Management Competence www.ebook3000.com Contributions to Management Science H DyckhofflU Finke Cutting and Packing in Production and Distribution 1992 ISBN 3-7908-0630-7 A Scholl Balancing and Sequencing of Assembly Lines 1999 ISBN 3-7908-1180-7 R Flavell (Ed.) E Canestrelli (Ed.) Current Topics in Quantitative Finance 1999 ISBN 3-7908-1231-5 Modelling Reality and Personal Modelling 1993 ISBN 3-7908-0682-X M HofmannIM List (Eds.) Psychoanalysis and Management 1994 ISBN 3-7908-0795-8 W BiihlerlH Hax/R Schmidt (Eds.) Empirical Research on the German Capital Market 1999 ISBN 3-7908-1193-9 R L D'E cclesialS A Zenios (Eds.) Operations Research Models in Quantitative Finance 1994 ISBN 3-7908-0803-2 M BonillafT Casasus/R Sala (Eds.) Financial Modelling 2000 ISBN 3-7908-1282-X M.S Catalani/G F Cierico Decision Making Structures 1996 ISBN 3-7908-0895-4 S Sulzmaier Consumer-Oriented Business Design 2001 ISBN 3-7908-1366-4 M BertocchilE Cavalli/SoKom16si (Eds.) Modelling Techniques for Financial Markets and Bank Management 1996 ISBN 3-7908-0928-4 C Zopounidis (Ed.) H Herbst Business Rule-Oriented Conceptual Modeling 1997 ISBN 3-7908-1004-5 C Zopounidis (Ed.) New Operational Approaches for Financial Modelling 1997 ISBN 3-7908-1043-6 K Zwerina Discrete Choice Experiments in Marketing 1997 ISBN 3-7908-1045-2 New Trends in Banking Management 2002 ISBN 3-7908-1488-1 U Domdorf Project Scheduling with Time Windows 2002 ISBN 3-7908-1516-0 B RapplP Jackson (Eds.) Organisationand Work Beyond 2000 2003 ISBN 3-7908-1528-4 M Grossmann Entrepreneurship in Biotechnology 2003 ISBN 3-7908-0033-3 H.M Arnold Technology Shocks 2003 ISBN 3-7908-0051-1 G Marseguerra Corporate Financial Decisions and Market Value 1998 ISBN 3-7908-1047-9 T.Ihde Dynamic Alliance Auctions 2004 ISBN 3-7908-0098-8 WHU Koblenz - Otto Beisheim Graduate School of Management (Ed.) Structure and Dynamics of the German Mittelstand 1999 ISBN 3-7908-1165-3 J Windsperger/G Cliquet G HendrikselM Tuunanen (Eds.) Economics and Management of Franchising Networks 2004 ISBN 3-7908-0202-6 Andreas Enders Management Competence Resource-Based Management and Plant Performance With 17 Figures and 70 Tables Springer-Verlag Berlin Heidelberg GmbH www.ebook3000.com Series Editors Wemer A Miiller Martina Bihn Dr Andreas Enders WHU - Otto Beisheim Graduate School of Management Burgplatz 56179 Vallendar Germany aenders@whu.edu ISSN 1431-1941 ISBN 978-3-7908-0262-7 ISBN 978-3-7908-2690-6 (eBook) DOI 10.1007/978-3-7908-2690-6 Bibliographic information published by Die Deutsche Bibliothek Die Deutsche Bibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data is available in the Internet at Library of Congress Control Number: 200410760 This work is subject to copyright Ali rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Physica-Verlag Violations are liable for prosecution under the German Copyright Law springeronline.com © Springer-Verlag Berlin Heidelberg 2004 Originally published by Physica-Verlag Heidelberg in 2004 Softcover reprint of the hardcover 1st edition 2004 The use of general descriptive names, registered names, trademarks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use Softcover design: Erich Kirchner, Heidelberg SPIN 11011217 88/3130/OK-5 0- Printed on acid-free paper Foreword Eight years ago, the production management department of the WHU launched the industry competition ,Best Factory / Industrial Excellence Award' jointly with the media partner Wirtschaftswoche in Germany Two years earlier, the competition had been initiated successfully by INSEAD faculty in France Over the years, the joint research team experienced first-hand that application of Management Quality was a key driver of continuous improvement along the firm's core business processes Moreover, those companies that exhibited the highest improvement rates achieved mostly the best business results (compared to their industry benchmarks) Andreas Enders accompanied us for five rounds of the competition as program manager for the German competition His contributions - among others the launch of our web site www.beste-fabrik.de - are greatly acknowledged by the academic advisory team The fmdings of the industry competition greatly influenced this thesis on Management Competence Initially, the main research question though was to provide a theoretic foundation and an empirical test for the seven-factor Management Quality model (as defined in our recent book on Industrial Excellence) Management Quality consists of strategy formulation and deployment combined with delegation of tasks to workers and their participation In addition, measurement, integration, communication and training complement the main levers While there exist numerous studies on superior business performance and key success factors, there are few sound empirical studies available to date on operational performance and sustained business success In this context, the most famous reference and management book is probably Peters and Waterman's bestseller In Search of Excellence For the lEA competition, we developed questions to test whether Management Quality is being applied to select business processes of the firm In particular, our main contribution to the field was that we operationalized the construct of Management Quality and provided a generic process model of the firm Existing quality awards genuinely lack a model of the firm and a management concept for achieving (industrial) excellence We believe that management of resources (as opposed to market positioning) is a primary driver of operational performance and consequently of business results A number of leading European firms, e.g., in the automotive, automotive supplier, consumer goods, electronics and machine tool industry, participated in the annual competition and have won the lEA award In this way, the conceptual model of Management Quality has been exposed to a "market test" and is "validated" by a large number of senior executives in various industries www.ebook3000.com VI Foreword The approach taken in this thesis is related but quite different Andreas Enders examines key strands in the management literature, i.e., Market-Oriented Theory, the Resource-Based View and Dynamic Capabilit ies New studies confirm a synthesis of the three literatures In a nut shell, the main insight is that Management Competence is the dynamic reallocation of the firm's resources towards market needs (see chapter 2) Even though this idea may sound simple, it has neither been thoroughly investigated nor well specified in research For this reason, this doctoral research can be viewed as a major contribution to the (operations) management and strategy literature The thesis then makes the effort to classify the firm's relevant resources (see chapter 3) The statistical details of a causal model in which internal and external resources drive both operational performance as well as directly and indirectly the firm's business results are discussed in chapter In chapter 5, an empirical test of the causal model - when applied to a large data set of the German electronics industry - is analyzed A unique feature of the survey is - based on a suggestion by our colleague Prof Dr Holger Ernst from the WHU - that both managers and team leaders are being interviewed as key informants This greatly improves the validity of the study A further key feature of this research is the distinction between firms competing in static as opposed to dynamic branches of one industries One would expect that firms operating in markets with frequent product introductions and technology changeovers are outperformed by firms operating in less turbulent environments The results of the empirical research are very interesting and counter-intuitive On the one hand, it is confirmed that resource management exhibits a significant impact on operational and business performance On the other hand, firms operating in turbulent - as opposed to static - industries lead in the degree of development of Management Competence skills and exhibit a higher degree of business performance This is a rather surprising and unexpected result and has implications for the way firms are being evaluated, e.g., for credit rating purposes This research study is very well written and has a clear focus It aims at explaining the drivers of operational excellence and superior business performance The technical parts of the thesis can easily be skipped The results of the empirical study are of great interest to both academics and (operations) managers It provides academics with the basis for further research on operational effectiveness and sustainable business performance Practitioners can utilize the insights from the causal model to focus their improvement efforts on the management of specific internal and external resources While the study is unique in its kind and opens a new field in empirical research for operations manager, it provides (statistically confirmed) answers to the search of excellence question Therefore, it can also be viewed as revealing the Secrets of(Industrial) Excellence Vallendarl Fontainebleau, March 2004 Prof Dr Arnd Huchzermeier Prof Luk N Van Wassenhove Acknowledgements The research on management competence, which is summarized in the present treatise, was conducted in view of the fulfillment of the requirements for the doctoral degree at the WHU, Otto-Beisheim Graduate School of Management, at the Production Management department, chaired by Professor Dr Arnd Huchzermeier The study originates from the Industrial Excellence Award which I have accompanied for many years The analysis of Europe's best managed factories has been an invaluable experience for this research This book takes the Industrial Excellence Award one step further in the search for the characteristics of true management competence I am greatly indepted to my thesis advisors Professor Arnd Huchzermeier, Professor Luk van Wassenhove from INSEAD and Professor Holger Ernst from the WHU for their highly competent as well as personal guidance throughout the research project Without their continuous supervision, this research would not have been such a success I can now proudly look back on interesting results on a fascinating topic This research has truly nurtured my fascination for the academic field of operations strategy Moreover, would also like to especially thank my parents Dr Hans-Joachim and Loni Enders who have supported me in a wonderful and unique way throughout all stages of my life I would also like to thank my lovely friend Juliane Bergert who has accompanied my way for a long time as well as my colleagues from the WHU Rolf Hellermann, Jtirgen Mihm, Stefan Spinier, Andreas Trautwein and Claus van der Yelden, who have been of great help whenever necessary Last but not least, I would like to thank my dearest friends Dnal Drovs, David Steinbeck and Andre Bernemann who has been a great help in carrying out the Industrial Excellence Award Fontainebleau, March 2004 Andreas Enders www.ebook3000.com Contents Introduction 1.1 Starting Point of Our Research 1.2 Objectives of Our Study 1.3 Research Agenda Literature Overview 2.1 Introduction and Chapter Structure 2.2 Business Strategy 2.2.1 Market-Oriented Theory 2.2.2 The Theory ofthe Resource-Based View 2.2.3 A Synthesis of MOT and RBV 2.2.4 Industry Dynamics 2.3 Towards Resource Management 2.3.1 Management in a Situational Context 2.3.2 Defining Capabilities 2.3.3 Towards a Theory on Dynamic Capabilities 2.3.4 Summary on RBV and Dynamic Capabilities 2.3.5 The Current State of the Art 2.3.6 Outlook 2.4 Onto Operations 2.4.1 A Strong Competitive Weapon 2.4.2 Competitive Priorities 2.4.3 Summary 2.4.4 Outlook 2.5 Towards Industrial Excellence 2.5.1 Competitive Priorities and Performance 2.5.2 The INSEAD-WHU Industrial Excellence Award 1 7 8 12 25 30 31 31 32 35 37 38 40 42 42 46 49 52 52 52 54 Management Competence Model .• 59 3.1 Base Model 59 3.2 Competence and Performance Dimensions 61 3.2.1 Competence Dimensions 61 3.2.2 Performance Dimensions 70 3.2.3 Environmental Dynamism 72 3.3 Dependencies 73 3.4 Moderated Dependence Analysis 74 3.5 Summary 75 X Contents Methodology 4.1 Qualitative Analysis 4.1.1 Conceptualiz ation 4.1 Pre-testing Phase 1.3 Data Generation 4.1.4 Sample 4.2 Quantitative Analysis 4.2.1 Fundamental Methodolo gical Aspects 4.2.2 Construct Quality 4.2.3 Criter ia ofthe First and Second Generation 4.2.4 Multitrait-Multimethod Analysis 4.2.5 Dependen ce Analysis 4.2.6 Moderated Dependenc e Analysis 77 78 78 78 80 81 85 85 86 88 101 107 110 Empirical Results ~ 5.1 Factor Analysis 5.1.1 Competence Dimens ions 5.1.2 Performance Dimensions 5.1.3 Environmental Factors 5.2 Multitrait-Multimethod Analysis 5.2.1 Factors 5.2.2 Comparison of Estimation Models 5.2.3 Confirmato ry Factor Analysis (CFA) 5.2.4 Conclusion 5.3 Dependence Analysis 5.3.1 Conclusion 5.4 Moderated Model 5.4.1 Cluster Analysis 5.4.2 Moderated Regression Analysis 5.4.3 Conclusion 115 115 116 144 152 155 156 156 157 159 160 162 162 163 165 170 Conclusion 6.1 Central Results 6.2 Scientific Review 6.3 Scientific Restrictions 6.4 Managerial Implications : 171 171 174 175 176 References 177 Appendix - Questionnaires 193 www.ebook3000.com List of Abbreviations General Abbreviations AMT CA lEA IOE JIT MBNQA MOT MTMM OE PPM PWP QDCF RBV SBU SCP SWOT TDC TPM TQM ZVEI Advanced Manufacturing Technology Competitive Advantage Industrial Excel1ence Award Industrial Organization Economics Just In Time Malcolm Baldrige National Quality Award Market-Oriented Theory Multrait-Multimethod (analysis) Operational Effectiveness Parts Per Million Plant Within a Plant (concept) Quality Dependability Cost Flexibility (priorities) Resource-Based View Strategic Business Unit Structure Conduct Performance (paradigm) Strength Weakness Opportunity Threat (framework) Theory on Dynamic Capabilities Total Productive Maintenance Total Quality Management Zentralverband der Elektrotechnik- und Elektronikindustrie e.V Methodological Abbreviations AGFI AVE CFA CFI CU DP FR GFI GLS IR Adju sted Goodness of Fit Index Average Variance Explained Confirmatory Factor Analysis Comparative Fit Index Correlated Uniqueness (model) Direct Product (model) Factor Reliability Goodness of Fit Index Generalized Least Squares Indicator Reliability 190 References Skinner W (1978) Manufacturing in the corporate strategy Wiley, New York Skinner W (1986) The productivity paradox Harvard Business Review, July-August: 55-59 Slater SF, Narver JC (1994) Does competitive environment moderate the market orientation-performance relationship? Journal of Marketing 58: 46-55 Smith TM, Reece JS (1999) The relationship of strategy, fit, productivity, and business performance in a services setting Journal of Operations Management 17: 145-161 Spanos YE, Lioukas S (2001) An examination into the causal logic of rent generation : contrasting porter's competitive strategy framework and the resource-based perspective Strategic Management Journal 22: 907-934 Spender JC (1989) Industry recipes: an enquiry into the nature and sources of managerial judgement Basil Blackwell, Oxford Spender JC (1996) Making knowledge the basis of dynamic theory of the firm Strategic Management Journal 17: 45-62 Stalk G Jr (1988) Time - the next source of competitive advantage Harvard Business Review, July-August: 41-51 Stalk G Jr (1991) The strategic value of time In: Blackburn 10 (eds) Time-based competition : the next battle ground in American manufacturing Business One Irwin, Homewood, pp 67-101 Stalk G Jr, Evans P, Shulman LE (1992) Competing on capabilities : The new rules of corporate strategy Harvard Business Review, March-April : 57-69 Starbuck WH (1965) Organizational growth and development In: March, 10 (ed) Handbook of Organizations Rand McNally, Chicago, pp 451-533 Steenkamp J, Trijp H (1991) The use of LlSREL in validating marketing constructs International Journal of Research in Marketing 8: 283-299 Swamidass P, Newell W (1986) Manufacturing strategy: its assessment and practice Journal of Operations Management 6: 471-484, Swamidass P, Newell W (1987) Manufacturing strategy, environmental uncertainty and performance : a path analytical model Management Science 33: 509-524 Sweeney MT, Szweyczewski M (1996) Manufacturing strategy and performance : a study ofthe UK engineering industry Journal of Production Management 16: 23-41 Szulanski G (1995) Unpacking stickiness: an empirical investigation of the barriers to transfer best practice inside the firm Academy of Management Journal, Best Papers: 437-441 Szulanski G (1996) Exploring internal stickiness : impediments to the transfer of best practice within the firm Strategic Management Journal 17: 27-43 Tallman SB (1991) Strategic management models and resource-based strategies among MNEs in a host market Strategic Management Journal 12: 69-82 Teece OJ (1982) Towards an economic theory of a multiproduct firm Journal of Economic Behavior and Organization 3: 39-63 Teece OJ (1998) Capturing value form knowledge assets: the new economy, markets for know-how, and intangible assets California Management Review 40: 55-79 Teece OJ, Pisano G (1994) The dynamic capabilities of firms: an introduction Industrial and Corporate Change 3: 537-556 Teece OJ, Pisano G, Shuen A (1997) Dynamic capabilities and strategic management Strategic Management Journal 18: 509-533 Thomas H, Pollock T (1999) From 1-0 economics' S-C-P paradigm through strategic groups to competence-based competition : reflections on the puzzle of competitive strategy British Journal of Management 10: 127-140 Thorstone LL (1947) Multivariate factor analysis University of Chicago Press, Chicago, IL www.ebook3000.com References 191 Tracey M, Vorderembse MA, Lim JS (1999) Manufacturing technology and strategy formulation : keys to enhancing competitiveness and improving performance Journal of Operations Management 17: 411-428 Tunalv C (1992) Manufacturing strategy - plans and business performance International Journal of Operations and Production Management 12: 4-24 Tyndall G, Gopal C, Partsch W, Kamauff J (1998) Supercharging supply chains: new ways to increase value through global operational excellence Wiley, New York et al Ulrich D, Lake D (1991) Organizational capability : creating competitive advantage Academy of Management Executive 5: 77-91 Venkatraman N, Ramanujam V (1986) Measurement of business performance in strategic research : a comparison of approaches Academy of Management Review II : 801-814 Verona G (1999) A resource-based view of product development Academy of Management Review 24: 132-142 Vickery SK, Droge C, Markland RE (1996) Dimensions of competitive strength in manufacturing : an analysis of competitive priorities in the furniture industry Journal of Operations Management 15: 317-330 Vokurka RJ, O'Leary S, Flores B (1998) Approaches to manufacturing involvement: use and performance implications Productions and Inventory Management Journal 29: 4248 Von Krogh G, Cusmano MA (200 I) Three strategies for managing fast growth Sloan Management Review, Winter: 53-61 Ward P, Duray R, Leong GK, Sum, CC (1995) Business environment, operations strategy, and performance: an empirical study of Singapore manufacturers Journal of Operations Management 13: 99-115 Ward PT, Bickford OJ, Leong GK (1996) Configuration of manufacturing strategy, business strategy, environment and structure Journal of Management 22: 597-626 Ward PT, Duray R (2000) Manufacturing strategy in context: environment, competitive strategy and manufacturing strategy Journal of Operations Management 18: 123-138 Ward RJ, McCreery JK, Ritzman LP, Sharma D (1998) Competitive priorities in operations management Decision Sciences 29: 1037-1048 Wernerfelt B (1984) A resource-based view of the firm Strategic Management Journal 5: 171-180 Wernerfelt B (1989) From critical resources to corporate strategy Journal of General Management 14: 4-12 Wheelwright SC (1978) Reflecting corporate strategy in manufacturing decisions Busines s Horizons, February : 57-66 Wheelwright SC (1981) Japan - where operations really are strategic Harvard Business Review, July-August: 67-74 Wheelwright SC (1984) Manufacturing strategy: defining the missing link Strategic Management Journal 5: 77-91 Wheelwright SC, Bowen HK (1996) The challenge of manufacturing advantage Production and Operations Management 5: 59-77 Wheelwright SC, Hayes RH (1985) Compet ing through manufacturing Harvard Business Review, January-February: 99-109 Widaman K (1985) Hierarchically nested covariance structure models for multitraitmultimethod data Applied Psychological Measurement 9: 1-26 Williams FP, D'Souza DE, Rosenfeldt ME, Kassaee M (1995) Manufacturing strategy, business strategy and firm performance in a mature industry Journal of Operations Management 13: 19-33 Williams JR (1992) How sustainable is your competitive advantage? California Management Review, Spring : 29-51 192 References Wilson DC, Collier DA (2000) An empirical investigation of the Malcolm Baldrige National Quality Award causal model Decision Sciences 31: 361-390 Winter sa (1987) Knowledge and competence as strategic assets In: Teece, DJ (ed) The competitive challenge Harper and Row, New York" pp 159-184 Wonnacott TH, Wonnacott RJ (1981) Regression - a second course in statistics Wiley, New York et al Zollo M, Winter S (1999) From organizational routines to organizational capabilities INSEAD Working Paper 99/48/SM Zott C (2000) Dynamic capabilities and the emergence of intra-industry differential firm performance: insights from a simulation study INSEAD Working Paper 2000/86/ENT www.ebook3000.com Appendix - Questionnaires 194 Appendix - Questionnaires WHU ExeollenCl! In M.n'l"mAlS (l) _••_•••_••••_._••••••••••••_ •••••••••••• _ ••5% SUPPLIERDelEGATION STRONGLY D tSAQA! 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