Eric D. Brown, D.Sc.

Data Science | Entrepreneurship | ..and sometimes Photography

Tag: competitive advantage

Book Review: Noble Enterprise

Last month I received a review copy of NOBLE ENTERPRISE: The Commonsense Guide to Uplifting People and Profits by Darwin Gillett. I had my doubts about the book when I received it..the cover art and use of the word ‘spirit’ sprinkled on the front and back covered just gave me a bad feeling about the book.

I started reading the book last week and found it to be interesting yet hard to read.  The concept of the book is that organizations have forgotten that there is a connection between employee morale and profitability.   The entirety of the book is based around showing how focusing on your people will bring profit.  In fact, the by-line of the PR Release that came with the book states that the book is a:

…guide to gaining the competitive advantage by developing the inner talents and energies of your employees.

In general, I would agree with this concept. The author goes to great length to tell the story of a company that was losing $1 million per day and came back from the brink of disaster using the concepts of allowing people to be who they are and putting their need ahead of the business. The story is a great one and has some really good lessons about leading people.

That said, the book falls into the trap of trying to do to much.  While reading it I began to wonder if it was a book on leadership or a book on spirituality in the workplace.  Perhaps it is both.  Nothing wrong with that but the approach taken causes the book to miss the mark. As an example, let’s take a look at a snippet from the release that came with the book.  This snippet gives you a lot of insight into the book:

Noble Enterprise guides and inspires business owners and executives to lead their people in creating business performance far beyond the norm, in the process awakening and activating the rich array of human energy, wisdom, passion and purpose for personal growth, for business growth and prosperity and for enhancing society’ development.

Whew.   That was one sentence!

When I read this sentence, I get confused.  What’s the book’s real purpose?

This lack of focus and the fact that many passages within the book are long and wordy took this book from being a great one to being an OK book. I like the concept of this book but have a problem with the long-windedness (is that a word??) The book is full of long sentences like the one above that really do nothing more than add  to the book’s word count.

I love the idea of “people first” and would like nothing more than to wholeheartedly recommend this book but I can’t do that. If you’re willing to slog through long complicated passages to get a few gold nuggets then grab this book. I think there are some good insights held within the book’s covers.  In short, I’d say this book is good read but not a great one.

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Realizing the potential of IT

McKinsey has recently released a report titled “IT’s unmet potential: McKinsey Global Survey Results” that shows that there is still a lot of work to do to align IT and business.

The survey attempts to answer the following high-level questions:

  • How IT can serve as a tool to help build competitive advantage
  • What risks arise as competitors use disruptive technology
  • How companies develop their IT strategies
  • What challenges they face in implementing those strategies

A snippet from the report:

Respondents highlight risks they face from information- and technology-based disruptions and the corresponding increase in importance of information and technology capabilities for improving business performance and outperforming competitors. Though improvements have occurred since last year, respondents also underline the need for IT executives to apply these capabilities more effectively in developing and executing business strategies.

CIOs and other senior executives agree that ideally these capabilities should, for example, promote innovation and better enable companies to seize new opportunities. Still, they continue to see a gulf between these aspirations and the value that IT currently delivers.

That last paragraph jibes pretty well with my experiences.  Organizations have a lot of good ideas but fully realizing those ideas has been tough.

A few of the results:

  • Nearly two-thirds of respondents say their organizations are at risk from information- and technology-based disruption.
  • The survey found aspirations for IT are substantially unmet: respondents see a large gulf between their IT organization’s current priorities and what IT could contribute
  • Executives view IT as largely effective in the delivery of basic services, companies still are struggling to get IT to go further
  • Executives in both IT and non-IT roles largely agree on a short list of steps to improve the IT performance gaps cited above. Over 40 percent of respondents favor improving the talent of IT staff and increasing the accountability of business units for implementing IT initiatives

There is some good stuff here, especially that last bullet point.  Perhaps 2009 and beyond will see organizations focus on building their IT staff’s talent and capabilities.  Sounds like organizations are finally realizing that IT Staff can be a competitive advantage.

Want to know my suggestion for realizing the potential for IT?

  • Reduce the bureaucracy – this will remove barriers to ‘getting things done’.
  • Get closer to your customer – this will allow the business and IT to better understand the wants/needs of the business and help to better align both ‘sides’
  • Hug your IT staff – This gives your IT staff the feedback that what they do is important and is the first step in removing the IT Turnover culture found throughout the world.

Just my two cents worth.  Jump over and read the entire McKinsey survey for more info.

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Outsmart!

Jim Champy’s new book titled “Outsmart!: How to Do What Your Competitors Can’t” is an interesting book.  It’s short and easy to read…and full of some very interesting stories about building competitive advantage.

For those that don’t know, Jim Champy is the author of classics like “Reengineering the Corporation” and “Reengineering Management” and is the Chairman of Consulting at Perot Systems.

The book does do a good job of describing how eight ‘high velocity’ companies have used what Champy described as ‘surprising counterintuitive lessons’ to grow into industry leaders in a short amount of time.    The ‘surprising counterintuitive lessons’ are:

  • Compete by seeing what others don’t
  • Compete by thinking outside the bubble
  • Compete by using all you know
  • Compete by doing everything yourself
  • Compete by tapping the success of others
  • Compete by creating order out of chaos
  • Compete by simplifying complexity.

The book is split into chapters with each chapter covering a different lesson.  Each lesson is presented to the reader by describing an organization that used that lesson to become successful and why that lesson should be considered by other companies.  Each chapter closes with questions that you can ask yourself and/or your organization to see if you can tap into these lessons to grow and become more competitive.

For anyone looking for another “Good to Great” type of book with statistics and detail about why companies were chosen and how these companies were built, this isn’t the book.  This book doesn’t go into detail about why/how companies were chosen or what ‘high velocity’ really means, but it does a good job of describing how the organizations listed were able to find their ‘niche’ by utilizing one of the above lessons to build themselves into industry leaders.

If you’re looking for an easy to read book that provides a brief overview a select number of companies who’ve applied the above lessons and been successful, this book is a good buy for you.

For further reading check out Jim Champy’s guest post titled “Where are all the great companies?” on Lisa Haneberg’s Management Craft blog.

Google & Resource Diversity & Immobility

Read an interesting article on GigaOm yesterday titled “Google’s Infrastructure is its Strategic Advantage” (go read it if you haven’t).

This post, and Google’s strategy, is a great example of using Resource Diversity and Immobility to build an advantage in your market. If you’ll recall from my previous posts (here, here and especially here), using the concept of diversity and immobility allows an organization to create a competitive advantage…and that’s exactly what Google has done with its infrastructure (and to some degree, with its people).

According to Om:

To better understand Google and its business model, one needs to break it down into three data inputs.

  • Relevancy of results.
  • Speed of search.
  • Cost of executing a search query.

And later in his article, Om says:

In other words, the company has to make sure that the speed of its search is really, really fast. Any random search on Google these days takes between 0.12 to 0.06 seconds. Now that is really, really fast. Google does this by indexing the Internet quite well. The magic is in delivering the search results from this index at lightening speed, and that requires an infrastructure…

So…how did Google create their competitive advantage in the search space?

They created Resource diversity and Immobility by building their own infrastucture and are rumored to be buying unused fiber. According to Om:

With the exception of optical systems, Google has built or is building the gear. It has been rumored to be a big buyer of dark fiber to connect its data centers, which helps explain why the company spent nearly $3.8 billion over the past seven quarters on capital expenditures.

By building and owning their own infrastructure, they’ve created both resource diversity and resource immobility by creating a huge barrier to entry that will be almost impossible for other competitors to match.

In addition to using infrastructure to build immobility & diversity, Google has also used these concepts with their people. Google has had the ability to go out and hire the best and brightest to develop their infrastructure and software products.

Google has created an environment that makes it extremely difficult to compete…they’ve built an infrastructure that is almost impossible to replicate and they’ve hired the best and brightest.

This is Resource Immobility and Resource Diversity at its best.

[tags] Strategy, Business, IT, competitive advantage, technology, resource immobility, resource diversity [/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.

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]

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.

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