Project Selection using Decision Support & Optimization Techniques

This post is an excerpt (with slight modifications) of a recent paper titled “Project Selection using Decision Support Optimization Tools.” If you’d like to read the full paper, click here for the PDF version of Project Selection using Decision Support Optimization Tools.  The full version of the paper has full details of the LINGO model used for decision support and project selection optimization.

During good times and bad, selecting the proper projects to undertake is an extremely important activity for organizations.  Selecting the right projects  (or wrong ones) can be the difference between success and failure for most organizations.  The process of selecting projects and managing the project portfolio, formally called Project Portfolio Management, can help organizations get a grasp on their projects and the risk & benefits associated with those projects [1].

Project Portfolio management and selection has become an important part of most organization’s project management activities. By managing their project portfolio’s correctly, organizations can gather information about all projects, prioritize those projects and manage the selected projects throughout the project lifecycle.

The remainder of this paper provides an overview on project selection and describes a prototype system that can be used to optimize the selection of projects.  The project selection prototype uses optimization techniques to select the optimal number of projects based on given criteria.

[Read more…]

Improving Knowledge in Projects

This post is an excerpt of a recent paper titled “Improving Knowledge in Projects.” If you’d like to read the full paper, click here for the PDF version of Improving Knowledge in Projects.

In the project management world, a considerable amount of research exists to describe the reasons behind the success or failure of projects in the information technology space. Most of this research focuses on failures being caused lack of executive sponsorship, lack of project management methods, lack of change management processes, project scope size and/or project duration (Reich, 2007).

While these causes of failure are quite common, a large and overlooked stumbling block that causes failure in IT projects is the lack of proper knowledge management methodologies throughout the project management lifecycle.

This paper provides a brief review of the literature within the knowledge management space, and more specifically, how to manage knowledge transfer, sharing and application in projects. The main question that is initially asked (but not really answered) in this paper is that following: Can a framework containing “best practices” be developed that can be use to improve knowledge transfer and sharing in project based groups and organizations?

Brief Literature Review
Although most project management methodologies claim to be interested in knowledge management, none offer any real guidelines or practices for gathering and maintaining knowledge throughout the project lifecycle.

Disterer (2002) argues that traditional project management methods are overly concerned with efficiency and effectiveness of project team members, which in turn makes the act of capturing knowledge a lower priority during a project (Disterer, 2002). This is compounded by the fact that the knowledge needs of future projects doesn’t lie within the context of the current project requirements therefore project managers and leaders do not focus on these efforts (Disterer, 2002).

Leseure & Brookes (2004) take this claim a step further by stating that knowledge transfer is one of the largest issues in projects today when they write “Knowledge is generated within one project and then lost. Failure to transfer this knowledge. leads to wasted activity and impaired project performance” (Leseure & Brookes, 2004, p. 103). Leseure & Brookes’ designed a research project that would attempt to benchmark knowledge management practices within projects to help provide a broader and more qualitative evidence of knowledge management methods in projects. The results of this research pointed to two main areas that could improve knowledge management in projects: collecting knowledge in projects; and managing tacit knowledge (Leseure & Brookes, 2004, p. 106). By focusing on these two areas, organizations can help to improve project knowledge management.

Kasvi, Vartiainen, & Hailikari (2003) performed research on how knowledge is managed in projects and what knowledge management capabilities are required for proper knowledge management in projects (Kasvi, Vartiainen, & Hailikari, 2003). The researchers used interviews to gather data on knowledge management capabilities and practices in various organizations. The results provided interesting feedback on organizational knowledge practices in projects and led the authors to observer that “knowledge management practices were weak and unsystematic” (Kasvi et al., 2003, p. 578) and that paper documents and interactions with colleagues were the most important sources of knowledge.

Research by Karlsen & Gottschalk (2004) addresses the factors that affect knowledge transfer in projects (Karlsen & Gottschalk, 2004). The authors used surveys to gather information from project managers and organizations on knowledge transfer in projects. The survey results showed that organizational culture plays a key role in knowledge transfer within projects and should be the main area that organizations focus when looking at knowledge transfer methodologies capabilities.

Research by Slaughter & Kirsch (2006) extends the concept of the importance of organizational design and culture on knowledge management with the introduction of Knowledge Transfer Portfolios. This research, which was conducted as a field study in the area of Software process improvements, provides some very interesting ideas on organizational design and knowledge transfer and outlines the following three items as being key for knowledge transfer within organizations: Proximity, Frequency of Interactions and Relationships (Slaughter & Kirsch, 2006).

The Framework

Blaize Horner Reich, an Associate Professor at Simon Fraser University and Visiting Associate at Templeton College, Oxford University has developed a framework for knowledge management within IT Projects which seems promising. This framework, published in the Project Management Institutes’s Project Management Journal in an article titled “Managing Knowledge and Learning in IT Projects: A Conceptual Framework and Guidelines for Practice“, proposes a three level model that addresses the following topics:

  • Describes what “knowledge management in IT projects” is
  • Provides a typology of critical IT project knowledge
  • Identifies the top ten knowledge-based risks found in IT projects. In addition, key principles for knowledge management in IT projects are provided for use in helping build strong knowledge management capabilities within IT projects.

Reich’s framework is a good place to start as it provides a model built upon sound principles and research in the IT project space.

The first ‘level’ in Reich’s framework defines IT Project knowledge management as:

Knowledge management in the context of a project is the application of principles and processes designed to make relevant knowledge available to the project team. Effective knowledge management facilitates the creation and integration of knowledge losses and fills knowledge gaps throughout the duration of the project (Reich, 2007, p. 8).

The second ‘level’ in Reich’s framework consists of a typology of IT Project knowledge. This typology contains four distinct types of knowledge: process, domain, institutional and cultural. A brief definition of these types of knowledge follows:

  • Process Knowledge: knowledge that project team members have regarding the project (tasks, methodologies, timelines, structure, etc) (Chan & Rosemann, 2001; Meehan & Richardson, 2002; Reich, 2007).
  • Domain Knowledge: knowledge that a project team or member has about the industry, technology, processes, current situation, business and products (Chan & Rosemann, 2001; Reich, 2007).
  • Institutional Knowledge: knowledge that a project team or member has about the organization (Reich, 2007).
  • Cultural Knowledge: knowledge about the organizational culture as well as cultural backgrounds of the project team members (Reich, 2007).

The third ‘level’ of Reich’s framework consists of knowledge-based risks in IT projects. The author has listed ten risks that can affect knowledge in IT projects. These risks are:

  • Lessons aren’t learned
  • Flawed team selection
  • Changes in the project leadership team
  • Lack of knowledge of project team roles
  • Poor knowledge integration
  • Poor knowledge transfer within projects
  • Changes in project team
  • Determining “who knows what” (knowledge maps)
  • Project team changes between phases
  • Failure to Learn

Building Upon Reich’s Framework

Using the knowledge contained within Reich’s framework, and knowledge generated during a literature review, the following seven topics must be considered as key pieces of this framework in order for it to address project knowledge management:

  • Continuous Learning / Lessons Learned – Ensures that all “lessons learned” are documented and shared throughout the organization and applied in future projects.
  • Organizational Design – Develops proper project teams to ensure that the necessary knowledge transfer mechanisms can be implemented per Slaughter & Kirsch’s (2006) research
  • Organizational Culture – Works toward building a culture that is pre-disposed to sharing knowledge.
  • Human Capital Management practices – Covers the human capital management aspects to ensure proper motivation for project teams.
  • Project Selection – Covers proper project selection as well as team member selection.
  • Risk Management – Covers the aspects of project risk management as well as knowledge-based risk management as described in Reich (2007).
  • Knowledge Typology Management – Covers the four types of knowledge outlined in Reich (2007) including Domain, Process, Institutional and Cultural Knowledge.

There is a considerable amount of research and thought that needs to be done to further develop this framework but an initial model can be found in Figure 1. This model provides a high-level overview of the areas that must be considered when developing project knowledge management practices.

Click for Figure 1: Project Knowledge Management Model

The model is separated into three “sections” plus feedback loops. The three sections are: Project Leadership, Project Teams and Projects. Each section contains the areas of focus for that particular project entity and outlines the areas of responsibility. A description of each section as well as the feedback loops follows.

  • Project Leadership – the project leadership section covers the higher level “strategic” aspects of project knowledge management and contains Organizational Design, Culture, Human Capital Management Practices, Project Selection and Management, Risk Management and Knowledge Management.
  • Project Teams – the project teams section covers the individualistic aspects of project knowledge management and contains the knowledge types (Domain, Process, Institutional and Cultural) as well as project management methods and processes.
  • Projects – the projects section contains the more “tactical” aspects of project knowledge management and includes Knowledge Transfer, Lessons Learned and Continuous Interaction.
  • Feedback Loops – In addition to the three sections, the model contains feedback loops that are used to ensure that continuous feedback is provided from each layer of the project knowledge management model. For example, project teams will continuously communicate with each other throughout projects regardless of which projects they are working on. Project Leadership will always be “kept in the loop” on all projects.

This framework provides an easy to recognize area of responsibility for the seven key topics that must be considered to ensure proper knowledge management in projects. As an example, let’s consider Slaughter & Kirsch’s (2006) research on Knowledge Transfer Portfolios. One of the key outputs of that research was to show that organizational design plays a key role in knowledge transfer. Using the model shown in figure 1, it is easy to see that organizational design lies solely on the shoulders of the organization’s leadership to consider.

There is still a considerable amount of research that needs to be completed in order to create supporting data to support this framework. Although not complete, the model does show areas in which organizations can begin to consider making changes to improve project knowledge management.

The extent of knowledge management in most project management methodologies begins and ends with the “lessons learned” document that is created after the completion of a project. This document is a good exercise, but doesn’t do much to manage knowledge during the project or ensure that knowledge is transferred between project members because project members must know to read the document to receive any value from it.

It is widely reported that project failure rates are still very high (Ahn, Joo, Cho, & Park, 2005; Owen, Burstein, & Mitchell, 2004; Pawlowski & Robey, 2004; Reich, 2007; Scarbrough, Bresnen, Edelman, Laurent, & et al., 2004). Industry research shows fifty to sixty percent of all projects are considered failures (IT-Cortex, 2007). While most research blames these failures on poor project management and/or lack of executive sponsorship (Reich, 2007), the fact that there is very little knowledge transfer and sharing between project teams has to play a key role in allowing these failures to occur.

By building a framework that can be used to help improve knowledge transfer within project teams, it is hoped that the failure rate due to knowledge-based issues will drop significantly. This framework, which still is the early development stages, should help organizations understand the underlying requirements for project knowledge management, provide best practices for knowledge management in projects and provide a way to build a corporate culture that is focused on sharing knowledge.


  • Ahn, H. J., Joo, L. H., Cho, K., & Park, S. J. (2005). Utilizing knowledge context in virtual collaborative work. Decision Support Systems, 39(4), 563.
  • Chan, R., & Rosemann, M. (2001). Managing knowledge in enterprise systems. Proceedings of the Americas Conference of Information Systems.
  • Disterer, G. (2002). Management of project knowledge and experiences. Journal of Knowledge Management, 6(5), 512.
  • IT-Cortex. (2007). Statistics over IT Failure Rate. Retrieved 3 May 2008, from
  • Karlsen, J. T., & Gottschalk, P. (2004). Factors Affecting Knowledge Transfer in IT Projects. Engineering Management Journal, 16(1), 3.
  • Kasvi, J. J. J., Vartiainen, M., & Hailikari, M. (2003). Managing knowledge and knowledge competences in projects and project organisations. International Journal of Project Management, 21(8), 571.
  • Leseure, M. J., & Brookes, N. J. (2004). Knowledge management benchmarks for project management. Journal of Knowledge Management, 8(1), 103.
  • Lytras, M. D., & Pouloudi, A. (2003). Project management as a knowledge management primer: The learning infrastructure in knowledge-intensive organizations: Projects as knowledge transformations and beyond. The Learning Organization, 10(4/5), 237.
  • Meehan, B., & Richardson, I. (2002). Identification of Software Process Knowledge Management. Software Process: Improvement and Practice, 7(2), 47-55.
  • Mitchell, V. L. (2006). Knowledge Integration and Information Technology Project Performance. MIS Quarterly, 30(4), 919.
  • Owen, J., Burstein, F., & Mitchell, S. (2004). Knowledge Reuse and Transfer in a Project Management Environment. Journal of Information Technology Cases and Applications, 6(4), 21.
  • Pawlowski, S. D., & Robey, D. (2004). Bridging User Organizations: Knowledge Brokering and the Work of Information Technology Professionals1. MIS Quarterly, 28(4), 645.
  • Reich, B. H. (2007). Managing Knowledge and Learning in It Projects: A Conceptual Framework and Guidelines for Practice. Project Management Journal, 38(2), 5.
  • Rice, M. P., Oconnor, G. C., & Pierantozzi, R. (2008). Implementing a Learning Plan to Counter Project Uncertainty. MIT Sloan Management Review, 49(2), 54.
  • Santhanam, R., Seligman, L., & Kang, D. (2007). Postimplementation Knowledge Transfers to Users and Information Technology Professionals. Journal of Management Information Systems, 24(1), 171-199.
  • Scarbrough, H., Bresnen, M., Edelman, L. F., Laurent, S., & et al. (2004). The Processes of Project-based Learning: An Exploratory Study. Management Learning, 35(4), 491.
  • Slaughter, S. A., & Kirsch, L. J. (2006). The Effectiveness of Knowledge Transfer Portfolios in Software Process Improvement: A Field Study. Information Systems Research, 17(3), 301.

Article Review on Knowledge Management

One of my assignments in my Knowledge Management Class had me read and review am article using PowerPoint. I’ve just submitted the assignment and wanted to provide a link to my readers to take a look at the presentation and provide some feedback.

The article reviewed is:

  • Slaughter, S. A., & Kirsch, L. J. (2006). The Effectiveness of Knowledge Transfer Portfolios in Software Process Improvement: A Field Study. Information Systems Research, 17(3), 301.

It’s an interesting article with some interesting results but I’m going to make you watch/listen to my presentation to hear more about it 🙂

This is my first presentation using PowerPoint and recorded narration and I’m anxious to hear some feedback. Due to the assignment, the presentation is about 30 minutes long and is probably very boring if you aren’t interested in Knowledge Transfer. Even if you are interested in KM, it may be boring too! 🙂

Please drop me a message or leave me a comment about the presentation and/or ideas for how I could improve it.

Presentation with Narration:
*The presentation was converted from PowerPoint into Flash using a product called Pointecast.

PowerPoint Presentation without Narration:

IT Human Capital as Competitive Advantage

This is an excerpt of a paper I’ve just completed titled “Information Technology Human Capital as Competitive Advantage”. I’ve provided a brief intro plus the conclusion here. This white paper was the inspiration for the the topics discussed in my previous posts titled “Resource Diversity & Immobility Simplified“, “Competitive Advantage and the Resource Based View of the Firm“, and “Competitive Advantage – The Human Capital approach

To read the entire article, download the PDF titled Information Technology Human Capital as Competitive Advantage“.

Purpose of this paper

This paper provides a brief review of the literature within the space of information technology and business alignment, and more specifically, the areas of creating competitive advantage by managing human capital to create a sustainable advantage in the marketplace.


In today’s ever-changing world, organizations must learn to evolve, adapt and continuously rethink their strategic objectives and operational abilities. As part of this strategic planning process, organizations have historically looked at two aspects; strategy (how they will go to market, what they will sell, etc) and execution (how to implement the strategy, how to do business, etc). The seminal research on strategy and competitive advantage (Andrews, 1986; Porter, 1998a, 1998b) historically overlooked two of the most important aspects of any strategy; technology and people.

In the 1990’s, researchers and practitioners began looking at merging technology into the strategic planning process and how the alignment of business strategy with information technology can help to create a competitive advantage (Henderson & Venkatraman, 1993). These researchers had brought technology into the strategic planning process, and in some respects they considered the human resources of the organization, but they still overlooked the people as being a valuable piece of capital that could be used to create competitive advantage.

This oversight is most visible within the information technology (IT) groups. Even though many organizations and researches stressed the need for IT and business alignment, they still seemed to overlook the human capital aspect while aligning IT and business strategy.

These oversights have led to the current environment of overworked, disengaged and misaligned IT personnel and IT groups. The “turnover culture” that has arisen within the IT industry provides some evidence of the unhappiness and/or discontent that most IT personnel have (Moore & Burke, 2002).

Recent research has provided a path to the solution of the problem of creating sustainable alignment between IT and business strategy. These solutions involve not only aligning IT and strategy but also implementing human capital management practices to ensure that people are considered as much of a resource for creating competitive advantage as any other asset within the organization (Hu & Huang, 2006; Robert, Agarwal, & Ferratt, 2000).

This paper provides a review of existing literature related to the strategic alignment of business and information technology and human capital management practices. The first section, titled “Alignment of IT with Business Strategy” provides a review of existing business and IT alignment research. The second section, titled “Human Capital Management, IT & Business Alignment” provides an overview of existing research into human capital management practices within the IT space.

The third section, titled “Human Capital as Competitive Advantage” outlines the use human capital as a means to gain competitive advantage in the marketplace. Lastly, the fourth and final section titled “Future Research and Conclusions,” outlines areas that may provide avenues of further research and concludes the paper.

To read the entire paper, download the PDF titled “Information Technology Human Capital as Competitive Advantage“.

Further Research and Conclusion

Further research into this area can follow Ferratt et al.’s (2005) study of the effects of human resource management on information technology (IT) employee turnover (Ferratt et al., 2005) and Joseph et al.’s (2007) suggestion that adopting a human capital management approach to managing IS employees may increase employee engagement and reduce turnover and job dissatisfaction (Joseph et al., 2007).

Another area of further research that could be considered is Huang and Hu’s (2007) approach of combining human capital management along with a business-IT alignment model by using a balanced scorecard system to implement and measure alignment. This balanced scorecard approach seems reasonable but very little quantitative data exists to measure the success or failure of this approach (Huang & Hu, 2007). Further research into the use of balanced scorecards to align IT, business and human capital management practices could be accomplished by collecting quantitative data in multiple organizations to provide more insight into the success and/or failure of this approach.

Yet another avenue for further research is within the area of validation of alignment of IT system requirements with business strategy (Bleistein, Cox, & Verner, 2005). Bleisten et al.’s research provides a framework for measuring and ensuring that all IT system requirements are in alignment with business goals. This research is interesting but as yet unproven.

Lastly, research into furthering the application of the resource based view of firms and the creation of resource diversity and resource immobility within organizations seems to be a fairly wide open area. In many organizations today, outsourcing work has become the norm as has hiring contractors instead of full-time employees. Many research questions arise from this. A few examples are:

  • How can an organization create resource diversity and/or resource immobility when they are drawing from the same talent pool of outsourcers and independent contractors as their competitors? This is an idea that is very interesting and something worth pursuing.
  • How can an organization segregate IT projects so that non-strategic projects (is there such as thing?) are managed with non-strategic assets and resources while strategic IT projects are managed with strategic assets and resources.

There is still considerable research to be done to better understand how to create sustainable advantage using technology and people. The areas of information systems, strategic human resource management and organizational behavior can provide models to help create sustainable advantage and value for organizations.

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.

A Full References list is found in the paper.
[tags] organization, Human Resources, information technology, Strategy, Management, HR, Project, Technology, culture [/tags]

Competitive Advantage and the Resource Based View of the Firm

Managing Knowledge for Sustained Competitive Advantage: Designing Strategies for Effective Human Resource Management

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.  Before I continue, if you are interested in this topic, definitely take a look at the book titled Managing Knowledge for Sustained Competitive Advantage: Designing Strategies for Effective Human Resource Management (affiliate link).

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.


  • 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]

Competitive Advantage – The Human Capital approach

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.

Enhanced by Zemanta

If you'd like to receive updates when new posts are published, signup for my mailing list. I won't sell or share your email.