Arjan Vernhout

1. Competence-based strategic management A competent organization has the ability to structurally and systematically coordinate and commit sustainable resources for creating and distributing value to customers and stakeholders Arjan Vernhout

2. Topics ▪ 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

3. Strategic management STRATEGIC ANALYSIS STRATEGIC CHOICE STRATEGIC IMPLEMENTATION 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

4. Strategic management - Overview ECONOMIC PERSPECTIVES INDUSTRIAL ORGANIZATION ECONOMICS • THEORY OF • COMPETENCE-BASED • STRATEGIC • MANAGEMENT • An integrative • strategy • theory that • incorporates • economic, • organizational • and behavioral • concerns • in a framework • that is: • DYNAMIC • SYSTEMIC • COGNITIVE • HOLISTIC INDUSTRY STRUCTURES STRATEGIC GROUPS VALUE CHAIN ANALYSIS RE-ENGINEERING FIVE FORCES ANALYSIS THEORY OF THE GROWTH OF FIRMS RESOURCE-BASED VIEW CORE COMPETENCES EVOLUTIONARY THEORY DYNAMIC CAPABILITIES LEARNING ORGANIZATION LEADERSHIP STRATEGIC HRM GENERAL MANAGEMENT (HARVARD) BUSINESS POLICY 1940s-50s 1960s 1970s 1980s 1990s BEHAVIORAL AND ORGANIZATIONAL PERSPECTIVES From: R. Sanchez, A. Heene (2004), The new strategic management: organization, competition and competence

5. Strategic logic 1 Recognize market opportunities 5 2 Distribute value created to providers of required resources Define product offers that create value for customers with targeted preferences Strategic logic for continuous value creation and distribution 4 3 Manage uncertainties in creating and realizing product offers Attract, retain and improve the best available resources for creating and realizing product offers From: R. Sanchez, A. Heene (2004), The new strategic management: organization, competition and competence

6. Strategic logic - Starbucks Coffee 1. Around 15 new stores a week with the goal to open 25.000 stores worldwide in the next 10 yearsStarbucks 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 storesStarbucks is Fair Trade Certified™, Starbucks initiated C.A.F.E. (Coffee and Farmer Equity) Practices, Black Apron Exclusives™ 2. 3.

7. 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 levelStarbucks 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.

8. 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

9. Systems thinking #2 Environment Stakeholders Organization Process Resources Assets Products/Services Customers Competitors “The purpose of strategy is to enable the institution to achieve its desired results in a continuous changing environment “

10. Hierarchy of assets # 1 Core competences Competences Capabilities Skills Assets Resources

11. Hierarchy of assets # 2 Assets

12. 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

13. 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

14. 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 speedCore 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

15. 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

16. Organization as open social system Borders of the organization Mode 1 Product markets Product offers Tangible assets Intangible assets Operations Strategic logic Management processes decisions policies & procedures budgets Mode 2 data data Mode3 Firm-adressable resources data Mode4 Mode5 data & Competitors revenue From: Sanchez, R. (2004), Understanding competence-based management Identifying and managing five modes of competence, Journal of Business Research, Volume 57, pp. 518- 532

17. Competence mode # 1 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

18. Competence mode # 2 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 effective organization 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

19. Competence mode # 3 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

20. Competence mode # 4 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

21. Competence mode # 5 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

22. Competence leveraging vs. building Competence leveraging Creation of new strategic options Realization of strategic options Internal cashflow Competence developing From: R. Sanchez, A. Heene (2004), The new strategic management: organization, competition and competence

23. Strategic working with competences Define the role of the organization within the social-economic environment Phase 1 Determine the goals and objectives of the organization Phase 2 Determine the need for competences of the organization Phase 3 Inventory the present competences of the organization Phase 4 Analyse the ‘fit’ between the present and needed competences Phase 5 Competence-based training and development Determine effective work behaviour based on the formulated objectives Phase 6 Performance appraisal and competence-based rewarding Phase 7 Phase 8 Determine to what extent the goals and objectives are realised From: Vernhout, A. (2004), Strategisch werken met competenties: theorie en praktijk van het competentiedenken

24. Management….. 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

25. 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