. Click here for the PDF version of Agile Project Management & Product Strategy.

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Over lunch recently, a good friend and very experienced project manager shared his thoughts on managing software development projects when he said:

“Software developers are so hard to manage. They never do what I tell them, never report status and are always behind schedule and over budget. Most times, they never finish the project!”

I asked him to think about what he just said and to think about whether he is ‘managing’ the project or ‘leading’ the project (a project manager should be a good leader first and foremost). I then jumped into my philosophy on managing projects using a more agile mindset and finished with the following comment:

Perhaps software developers aren’t any harder to manage than any other function…perhaps it’s the system that has been put in place to manage the developers and their activities that causes the problems.

I believe most software developers are bright and hardworking people…but they tend to be put into situations that drain all of the initiative and drive they may have. Traditional software development methods (e.g., Waterfall, etc) can and have been used quite successfully in software development projects but the large up-front requirements gathering, milestones and end-of-project testing usually result in software that is late and buggy. Of course there are successful projects that have used these traditional methods. The majority of successful projects are those that are given the appropriate level of resources, people and time and give the product development team the ability to get their job done without much hassle. Some smaller organizations have a difficult time with these traditional methods because they aren’t able to fully resource the project and aren’t able to be as flexible and responsive with these methods.

I recently encountered one of these smaller organizations who needed some help crafting a product development plan. As you will see, we were able to change the development plan from one that delivered a revenue generating product in 12 months to one that delivered a product with ~85% of the same features in 6 months at less than half the cost. Oh…and we were able to capture $3.5 million in revenue after 6 months.

Case Study - Software Development

I was approached by a small technology company to see if I would be interested in helping them re-design their product development strategy to release a product within 6 to 9 months in order to beat their competition to market and gain an edge over their competition. The product had to be something that clients found useful, valuable and worth paying money for and needed to be able to compete with the ‘big boys’ that were moving into this space. It appeared to be a pretty daunting task: take a product that was planned for release in 9 to 12 months and have it ready for market in 6 months.

The company is a small startup focused on a niche market in the technology field product uses a third-party content management server package to serve up large amounts of data from the enterprise network. They had some very good developers and had hired a consulting company to develop a product development strategy to provide for a product release to their client base in 9 to 12 months. This same consulting company had been planning on actually doing the development work as well.

After reviewing the plan, the senior leadership team and board of directors felt that 12 months was much too long to wait to enter the market. They had heard rumors that some very big names in the industry were starting to make moves that would allow them to enter this niche market within 12 to 18 months and felt that they needed to be first to market in order to gain a competitive advantage in the marketplace.

I agreed to help with the project and joined the company in a consulting role to help them create a new plan that would see a product released within the next 6 months.

The Original Product Development Plan

On my first day with the company, I walked into the office and found myself staring at a very large Gantt chart hanging on a wall. The chart had the words “Product Development Roadmap” written across the top and looked just like every other Gantt chart ever created (e.g., milestones, resources, dates, timelines, critical path outlines, etc etc). My first thought was that least they understood what they were trying to do and had a plan. My second thought was ‘what are they delivering and when are they delivering it?’

I sat down with the team and over the next few days and discussed the product development strategy. I realized that the original development plan created with zero lead time (each task could only start when the previous task finishes). My gut feeling told me that his was done to lengthen the project and create more billable hours for the previous consulting company.

Since the plan was created using zero lead times, it required that all network architecture design had to be completed before any database design could be started. In addition, all database design had to finish before any work on the User Interface could be started. The same holds true for documentation and testing.

As you can see from the high-level overview of the plan shown in Table 1, it would have taken 9 months before a product was available to demo and/or beta release to a client and 12 months for a final release.

Table 1: Original Development Plan

Task	Timeline
Network Architecture	60 Days
Database Design	60 days
Content Management System Integration	60 days
User Interface	120 days
Demo to Clients	9 months from start of project
Documentation	30 days
Testing	30 days
Total	11 to 12 months from start of project

After reviewing the plan and talking with the leadership of the company, I started looking at methods to “bring the plan in” so we could provide a demo and beta release much sooner than 9 to 12 months out.

The original resource schedule for the development provided for 1 network architect, 1 database architect, 1 user interface ‘guru’, a documentation specialist and 2 QA specialist’s.

The New Product Development Plan

To create the new development plan, I visited a few key clients to gather requirements for features that they felt must be in the software in order for it to be valuable to them. After these visits, I sat down with the development team and created a “Top Feature List” to help us focus the development efforts on only those features that were the most valuable to our clients.

Interestingly enough, the items that ended up being the most important items for the clients were the last things to be implemented in the original development plan. It’s amazing what a little bit of client communication will do!

Using agile software development methods, common sense and the “Top Feature List” gathered from my discussions with clients, the team and I created a development plan. The new plan would allow for the most important (i.e., valuable) features that our key clients were looking for to be ready for release as a Beta release within 3 months.

Due to the small team size and the inability to bring in additional developers, some of the tasks still needed to be performed in parallel but most of the tasks were performed in parallel with each other. Table 2 shows the new product development plan. .

Table 2: New Development Plan

Start Iteration 1
Task	Timeline
Database Design - DBA Resource	30 days
Network Architecture - Network Resource	45 days
User Interface - GUI Resource	45 days
CMS Integration - DBA Resource	15 days
Total Time	45 days
Demo to Clients	1.5 months from start of project
Start Iteration 2
Task	Timeline
User Interface - GUI Resource	45 days
Documentation - Document Resource	15 days
CMS Integration - DBA Resource	45 days
System Testing- QA Resource	30 days
Total Time	45 days
Beta Released to clients	3 months from start of project
Start Iteration 3
Task	Timeline
Network Architecture - Network Resource	45 days
User Interface - GUI Resource	30 days
CMS Integration - DBA Resource	15 days
System Testing - QA Resource	15 days
Total	45 days
Beta2 Released to clients	4.5 months from start of project
Start Iteration 4
Task	Timeline
Network Architecture - Network Resource	30 days
User Interface - GUI Resource	15 days
CMS Integration - DBA Resource	30 days
Documentation - Document Resource	15 days
System Testing - QA Resource	45 days
Total	45 days
Final Release to clients	6 months from start of project

The budget for the new plan turned out to be less than half of the original budget, although we weren’t trying to dramatically cut costs, the shortening of the development cycle by half brought us considerable cost savings.

The outcome of the plan thrilled senior executives, investors and clients. Based on the first Beta release, we were able to book about $1.5 million in revenue that may never have been booked if we had used the original plan. The initial Beta release was nothing like the final release from the original plan, but it did provide the key features that the client(s) wanted to see.

The release after the final iteration contained about 85% of the features from the original plan. Think about that…85% of the product features in half the time at less than half the cost! That’s the power of agile thinking!

After the final iteration, the product was released to quite a bit of fanfare. In addition to the revenue we had already gained with the Beta release, we were able capture another $2 million in revenue from new clients and create a great footing for the company in the marketplace. At the time that version 1.0 was released, the competition was still mired in product planning and development and their release dates seemed to be at least another 12 months out.

Conclusion

After releasing version 1.0 and capturing $3.5 million in revenue, the company was able to attract quite a bit of interest from investors and potential buyers. They ended up being gobbled up by a much larger competitor for quite a bit of money (many times multiple earnings). I’d like to say it was all my doing…but it wasn’t…I just helped them to see a new way of looking at the development process.

Using agile methods allowed us to deliver real value to our clients and to our company by create a product in half the time. We were able to deliver $3.5 million in revenue because we focused on the needs of our clients and delivered those features that they thought were the most valuable.

That is what Agile Project Management is all about. Delivering value to clients.

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Note to readers:
When I use the word ‘agile’, I don’t want to imply that I am explicitly talking about iterative or agile software development methods such as eXtreme Programming (XP), Scrum, Feature Driven Development (FDD) or other types of ‘Agile’ methods. Agile methods like XP and Scrum are the framework for my project management methods for managing software development projects but I am not a strict proponent of any one method or process over another. By using the word agile, I am trying to capture the frame of mind that someone should have to be able to accurately focus and respond to clients’ needs in today’s competitive world.

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This definition is from Rob Millard at the Adventure of Strategy Blog in a recent post.

Successful strategy is not about a grand plan. Rather, it is an integrated process that prepares the organization for a range of futures by creating what I have previously called a state of “dynamic resilience.” This involves making smaller bets on a range of initiatives, rather than betting the firm on just one outcome and, as part of the strategic process, growing the firm’s resources and skills to be able to capitalize on opportunities that emerge and ward off threats. In other words, to adapt and evolve.

This is one of the best descriptions I’ve seen of what strategy is all about.

Strategic Planning is a necessity for any organization but most treat a plan as something that is static when in reality it is dynamic. Strategy must evolve and adapt to the current environment.

A good strategic plan should consist of not only a plan for the future, but also a strategy to deal with any changes that come along.

[tags] Strategy, Dynamic Strategic Planning [/tags]

Mike Schaffner over at the “Beyond Blinking Lights” blog has an interesting post titled “Let’s Get Strategic!” that discusses the need for IT groups to become more strategic. Mike writes:

If IT wants to be strategic it has to go beyond just being a order takers and implementers. We need to take the steps necessary to add value beyond just delivery of services.

and

The bottom-line is that is if the IT department wants to be thought of as strategic they have to be willing to offer a strategic service.

Its worth the read for anyone working in IT. Looks like Mike is planning a series of posts around Strategic IT and the use of Business Analysts within IT groups.

[tags] IT infrastructure, IT management, IT operations, IT strategy [/tags]

I’ve recently decided to stop calling myself a Project Manager and start calling myself a Manager of Projects.There is a difference as I hope you will see in the next few paragraphs.

I have 11 years experience in managing and delivering services to clients and during this time I gained plenty of project management experience but even more importantly, I gained experience in managing projects and leading people. The experience I gained as a project manager was excellent and led me to be the person that I am today, but I oftentimes wondered about the value that the project was bringing to the organization (many times, the value was vary small or even negative…but that’s a story for another post).

Everyone in the project management world knows about Portfolio Management and other areas of strategic project management, but I haven’t run across many people that have used the term “management of projects” to describe the overall process of selection, management and control of an organizations’ projects.

Dr. Jeffrey Pinto has defined the term “management of projects” on the IEEE Engineering Management Society’s Transactions website as the following (pay close attention to the last sentence):

The management of projects recognizes that while traditional project management techniques of scheduling, resource assignment, and control are still important, they must be considered as part of the larger challenge in successful projects. Research over the past two decades has demonstrated clearly the importance that client and stakeholder issues and technology management play in project success. What is required is that we broaden our focus to consider the management of external and front-end issues, including technology, design and testing, supply chain and procurement, and project stakeholders.

The last sentence really drives home the fact that a more strategic approach to managing projects is needed and is the area that I am most interested in researching and contributing to in my career. Of course, I am still very interested in Project Management and improving the methodologies and skills within the field, but my focus has been and hopefully will continue to be on the more strategic areas around managing projects.

The Project Management Institute (PMI) has been addressing the areas of strategic project management in recent years with their standards for Program Management and Portfolio Management. I hope to see updates in these standards address the more strategic levels of managing projects and I have volunteered to assist the PMI in updating the Project Portfolio Management standard.

As for my career in the field of Project Management…it still exists and I will still use the title of Project Manager as necessary but I don’t want to limit my area of practice to the traditional areas of PM and pigeonhole myself and my consulting practice.

Anyone know of a certification for a “strategic” project management professional? If there isn’t one out there…there should be.

[tags] Management of Projects, Strategic Project Management, Portfolio Management, PMP [/tags]

I was asked by a former professor to write a review of Peter Drucker’s “They’re not employees; they’re people” article to provide as an example to his class…I hope its a good example and not a bad one. I thought