World Famous in New Zealand: How New Zealand's Leading Firms Became World Class Competitors
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World Famous in New Zealand: How New Zealand's Leading Firms Became World Class Competitors
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Overview
Product Details
| ISBN-13: | 9781775582441 |
|---|---|
| Publisher: | Auckland University Press |
| Publication date: | 09/01/2001 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 240 |
| File size: | 3 MB |
About the Author
Colin Campbell-Hunt is a professor in the University of Otago Business School. He led a team of authors from a Competitive Advantage New Zealand (CANZ), an integrated program of research devoted to understanding how New Zealand enterprises can develop competitive advantage that is world-class. The contributors are: James Brocklesby, Colin Campbell-Hunt, Sylvie Chetty, Lawrie Corbett, Sally Davenport, Deborah Jones and Pat Walsh. They have been assisted by Amy Harrison, Dianne Campbell-Hunt and Clinton Haswell.
Read an Excerpt
World Famous in New Zealand
How New Zealand's Leading Firms Became World-Class Competitors
By Colin Campbell-Hunt, John Brocklesby, Sylvie Chetty, Lawrence Corbett, Sally Davenport, Deborah Jones, Pat Walsh
Auckland University Press
Copyright © 2001 CANZAll rights reserved.
ISBN: 978-1-77558-244-1
CHAPTER 1
Foundations of Competitive Advantage
The ten enterprises involved in this study have demonstrated their competitive prowess over periods of time spanning several decades. What is it about these firms that gives them advantage over their competitors? In what ways do they differ from the 'average' New Zealand enterprise? And why have they sustained their position of advantage for so long?
RESOURCES, CAPABILITIES, AND ADVANTAGE
In the last ten years our ability to specify and understand the bases of a firm's competitive advantage have been greatly advanced by the resource-based view (RBV) of the firm. Among the first to open up these new perspectives were C. K. Prahalad and Gary Hamel (1990) in their famous paper, 'The Core Competence of the Corporation'.
Resources
The fundamental proposition of the RBV is that all enterprises build up assets, relationships, knowledge and other resources. This portfolio of resources, intangible as well as tangible, will be to some extent peculiar to the firm, and so is capable of producing and sustaining an unusual level of profitability. To give this general proposition more precision, Jay Barney (1997, especially Chapter 5) suggested four criteria that must be met if a resource is to support a sustainable competitive advantage. Collectively, these criteria are known by the acronym VRIO, which stands for value, rare, imitate and organisation. The VRIO criteria have guided our search for the sources of competitive advantage in these leading New Zealand enterprises.
First, the resource must contribute to the creation of market value. A firm's portfolio will contain many resources, and not all will contribute equally. As market needs evolve, some resources will lose their former value, or gain a value they formerly lacked.
Second, the resource must be rare, or somehow distinctive to the firm. Resources that are widely used by competitors cannot be a source of competitive advantage.
Third, if returns are to be sustained, the resource must be hard to imitate, which may well imply that it will be hard to acquire in the first place. There are several reasons why imitation may be difficult:
• resources may need time to accumulate, as do the assets of trust and goodwill that can grow within networks of business relationships;
• leading innovators can lock in an initial advantage by using their experience to learn more about the next generation of technology;
• resources may be brought together in such complex ways that it is hard for a would-be follower to replicate the whole system.
Fourth, the value created by the resource must be uniquely appropriable to the organisation. This criterion rules out the skills of key staff. To have unique value, the resource must be useable by the firm to a distinctive degree, for example its network of suppliers, or a reputation for honest trading. A good test is to ask whether the resource can be traded without selling the firm itself. If it can, it is not a basis for uniquely appropriable value. Conversely, any resource the firm can buy on the open market is also available to its competitors and therefore cannot be the basis for a distinctive advantage.
There is a second aspect to the criterion of organisation: is the organisation doing a better job than its competitors in integrating the resource into the firm's overall activities? The RBV approach has been criticised for encouraging people to look for the sources of advantage one resource at a time. Critics assert that it is the organisation as a whole that is the competitive weapon, and that focusing on individual resources takes our attention away from the more important property of organisational coherence, i.e. the firm's ability to weave all of its resources and strategies into a mutually-supportive competitive entity. So the organisation criterion is also a test of the extent to which a resource contributes to, and benefits from, this coherence.
Over the 1990s, a number of organisational resources have been singled out for their potential to meet Barney's four VRIO criteria. These are listed in Table 1.1, together with some brief notes on how each type of resource can be expected to create distinctive value for the firm. These are the resources we looked for to help us understand the sources of sustained competitive success in our firms.
All these resources are intangible in character; this is what makes them distinctive to the firm and hard for competitors to copy. By contrast, tangible assets such as machines can usually be bought on open markets. Much harder to buy are the assets of trust and goodwill that can accumulate in networks of relationships between the firm and its external business partners; or internally with the firm's employees; or with the firm's customers in the form of a reputation for delivering distinctive value.
Also beyond a competitor's grasp are the complex social constructions that are built into the organisation itself and cannot be bought or sold:
• the set of norms that make up the organisation's culture,
• the complex web (or configuration) of interdependent strategies that channels the whole organisation's disparate activities into a coherent value proposition for the customer,
• the firm's ability to master and apply multiple technologies (an example of configuration),
• the set of attitudes, norms of behaviour, and both formal and informal processes that allow the firm to learn from its experiences,
• and to sustain the advantage of some initial innovation.
Later in the chapter we assess the contribution of each of these resources to the competitive advantage of our firms, but first we need to make an important distinction between a resource and a capability.
Capabilities and competitive advantage
As discussed so far, resources are assets: relatively long-lived attributes that an organisation can draw on repeatedly to create distinctive market value. Firms can invest in these assets and nurture them over time to improve their competitive potential. Our companies have done this energetically.
But potential is not the same thing as demonstrated capability. A capability, as the term is used here, is the application of assets to some use — in our study, the creation of a competitive advantage. There are benefits to analysing a firm's competitive advantage at the level of demonstrated market capabilities, rather than of resource potentials. It is much easier to be confident in judgements that a given resource has contributed to a firm's competitive success when it has shown that capability at some time in its history.
In contrast to resources, competitive capabilities can be expected to be valid only for the specific market conditions, and the time, in which they are applied. As conditions change, the firm will need to re-establish a capability to compete in the new environment. Once again, our firms have shown an ability to do this, several times over.
This approach does not claim that any source of advantage is automatic. The capabilities demonstrated by these firms will not necessarily succeed at other times or in other marketplaces. But these firms have demonstrated competitive capability over a particular range of markets, and over particular periods of time, which used their distinctive resources to their manifest competitive advantage.
THE FOUNDATIONS OF COMPETITIVE ADVANTAGE
This section assesses the importance of each of the above competitive capabilities (Table 1.1) to the success of these exemplar New Zealand firms. But first, some caveats.
The following descriptions present a best estimate of each firm's competitive capabilities when the assessment was made in late 1998 and life has moved on for several firms since then. But unless there is evidence to the contrary, a capability demonstrated in the past is reported as still contributing to the firm's competitive advantage. Former capabilities can be lost as market conditions change, but the loss of capability in these histories is the exception rather than the rule. These assessments have also been shared with the companies themselves and modified in light of their feedback.
The decision to assess demonstrated capabilities rather than resources is likely to lead to the reverse problem of not recognising sources of advantage. This is particularly so for the complex, organisationally embedded capabilities that rarely contributed overtly to a period of competitive success. Organisation culture, configuration and learning processes are particularly affected by this bias. We gained insights into these sources of advantage when we were studying particular aspects of a firm's operations in more detail, or during extended feedback seminars involving the whole management team. These opportunities were not uniform across the companies, however, so judgements in these areas are both patchy and problematic.
More generally, the focus on demonstrated capabilities means that the assessment will sometimes omit sources of advantage that are important to a firm's competitive success. But these assessments are based on unusually extensive contact with these firms. So, although this is probably not the whole story on these companies' success, it is likely to be much of it.
Given these caveats, the assessment of competitive capabilities in these leading enterprises is given in Table 1.2. The following sections describe firms that illustrate each competitive capability to an unusual degree. Since capabilities are demonstrated only for the market to which they are applied, we note where possible what that market scope is, using three deliberately broad categories:
[TABLE OMITTED]
• national: predominantly within New Zealand;
• regional: predominantly within New Zealand and Australia;
• global: predominantly beyond New Zealand and Australia.
Networks of business relationships — Gallagher, Formway and Nuplex
These firms have made extensive use of networks with other businesses to create value in ways that competitors cannot easily copy.
Long-standing relationships of trust, goodwill and reciprocity will encourage both parties to invest in cooperative strategies of mutual benefit for which lesstrusted, short-term partners would not be considered (Kay, 1993). These networks can also be an important source of learning (McEvily and Zaheer, 1999). Firms brought together in clusters of supplier relationships find it easier to specialise (Lorenzoni and Lipparini, 1999), to their own competitive advantage and that of other members of the cluster (Porter, 1998).
Bill Gallagher's creation of a network of dealers across Europe in the late 1970s, and in other global markets later, is an excellent example of this competitive capability. The network allowed Gallagher to quickly achieve global reach for his world-leading mains-powered electric fence systems before local competitors could get established. A Danish competitor who was chasing Gallagher hard on the technical side failed to build marketing capability and now has only a minor share of the European market in which Gallagher is the leader. The dealer network remains an important competitive differentiator.
Managing the company's relationships with these independent businesses is among the most important uses of Bill Gallagher's time. They are selected carefully, with a preference for firms that match his own business: family run and entrepreneurial. The relationship is designed to give the dealer a considerable stake in the success of Gallagher products in their area. Gallagher requires his dealers to devote 70–80 per cent of their business to Gallagher products and dealers typically have majority ownership of their business. Each party therefore prospers only to the extent that the other does, and the relationship is one of mutual dependency. Gallagher needs local dealers for on-site customisation, system design and after-sale backup; dealers need Gallagher's leading product performance and product support.
Gallagher recruits his dealers in the expectation of a long-term relationship, and many of his original recruits are still working with him two decades later. Years of experience in selling the product have been shown to improve dealer performance; countries where dealers are turned over frequently do not do as well. On the other hand, no one takes Gallagher's commitment for granted. He has learnt to balance his dealers' motivation between a degree of security and what he calls 'heat'. Heat is applied by changing the size of a dealer's territory, promising new territory for good performers and reducing territory for desultory performers. To keep these relationships fresh and honest, Gallagher spends up to 120 days annually travelling the world, visiting each dealer between one and three times every year.
Networks are also a crucial strategy for linking suppliers to the firm. Again, the preference is for long-term suppliers who are expected to produce superior quality and reliability in exchange for (and as a result of) a degree of security in their preferred status. Formway's supplier network, which was originally developed to support the firm's Zaf chair innovation in the late 1980s, now stretches to nearly 250 separate suppliers located all over New Zealand, with some key components sourced from Germany. Although the company prefers to make in-house any component in which it can develop distinctive expertise, about half of the total number of components in the Zaf chair are sourced externally. Formway continues to benefit from its distinctive ability to configure complex patterns of supply from its many sources.
There are also instances of more specialised networks. Nuplex Industries has built up over many years a network of about 25 key relationships with other medium-scale, regionally focused resins manufacturers in Continental Europe, Asia, Africa, and Britain. Fred Holland visits these associates every two years personally, and there is more frequent contact at the technical level, as the need arises. The companies share proprietary technology and marketing opportunities where they lack the capability to take direct advantage of them. In this way these smaller regional firms are more able to compete with global industry giants such as DuPont and Monsanto.
As can be seen, business relationships play an integral role in the competitive capability of these three firms. Similar evidence of this capability can be seen in eight of the ten firms (Table 1.2). Chapters 2 and 3, on international growth and technology strategy, will return to the contribution these networks have made to the evolution of competitive capability in those areas.
Networks of internal relationships — Svedala Barmac
The high quality of workplace relations is a salient feature of many of these organisations. Jeffrey Pfeffer (1994) has identified a number of practices that create and support these high-quality relationships. The strategies are based on the expectation that the employment relationship will be long-term. Consider able attention is paid to recruiting quality people and to sustaining training throughout a career.
• There is an expectation of high levels of performance, which is reflected in higher-than-normal rates of pay. A variety of schemes is used to share the firm's prosperity with the people who help create it.
• Work is a collective effort: people work in teams and share information, decisions and skills. To sustain the ethos of collective enterprise, wage differentials are kept within limits and symbols of privilege are removed.
• Finally, all these practices stem from deeply held beliefs about how the firm will do business with its employees, indeed with any person it comes in contact with.
Although several other companies would also serve as exemplars of these practices, Svedala Barmac richly illustrates the competitive benefits of highquality workplace relations. The chief competitive advantage of the Barmac VSI rock crusher is that it is easy to build (a backyard workshop will do) but not easy to tune to meet the specific characteristics of moisture and rock-size mix each machine must cope with. This capability is what separates Svedala Barmac from the many licence-breaking pirates who spring up to attack the company's market position in local markets around the world. It is a capability that is created entirely by people.
(Continues...)
Excerpted from World Famous in New Zealand by Colin Campbell-Hunt, John Brocklesby, Sylvie Chetty, Lawrence Corbett, Sally Davenport, Deborah Jones, Pat Walsh. Copyright © 2001 CANZ. Excerpted by permission of Auckland University Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Contents
Acknowledgements,Authorship,
Introduction,
Chapter 1 Foundations of Competitive Advantage,
Chapter 2 Internationalisation,
Chapter 3 Innovation and Technology Strategy,
Chapter 4 The Role of Operations Management in the Evolution of Competitive Capability,
Chapter 5 Human Resource Management and the Acquisition of Organisational Agility,
Chapter 6 Leaders and Owners,
Chapter 7 Managing with a Piece of No. 8 Wire: National Culture as Competitive Advantage,
Chapter 8 The Role of Government,
Chapter 9 The Evolution of Competitive Capability: A Biological Perspective,
Chapter 10 Overview: The Evolution of Competitive Capability in New Zealand,
Appendix: Brief Company Histories,
Endnotes,
Bibliography,
Index,