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䊉 This paper addresses a significant gap within the present body of work on the resource-
based view of the firm: the lack of empirical research on the resource-based perspective
within the SME sector (Newbert, 2007).
䊉 This study applies the resource-based view and core competencies analysis in a very
practical situation: a small manufacturing firm in the UK. The study is the result of a
two-year ‘action research’ project where the researcher was embedded within the firm.
The manufacturing firm supplies hydraulic tube assemblies to the yellow construction
industry and has experienced rapid growth over the past 10 years. Using a causal
mapping methodology the findings reveal distinctive capabilities that the firm is able to
use as a basis for diversification into the leisure marine industry.
䊉 The findings contribute to the body of literature on the resource-based view of the firm
by providing a methodological approach which helps to uncover core competencies
in practice.
Copyright © 2009 John Wiley & Sons, Ltd.
undertook seven years ago. Having seen the and demanding environments. Steel-Tubes has
potential growth of AED, over the past five so far managed to fight off competitors who
years, it focused on growing the business from have entered the market by offering a better
50% to 80% from AED. Having captured this quality product delivered on time. Indeed,
growth, the longer-term strategy is now on competitors have found it difficult to meet the
reducing the dependency on the single cus- demanding requirements of the customer
tomer and the yellow goods industry. — AED. By any measure this small company in
Dorset is an example of a successful manufac-
turing company producing high-quality steel
products on time every week for an industry-
Operating within such a leading company.
manufacturing All these successes have been achieved
environment demands a within a firm of 250 employees, 230 of whom
range of special skills not work on the factory floor. The firm can be
just in manufacturing but characterized by its craft-based approach to
manufacturing and quality. Emphasis is placed
also in quality on quality and service rather than on efficiency
management, logistics, and cost minimization. The very small manage-
and customer service. The ment team is headed by an accountant with
quality standards set for many years of experience in this and related
the products being manufacturing industries. The small group of
managers within the firm have few formal
produced are equivalent qualifications (the MD is one of only two with
to the highest in the a university education), but many years of
industry and the products industry experience. It is this in-depth knowl-
produced perform in edge of the industry and the customer that
seems to play a significant role in the firm’s
harsh and demanding
success. The MD, however, is aware of the
environments limited formal business expertise within the
firm to analyze and develop a strategy for
diversification.
It is sometimes easy to overlook the success The yellow goods industry continues to grow,
the company has achieved in growing the with JCB competing with Caterpillar and CNH
business from £9 m to £15 m over the past five of the USA, Komatsu of Japan, and Volvo of
years. While this has largely been supplying Sweden. Competition is fierce and AED contin-
a single customer, this customer has been ues to put further pressure on its suppliers to
very demanding and continues to be so. For lower costs and demand more for less. The
example, orders are placed with lead-times of dependency on one customer, however, is also
several months, but changes are made to these growing and will continue to grow as long as
orders a few weeks prior to delivery. Further, sales from AED outweigh total sales from other
a JIT manufacturing system does not allow for customers. This causes problems for Steel-
suppliers to operate late deliveries. Operating Tubes as AED is able to dictate terms that are
within such a manufacturing environment disadvantageous, such as demanding short lead
demands a range of special skills not just in times and instant response to new or adjusted
manufacturing but also in quality management, orders, causing disruption in production.
logistics, and customer service. The quality Dependency on one customer in a focused
standards set for the products being produced industry means that Steel-Tubes is vulnerable to
are equivalent to the highest in the industry changes in AED’s strategy, as well as changes
and the products produced perform in harsh in the construction machinery industry. AED is
presents the identification of capabilities and (i) What are the core competencies of Steel-
core competencies as a major methodological Tubes Limited?
challenge which necessitates a greater need (ii) How can core competencies be identified
for primary data collection techniques and within a small manufacturing firm?
will, by its nature, introduce a greater poten- (iii) How can core competencies be used as a
tial for respondent bias. basis for diversification?
Core competencies as a basis Methodology
for diversification
Given that the associate was to be embedded
The RBV emphasizes the theme of sustained within the company working alongside the
success within the research; diversification senior management team, the research lends
can be viewed as the other side of the same itself to an in-depth study of the firm’s resources
coin. It is growing the firm through utilizing and core competencies. The research metho-
the firm’s resources, capabilities, and compe- dology adopted for this project is most
tencies, which is at the heart of this approach accurately described as action research. Action
to strategy development (Clark, 2000). The research is problem-centered, user-centered,
commonly accepted theory of diversification and action-oriented. It involves the firm and its
is the resource-based perspective. members in active learning, problem-finding,
The previous discussions illustrate that there and a problem-solving process. It adopts a
has been a considerable debate amongst aca- ‘scientific’ method in the form of data-gather-
demics on the pages of many of the highly ing, forming hypotheses, testing hypotheses,
regarded strategic management journals. and measuring results; this is an integral part
Indeed, despite the confusion that exists of the process (Johnson, 1976). Data are not
regarding terminology, much of the debate simply returned to the firm in the form of a
has focused on the validity or not of the RBV written report, but instead are fed back in
as a theory (Gibbert, 2006a,b; Levitas and meetings, and the firm and the researcher col-
Ndofor, 2006; Connor, 1991), and all the prac- laborate in identifying and ranking specific
tical applications have been within multi- problems and in devising methods for finding
national firms and from a corporate-level their real causes. In this study an iterative
perspective. Empirical research in this field is inquiry process was developed within Steel-
almost entirely focused upon large and multi- Tubes, which led to data-driven collaborative
business organizations, with the result that the research in the form of three phases of enquiry
vast SME sector has been largely ignored. to understand underlying causes. These find-
Indeed, Petts (1997) and Mills and Platts (2001) ings have been used to try to develop organi-
argue that there has been little application of zational change (Reason and Bradbury, 2001).
the concepts to SMEs, manufacturing or Identifying resources and competencies
otherwise. While this may be a function of the within firms presents a considerable challenge
‘growing pains’ of the school of thought, this to researchers (Rouse and Daellenbach,
represents a significant gap within the present 2002). This is particularly so when there are
body of RBV/competencies literature. It is not strong relations of complimentarity and co-
our intention here to test the validity of the specialization among individual resources, so
RBV framework. Rather, we aim to show how that it is not necessarily the individual resources
the theoretical framework and an empirical but rather the way resources are clustered and
method could be used by managers of firms. how they interact with one another that are
This study attempts to apply the resource- important to a firm’s competitive advantage.
based perspective and core competencies Causal maps provide a method of analysis for
analysis in a very practical situation: a small researchers and managers within firms to
manufacturing firm in the UK. The research uncover complex systems in the areas of
questions therefore are: quality, strategy, and information systems
(model) uses the participant’s own language The research was designed in three phases.
and thus facilitates ease of understanding of Phase 1 was an exploratory approach using
the model. This is important for receiving focus groups to uncover competencies and
feedback on the developed model. Immediate capabilities within the firm. Phase 2 examined
problems are presented if the model cannot and evaluated the identified variables in more
be easily understood by the participant. detail. Phase 3 explored links and relation-
A number of studies have suggested that an ships between the variables using a mapping
in-depth interview, in the style required for technique.
cognitive mapping, cannot be started without
detailed knowledge and preparation (Marshall
(i) Phase 1: focus groups
and Rossman, 1989). Burgess says it is essen-
tial to get to know the people before detailed In order to gain a perspective from the differ-
conversations can occur. In this case, this cri- ent management perspectives, the focus
terion has been met following the immersion groups were divided into two groups: senior
within the organization by the associate for managers (five) and middle managers (seven).
two years. Table 1 illustrates the additional By dividing the sessions into these groups the
information and data to which such a process fear of any repercussions from senior col-
provides access. The direct interactive model- leagues is limited and more honest and com-
ing technique of cognitive mapping using elite plete findings were more likely. The sessions
semi-structured interviews was thus selected were tape-recorded and anonymity was
as an appropriate method for revealing the assured. The questions were designed to be
core competencies of the organization. explorative and to create discussion within
the groups (see Table 2). The questions
selected were split into groups, with each
Table 1. Information available due to KTP project group aiming to cover a different objective.
structure One group of questions aimed to identify
resources and capabilities and the other to
Immersion within the organization provides discover informal systems within Steel-Tubes.
access to:
In order to triangulate the findings from
1 Internal documentation Phase 1 and avoid in-built bias, interviews
2 Attendance at and information from internal meetings were held with two of the firm’s major cus-
3 Information from informal discussions with colleagues tomers and two potential customers to iden-
4 Confidential information
5 Historical and present data tify requirements seen as necessary in order to
compete and be successful in the yellow
Commercial Estimator
Commercial Manager
Production Manager
Production Director
Prototype Manager
Quality Controller
Dispatch Manager
Logistics Manager
Quality Manager
Total
AED satisfied
On-time deliveries
Rapid response
to order requests/modifications Outcomes
High-quality
products
Distinctive
Npd/prototyping service
Order taking & speed of response competencies
(formal & informal). Prioritizing orders, & the
(interpreting drawings/ideas from JCB)
ability to ensure orders are chased through
the factory and onto the delivery lorry.
Figure 1. Identification of core competencies within Steel-Tubes Limited: collective cognitive mapping.
Conclusions
Opportunities for related diversification
This paper has illustrated how a small manu-
Table 5 shows the list of potential industry facturing firm supplying the yellow construc-
and market opportunities generated by discus- tion machine industry was able to use core
sions with steel tube suppliers into tube- competencies analysis to identify distinctive
related sectors. Column 1 contains the long capabilities as a basis for diversification. Fol-
list of industry sectors identified by both steel lowing this study, Steel-Tubes Limited decided
tube suppliers as heavy users of small bore to enter the leisure marine market. It has since
steel tube and tube bending machine suppli- secured its first order and supplied its first
ers as users of their machines. Columns 2 and product: a stainless steel mast for radar to the
3 are the two core competencies for Steel- UK’s second largest producer of leisure marine
Tubes identified by the earlier analysis. Each vessels.
Industry sectors that are heavy users Flexible production system allowing Personal service to customers,
of small bore steel tube rapid response to orders utilizing prototyping expertise
Aerospace X
Agricultural equipment
Agricultural process plants
Air conditioners and heaters
Boilers
Composite substitutes for metal tubes
Defence X
Healthcare
Leisure equipment
Locomotive
Lorries/buses
Leisure marine X X
Material handling
Mining
Offshore oil and gas
Recycling and waste management
Renewable energy
Shop fittings
Specialist automotive X X
that is central to the success of the firm’s busi- level of support and company involvement
ness model. Hence, it is agility in manufactur- required in order to identify core competen-
ing rather than simply flexibility which enables cies. It is therefore no surprise that resources
the firm to configure operations to order and have received far greater attention because, as
gives Steel-Tubes its distinctive capability this paper has shown, relative to capabilities
and core competencies. Steel-Tubes has since and core competencies they are easy to
invested further in this part of its activities measure.
and employed more people within its newly
recognized capability-product prototyping.
Appendix 1: Attribute scoring
The casual mapping methodology cited in
exercise
this paper can be used by other SMEs, but it
should be noted that the resources and skills Below is the list of attributes that have been
required are significant. The mapping process identified as key to Steel-Tubes’ success. Using
requires extensive discussions between the numbers 1–5 please score each of the attri-
lead researcher and individuals, both inside butes depending on how important you per-
and outside the firm (Marshall and Rossman, ceive them to be: 1 being of low importance,
1989), and the organization of the interviews 5 being of high importance. However, you are
and focus groups and the analysis of the data only able to use the number 3 twice.
all take time. In addition, Steel-Tubes went
through the KTP approval process with the
DTI, recruited a graduate, and then introduced Key attribute Score
that person to all aspects of the firm’s opera-
tions. It was crucial during this period that the Comprehensive in-house production capability
graduate was able to develop the trust and Experience in small batch production
Planning and logistics systems
confidence of Steel-Tubes’ management. The Flexible accommodating production system
project also required the company’s manage- In-built production capacity
ment to engage fully with the process. Extent and skills of the prototyping service
Good teamwork at the operational level
Although technically employed by the Knowledge and experience of bending
Knowledge Transfer Partnership, the graduate High perceived quality in the industry
spent virtually all of his time at Steel-Tubes
Limited and in this respect was ‘embedded’ in
the firm. He developed a highly detailed under-
Acknowledgment
standing of the firm, not only because he has
been there for more than a year at the time of We are grateful to the Department of Trade &
writing but also because the mapping process Industry (DTI) for funding this Knowledge
demands extensive interaction with the Transfer Project (Research Project No.
company, suppliers, customers, and to an KTP000973).
extent competitors. So the experience of car-
rying out the analysis of Steel-Tubes suggests
Biographical notes
that it is essential for firms to ensure that a
full and detailed understanding of the firm is Paul Trott is a Reader in Innovation Manage-
developed during the process. ment at the Business School, University of
The findings offer support for Newbert’s Portsmouth and Professor of Innovation &
(2007) arguments relating to distinguishing Entrepreneurship at Delft University of
among resources, capabilities, and core com- Technology, The Netherlands. His book,
petencies. The methodology presented here Innovation Management & New Product
offers clear evidence of the challenges in Development, is now in its fourth edition. His
attempting to identify a firm’s core competen- research focuses on aspects of innovation
cies. Indeed, the paper illustrates the high management.
Tom Maddocks is a KTP Associate at Steel- Galbreath J, Galvin P. 2004. Which resources
Tubes Limited. He is employed by the Univer- matter? A fine grained test of the resource-based
sity of Portsmouth on a two-year KTP scheme view of the firm. Academy of Management Best
part funded by the DTI and Steel-Tubes Paper Proceedings, New Orleans, LA, August.
Limited. Gibbert M. 2006a. Generalizing about uniqueness:
Colin Wheeler is Professor of Marketing at an essay on an apparent paradox in the resource-
based view. Journal of Management Inquiry
Portsmouth Business School. His research
15(2): 124–134.
interests include international marketing strat-
Gibbert M. 2006b. Munchausen, Black Swans, and
egy, the internationalization of the small and
the RBV: response to Levitas and Ndofor. Jour-
medium-size firm, and export performance. nal of Management Inquiry 15(2): 145–151.
He has published widely and recently co- Hafeez K, Zhang Y, Malak N. 2002. Core compe-
edited a book titled Internationalization: tence for sustainable competitive advantage:
Firm Strategies and Management published a structured methodology for identifying core
by Palgrave. competence. IEEE Transactions on Engineer-
ing Management 49(1): 28–35.
Hamel G, Prahalad CK. 1994. Competing for the
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