An essential part of assessing a company’s overall situation is determining the relative worth of its competitive assets, which are made of various resources and capabilities. This can gauge a company’s competitive power in the marketplace and detect whether it is impressively strong or disappointingly weak.
Analyzing resources and capabilities helps managers define the competitive advantage of the company. It also helps them determine if they can provide the foundation needed to sustain that advantage. The process involves two steps.
Identifying the company’s resources and capabilities
A firm’s resources and capabilities are the core components of its competitive strategy. This is why it is essential that managers have a clear understanding of these terms.
A resource refers to a type of competitive asset that a firm can control or acquire. It can be a variety of things, such as production capacity, raw materials, and competitive advantage. Some firms have the advantage of being able to acquire higher-quality resources than their rivals.
A company’s brand is a resource, but some of its products are well known and have enduring value, while others are not. Similarly, Some R&D teams are more productive and innovative than others due to their talents and chemistry.
A capability is the ability of a firm to perform some tasks and services that are supported by its resources. Like resources, capabilities vary in form, complexity, and competitive importance.Most companies have recognized the capabilities of their organizations through the deployment of their resources. Some examples include Apple — for its product innovation capabilities, PepsiCo — for its marketing and brand management capabilities, and Nordstrom — for its superior incentive management capabilities.
In identifying resources, a company’s resources can be divided into two categories: intangible and tangible.
Tangible resources are those that are easily touched or quantified. They include various physical commodities such as mineral resources and manufacturing facilities, and they also include various financial and technological resources of a company.
Intangible resources are often among the most valuable assets of a company. They include various intangible assets such as intellectual capital, human resources, and brands. Some of these assets are also known as intangible assets of the company.
When identifying capabilities, itis important to note that an organizational capability is complex. It is built up through the use of various resources. Most of it is knowledge-based, and its structures and processes are designed to support this process.
For example, the video game design capabilities for which Electronic Arts is known to derive from its highly talented game developers’ creative talents and technological expertise, the company’s culture of creativity, and a compensation system that generously rewards talented developers for creating best-selling video games.
Due to the complexity of the capabilities, it is harder to identify them properly. There are two approaches to uncover and identify a firm’s capabilities.
The firstmethod starts by listing the resource as a starting point for assessing a firm’s capabilities. Since resources are built from them as they are utilized, they can provide clues about the type of capabilities that the firm has. For instance, a firm that has established specialized capabilities in logistics may be able to benefit from the latest RFID tracking technology.
The secondmethod of identifying a firm’s capabilities takes a functional approach. Many capabilities relate to fairly specific functions; these draw on limited resources and typically involve a single department or organizational unit. Capabilities in direct selling, promotional pricing, or database marketing all connect to the sales and marketing functions. Meanwhile, capabilities in basic research, strategic innovation, or new product development link to a company’s R&D function. This approach requires managers to survey the various functions a firm performs to find the different capabilities associated with each function.
Examining the company’s resources and capabilities to decide which are the most competitively important and whether they can support a sustainable competitive advantage over rival firms.
The second step in assessing a company’s competitive power is to determine which assets are competitive and which can support a firm’s strategy and competitive advantage. This step is designed to evaluate its ability to sustain its competitive advantage.
The four tests that measure a resource’s competitive power are the VRIN tests. VRIN is a shorthand reminder standing for Valuable, Rare, Inimitable, and Nonsubstitutable.
The first two tests determine whether a resource or capability can support a competitive advantage. The last twotests determine whether the competitive advantage can be sustained.
VRIN tests for sustainable competitive advantage ask whether a resource is Valuable, Rare, Inimitable, and Nonsubstitutable.
Is the resource or capability competitively Valuable?
To be competitive, a resource or capability must be relevant to its strategy and make it more effective. The resource or capability must also contribute to its overall business model and improve its customer value proposition.
Is the resource or capability Rare? Is it something rivals lack?
Resources and capabilities common among firms and widely available cannot be a source of competitive advantage.
Is the resource or capability Inimitable? Is it hard to copy?
The more difficult and costly it is for competitors to copy a company’s resource or capabilities, the more likely they will provide a competitive advantage. This is usually because doing so will require the company to spend a large portion of its resources implementing a strategy and operations that are not easily imitated.
Is the resource or capability Nonsubstitutable? Is it invulnerable to the threat of substitution from different types of resources and capabilities?
Even competitively valuable, rare, and costly resources to imitate may lose much of their ability to offer a competitive advantage if rivals possess equivalent substitute resources.
Most firms do not have the capabilities or resources to consistently pass the four tests. This is because many of them have a mixed bag of resources and capabilities – one or two quite valuable, many very good, some satisfactory to mediocre, and so forth.
Passing both of the first two tests requires more—it requires resources and capabilities that are valuable and rare. This is a much higher hurdle that can be cleared only by resources and capabilities that are competitively superior. Resources and competitively superior capabilities are the company’s true strategic assets. They provide the company with a competitive advantage over its competitors, if only in short.
A resource must maintain its competitive advantage and competitive superiority in the face of increasing competition. It must also resist the efforts of its competitors to find equal or inferior substitutes.
Only a few companies can truly pass the four tests. Some of these companies have the capabilities to endure and grow beyond the expectations of their peers. One example is Walmart, which can manage its logistics and supply chain operations that have surpassed its competitors for over 40 years.
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For an organization to achieve and sustain outstanding results that meet or exceed the expectations of its stakeholders, it is necessary to define an inspiring purpose, create an aspirational vision, develop a strategy centered on creating sustainable value, and build a winning culture.
Direction setting prepares the way forward for the organization, but it needs to execute its strategy effectively and efficiently. The organization must
know who the stakeholders are in its ecosystem and engage fully with those that are key to its success;
create sustainable value;
drive the levels of performance necessary for success today and, at the same time, drive the necessary improvement and transformation once it becomes successful in the future.
When stakeholders that are the most important to the organization, such as key stakeholders, and are independent of the specific groups have been identified, it is likely that there is a degree of similarity in applying the following principles when engaging key stakeholders.
An outstanding organization:
identifies the specific types and categories within each of its key stakeholder groups;
uses its understanding of the key stakeholders’ needs and expectations to achieve continuous engagement;
involves key stakeholders in deploying its strategy and creating sustainable value;
recognizes the contributions the key stakeholders make;
builds, maintains, and further develops the relationship with key stakeholders based on transparency, accountability, ethical behavior, and trust;
works with its key stakeholders to develop a common understanding and focus on how, through co-development, it can contribute to and draw inspiration from the United Nations Sustainable Development Goals and Global Compact ambitions; and
actively gathers the perceptions of its key stakeholders rather than wait for them to make contact.
Build Relationships and Ensure Support for Creating Sustainable Value
Partners and suppliers are the external parties that the organization chooses to work with to fulfill its purpose, achieve the vision, deliver the strategy, and reach shared objectives that benefit both parties.
In practice, we find that an outstanding organization:
understands the stakeholder model for its key partners and suppliers, with a clear segmentation based on the organization’s purpose, vision, and strategy;
ensures its partners and suppliers act in line with the organization’s strategy and that mutual transparency, integrity, and accountability in the relationship is established and maintained;
builds a trusting relationship with its key partners and suppliers to support the creation of sustainable value;
works proactively with its key partners and suppliers to leverage the culture, expertise, and know-how of both parties and achieve mutual benefit.
Partners are considered operant resources that should also act on operand resources to co-produce value with customers and the firm to ensure the best results are delivered to customers.
It’s a matter of value creation, which considers partners part of the core competencies. We should focus on choosing them and how they interact on the value chain to help improve the results in customer satisfaction and customer involvement.
Choosing the Right Partner
It’s a matter of interest. This is how Benoit Hanssen, the chief technical officer of Hutchison CP Telecommunication Indonesia, described one of the ways of choosing the right partner.
He said that as long as business goals match the partner’s business goals, everyone can ensure that they have chosen the right partner for a long-term relationship with a win-win strategy.
Moreover, choosing the right partner adds another competitive advantage to businesses. This occurs by depending on them to be part of the business and learn how to deal with customers and by increasing their participation in the value co-creation.
Open relationships in terms of communication and exchange of data is another factor in choosing the right partner.
They have to ensure a smooth exchange of information with the firm for a long-term relationship that will bring benefits to both entities. This is accompanied by removing the boundaries between firms and their partners. Vargo and lusch stated that partners should agree on having an open relationship from the beginning while firms have to ensure fair treatment for all their partners. They also added that firms’ partners should understand the environment they will work in, the cultural boundaries, and the cultural development; all of these are considered important factors that partners should contribute to understanding them and acting with the firm according to them.
Attractive costs and full attention to the risk of offers delivered to the market are other factors when choosing the right partner. Partners should work closely with the firm to convey their solutions to the firm within the budget offered and make sure that the solutions offered can effectively add value to the firm and help improve their business. This is done by having partners who focus on developing their businesses research and study the market and the business they are partnering with. This way, they can develop solutions that can continuously help their partner (the firm) solve their problems, improve their presence in the market, and develop benefits among other competitors.
Improving the existence in the market and increasing the resources available to have additional knowledge about the market needs and perform strongly among other competitors are reasons for choosing the right partner. This directs us to more factors that play a major role in choosing business partners: a partner that has good knowledge about the market and customer needs and can add value to the firm through resources and capabilities.
Moreover, when firms try to offer more services or products to the market that are considered new for the firm in terms of capabilities and resources available, it may not be enough to proceed with such an option. Even when firms enter new markets, there are reasons to dig deeper in other firms’ strategies and potentials. It is important to look for partnerships with advanced capabilities and resources that are not just focused on the present time but are ready for technological developments and to produce outstanding output.
On the other hand, a partner’s reputation in the market is crucial. It gives the firm an advantage before its competitors because customers, suppliers, and even other partners will consider competitiveness as a reason to consider the firm.
In addition to reputation, previous achievements that are related to the quality of solutions offered by firms are also important. It will reduce the amount of pressure when monitoring partners’ outputs, especially when they offer services that are difficult to monitor.
Moreover, managerial capabilities should be taken into consideration when choosing a partner since it can play a major role in helping the firm learn more from this partner and facilitate the exchange of skills and experience.
Startups are organizations that are steeped with uncertainties accompanied by certain risks attributed to high failure rates. Currently, about 90% of startups fail, with about 10% failing within the first year alone. The reasons for a startup failing have a wide range, from solving problems that no one has, to the lack of funding before they can show traction. These rates notwithstanding, achieving startup success is not impossible, and there are numerous examples of startups that have achieved success; the question is, how did they do it?
Startup success and failure
In an earlier paper, it was argued that successful startups maintain an ethos of continuous experimentation, testing, and learning. Successful startup founders recognize that nothing is certain when establishing a business. There is no certainty that the founders’ ideas are viable, about how important the problem they identified is to potential customers, on the practical feasibility of their proposed solution, and whether the business will be profitable. Rather, all they have are just conjectures.
As a result of this, founders of successful startups tend to approach the startup process as an opportunity to learn. For founders to learn, they must have a mindset that is steeped in humility as they must put aside their prior knowledge/experiences to be inquisitive, experiment, and be wrong. By continuously running multiple experiments and testing different hypotheses, founders of successful startups can learn, validate or nullify multiple hypotheses, and ultimately make decisions that have a high probability of leading to success.
Every startup passes through three stages before achieving success. These are the problem-solution fit stage, product-market fit stage, and scaling stage. The problem-solution fit and product-market fit stages are the riskiest stages, and as such, the stages where most learning occurs for startups. Once a startup can achieve a problem-solution fit, then it is on its way towards becoming successful.
Achieving problem-solution fit for startups
The problem-solution fit stage is the first stage every successful startup must pass through. In this stage, founders are concerned with looking for the best solution to address the problems that their customers have. However, to find the best solution, startup founders must ascertain that the proposed problems they have identified are important to potential customers. The stage comprises four key steps or activities that must be performed before the problem-solution fit is achieved.
State your assumptions: Achieving problem-solution fit typically starts with founders stating what their assumptions are regarding the problem, possible solutions to address this problem, target market that is willing to pay to solve this problem, potential competitors, key channels to reaching their target market, type of market being entered, unique value proposition, and cost/revenue structure. The outcome of this activity is a single-page business model canvas (or lean canvas) that allows the founders to show and discuss their ideas with other advisors for additional insights.
Test the problem assumptions: After this, the founders look to test their problem assumptions by organizing and running empathy interviews with potential early adopters (target customers) who are disturbed about this problem. Empathy interviews are organized to find out what problems are a source of tension and anxiety for potential customers. The interviews allow the founders to test their original problem hypothesis, find out the job to be done, and identify new problems (in the event the earlier assumed problems are found to not be a source of anxiety).
They also allow the founder to find out how the customers have tried to solve the problem and assess the difference between the customers’ current solution and their proposed solution. The outcome of this activity is a refined and validated problem statement that details what the problem is, what job needs to be done, who has the problem, and what has been done or is currently being done to address the problem.
Design the proposed solution: Armed with a renewed clarity of the job to be done and who requires such job to be done, the founders then define a solution that best addresses the concern of the customers. Also important within this step is the realization that the solution design must incorporate a unique value proposition that will make the solution stand out and differentiate itself from competitors.
This activity, which typically signals the commencement of the product design process, is done in collaboration with the product design team who take the inputs provided from the interviews to design a demo/prototype that comprises the unique value proposition that makes it stand out and other functionalities that address the problems detailed in the problem statement. The outcome of this activity is a demo that provides a visual representation of the features attributed to the solution and other features that differentiate the solution.
Test the proposed solution: The founders then look to test this solution design by running solution interviews where they can show the demo to the same group of early adopters. These interviews allow the founders to validate the solution features and check whether it addresses the problems raised by the customers. It also allows the founders to test the unique value proposition accompanying the solution against the existing solution being used by the customers. It also allows the founders to test the potential pricing of the solution.
The outcome of this activity is a validated solution with features that address the problems raised by customers, a validated unique value proposition, and a realistic price boundary for the solution. Following the completion of this activity, the founders achieve Problem-Solution fit, as they have been able to identify the job to be done as well as test and validate the job and their proposed solution to address such job to be done.
Problem-solution fit: starting point for success
Most startups commonly fall into the trap of designing a solution and creating a product that solves an assumed problem instead of a validated problem. While there are a few examples of startups that have succeeded by adopting this approach, the probability of startup failure is high when founders do not look to test and validate their problem and customer assumptions.
To that extent, it is important that all startup founders irrespective of whether they have developed a product or are about to design one, seek to achieve problem-solution fit by going through the processes detailed earlier to increase their chances for success.
The term value flow analysis is derived from the concept of value stream mapping, which is deeply rooted in activities relating to producing and delivering a product or a service to the customer. James Womack, Daniel Jones, and Daniel Roos first formulated the value stream concept in their book entitled ‘The Machine that Changed the World”. Published in 1990, the book was considered to have launched the Lean movement, which popularized methods of systematic reduction of waste in working processes.
James Womack and Daniel Jones further took on the concept in their book entitled “Lean Thinking,” published in 1996. It defines a value stream as “the set of all specific actions required to bring a product or service through critical management tasks.” (Womak & Jones, 1996, p. 19) According to Drew Locher, the author of “Value Stream Mapping for Lean Development,” “Value stream mapping is an effective and proven tool to assess existing business processes and to re-design them based on <Lean> concepts.” (Locher, 2008, p. 1)
As related to process performance and a potential model for linking processes to organizational strategy, value flow analysis enables the categorization of KPIs through their contribution to the main stages in the value generation chain: input, process, output, and outcome. Furthermore, this distinction allows for a deeper understanding of each KPI’s contribution to the organizational objectives set, based on clear assignation to the following listing:
Input metricsare associated with the quantity or quality of the resources engaged in a particular task or operational activity. Such metrics or KPIs will be generally linked to budgets, human capital, and other tangible assets the organization brings to the production/development process. Input metrics will generally be related to achieving financial objectives, such as maintaining the company’s financial discipline, internal processes objectives like the efficient use of company resources, or people-related objectives, such as the availability of human resources for the organization.
Process metricsareaffiliated with the transformation process that is involved with taking the company’s inputs and converting them into desired outputs for the organization. Process metrics commonly reflect on the activities or actions that are taken to convert inputs into organizational outputs. Process metrics will reflect on the achievement of internal processes objectives as a rule. Quality and time-based considerations will be best reflected with selecting and establishing process metrics or KPIs for the organization.
Output metricsareindicative of the results obtainedwith the designated inputs of the organization. Output metrics or KPIs will commonly reflect on a backward or reversed control representation of the efficiency with which the company’s resources or inputs are used to produce final products or develop end-user services.
Outcome metrics reflect the ultimate effect on the value of the organization’s production and service development processes. Outcome metrics or KPIs will frequently support top-level objectives while reinforcing the company’s overarching purpose as reflected in its strategic themes. Although not generally used with the more common Value Stream Mapping technique, outcome metrics are desirable because they allow for a more valid association with organizational objectives by organizational layers.
Documenting processes by use of the value flow analysis serves multiple purposes. The quality of process outputs and outcomes is directly related to the quantifiable amount of inputs, efficiency, and speed with which they are used in the process of their transformation. As quantifiable measures of a company’s operational performance, KPIs are therefore an effective instrument for decomposing processes by their main value creation stages:
Quantitative KPIswill stand for the measurable characteristics of the inputs that go into the value creation chain. Quantitative KPIs easily relate to an objective appreciation of the amount of inputs or resources the company uses to obtain its desired outputs and positively influence envisioned outcomes.
Time-related KPIswill be easily identifiable with the activities or actions that are undertaken as part of a process. Time-related KPIs will always be process-based, given that they are the only ones capable of accurately reflecting on the speed of the transformation process.
Qualitative KPIswill relate mainly to the outputs and outcomes in the company’s value creation chain while reflecting on the quality of results produced as part of the transformation process. Qualitative measures are still quantitative; however, they possess the additional capacity of reflecting on the quality of operations conducted.
These particular characteristics make KPIs easily responsive to the four stages in the value creation process and are also similar to the characteristics of organizational objectives, which are either quantitative (i.e., Reduce operating costs) or qualitative (i.e., Improve service quality). This, in turn, makes it easy for an organization to assign KPIs to desired business objectives in a concentrated effort of monitoring the high-level strategies or the company’s follow-through on its strategic themes.
The Japanese economy was ruined after the Second World War. To help in the development of the economy, W. Edwards Deming educated Japanese manufacturing companies to make use of statistical quality control techniques. Deming focused on market orientation, people involvement, and advocated the Plan, Do, Check and Act (PDCA) cycle for continuous improvements. A number of Japanese manufacturers practiced his teachings and experienced quantum jumps in the quality and productivity of their products. Buoyant with this success, Japan introduced the Deming Prize in 1951; this can be considered as the first model on business excellence. As the model was introduced with the objective of helping industries to enhance competitiveness in their respective countries, several national governments and industry associations came forward and established national and regional excellence awards based on business excellence models.In line with Deming, the US also introduced its business excellence model (BEM) in 1987, The Malcolm Baldrige National Quality Award (MBNQA). Of course, MBNQA came into existence after the Canada Award for Excellence which was introduced in 1984. In 1984, the Australian Business Excellence framework was also developed, becoming the fourth globally known quality award. The trend was followed in Europe as well and in 1988, The European Foundation for Quality Management (EFQM) was established to help the competitive position of European companies in the international marketplace. This is how the concept of the business excellence model was born and quickly got spread to various countries.
Benefits of deploying BEM in an organization
BEMs administrating bodies based on assessment bestow awards/recognitions to companies judged excellence as per the model framework. Winning such an award is considered prestigious since it enhances the brand image of an organization and its stock/share value. The organization is characterized by high-quality products, environmental and societal friendliness, and customer orientation. Employees morale gets boosted with the organization’s culture of improvement and innovation is renewed. In turn, the practices of an award-winning organization become a benchmark for industries in that country/region. They also benefit the overall economy by facilitating the sharing of experiences and encouraging cooperation among businesses. The external feedback from the examiners provides organizations with objective information about current performance and helps identify areas of improvement. This helps organizations to analyze their present performance and strategize future road maps.
Customizing the BEM for specific sectors
In spite of the advantages and contributions of the BEMs, a range of concerns has been raised by many researchers and practitioners. Relevance and usefulness of assessing an organization (through BEM) against fixed criteria as well as the weight and insufficiency of a balanced set of results are just some of the concerns that have been cited. The most important barriers when implementing the BEMs are the lack of time, physical, and financial resources due to their generic nature. The technologies in the last two decades have also evolved with great pace; especially now with Artificial Intelligence Machine Learning, and means of communication have greatly impacted the needs and expectations of all stakeholders, be it customers, investors, regulators, or employees. The post-pandemic era has also introduced the “new normal” which needs to be adopted quickly by organizations. Globalization, collaboration, e-commerce, stringent environment norms, extreme weathers, and ever-changing macro and microeconomic challenges are contributing to uncertainty which needs to be tackled with resilience and flexibility. These changes have significantly impacted the business world on a long-term basis. On one hand, the world faces challenges related to economic recession and the ever-changing business environment. On the other hand, BEMs couldn’t escape the impact of the VUCA (volatility, uncertainty, complexity, and ambiguity) phenomenon that is affecting most of the globe. The literature review over the last 15 years indicates many gaps associated with the effectiveness of the EFQM model. Authors have pointed out various shortcomings of the BEMs, but in the present context, two important gap areas are listed below:
The BEM is non-prescriptive. The generic and the one-fits-all approach has caused an issue of effective implementation of the model to a business sector. As such, the model demands adaptation to sector-specific modifications.
Companies struggle to imbibe the model. First, the model is difficult to understand. Secondly, it is too time and resource-consuming to implement. Leaders also do not understand it fully, thereby causing a lack of commitment from them. The feedback report, which the organization receives post-assessment based on the model, is normally vague and difficult to decode. Eventually, the action plan that emerges does not bring desired improvements.
The above shortcomings indicate a complex nature of the model and call for alignment of the model to specific industries so that it can be deployed more effectively in that industry. Research and practical implementations globally have pointed out that the customization of BEM to specific sectors may trigger improvements and help organizations to face challenges. The customization calls for tweaking the framework which may include changing the total number of criteria, criteria nomenclature, weightage, sub-criteria, and guidance points. The model will need to be more prescriptive rather than generic. The organization has to administer the model and deploy it on a year-on-year basis to see improvements. The model also remains flexible so organizations can change/introduce guidance points based on the improvements achieved so far. The present and future needs of the business will also be an important trigger for changes in the model whereas global level models take years to get modified.
Conclusion
Business excellence initiatives and tools have been designed as having a generic approach and are ever-evolving. Such tools, although helpful in bringing improvements, have been met with challenges in implementation. One way to tap the full potential of these initiatives is customization for specific organizations. Since BEMs are meant to bring agility and flexibility in an organization, these should be flexible to change and imbibe to cater to different geography, cultures, sectors, and industries.
