Core Competence: An Enterprise

Analysis
Developments from the
UK Lean Aerospace Initiative

Dr Glenn Parry
University of Warwick
 CORE COMPETENCE

Agenda

z Introduction

z Case Study

z Conclusions

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 THE FIVE LEAN PRINCIPLES

The lean principles are now common within the manufacturing process, for lean to
add further value an enterprise wide approach is required – but what should we
target?

Specify Identify the Make the Let the Pursue

value value stream value flow customer pull perfection

z Based on the Toyota Production System, they were first published by Womack &
Jones in “The Machine That Changed The World”

z Specify value is the first and, we believe, the most overlooked principle
- only the customer can specify value
- time and again we hear people say they know what the customer wants, but have never
actually listened to them

z The next three principles involve process excellence

z The final principle reminds us we are never perfect

Source: Lean Thinking, Womack & Jones (1996); WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 INTRODUCTION

The question of the value added by any enterprise transformation is fundamental

and we believe is centred around core competence

z Companies will have numerous value streams

z Only limited resources are available to change managers

z Focus of lean change initiatives needs to be on those functions that will

deliver greatest value to the business

z Core competences need to be identified to target effort in areas that

deliver greatest return, and to ensure we do not destroy value

We established a working party of industry professionals who meet quarterly

to discuss these issues and develop a methodology for analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 INTRODUCTION

Firms have core competencies or skills that they must defend at all costs if they are to
survive and prosper in a market-place

z Correctly identifying and protecting core competence is key to survival

- IBM effectively outsourced two of its core competencies - writing software to Microsoft, and
microchip technology to Intel - and concentrated instead on what it believed to be its core
competence, producing hardware

z A company’s true ‘assets’ lie in those areas which generate wealth

“… Asset specificity can be defined in relation to whether or not the specific skills or knowledge of the
organisation contribute to the maintenance or creation of sustainable positions for profit within specific
supply and value chains…”
A. Cox, European J. Purchasing & Supply Man., Vol 2, No. 1, 1996

z Core competence and assets can only be created or sustained by entrepreneurial

activity
“… An entrepreneur is any person or firm who is alert to untapped or undeveloped possibilities for
transactions that will generate a margin or profit…”
M. Ricketts The Economies of Business Enterprise, Harvester Wheatsheaf

Source: WMG analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 INTRODUCTION

Core competence identification, evaluation and protection forms the foundation

stone for all businesses, though what it was remained ethereal

Relationships

Core Threshold Products / Customer /

Competence Competence Services supplier
Bid and
proposal
Investment

Strategy

z Core competences need to be protected to maintain a business

z Work focussed on core competence definition and methods to identify and analyse them

Whilst we agree Core Competence is a cornerstone for the business – we

did not have an agreed definition for what it was
Source: WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 INTRODUCTION

Companies rarely present a written definition of core competence, instead relying on an

informal consensus understanding

z Companies do not usually have a clear written definition of core competence

z Definitions can change between departments

- according to where you “touch” a company, you will get a different answer or opinion
- this creates a “moving target” as each section views value differently

z A consensus agreement shows that the attributes of a core competence include:

- attitudes of the staff
- skills within the company
- value delivered
- market requirements met
- best in class
- product or service differentiator
- difficult to imitate
Source: UKLAI Working Party; WMG analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 INTRODUCTION

A definition for core competence was agreed by the UK LAI working party at Warwick

“… Core Competence is a
skill/asset/technology that
underpins the
growth of the business and
differentiates the business from
its current and future
competitors…”

Source: UKLAI Working Party; WMG analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 INTRODUCTION

Management must maintain and manipulate the complex link between strategy and core
competence to drive growth
z Both competence and strategy need to be considered
simultaneously
- strategies may identify development needs in core
competence
Threshold
Competency - core competences need to be exploited when planning
strategy

z This leads to the virtuous circle where competence

and strategy drive each other towards continuous
improvement
“… Strategy is the management of competences…”
NPI Working Party member, 23rd May 2002

Strategy

Core
Competency
Source: UKLAI Working Party; WMG analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CORE COMPETENCE

Agenda

z Introduction

z Case Study
- The Company
- Our Analysis

z Conclusions

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

Dowty Propellers produce and service propellers and systems for military and civil
aviation
z We focused on the composite blades business which has many skill areas

Blades

The main blade is a foam core covered with

carbon fibre, EVA and finally a painted finish

The leading edge guard [LEG] is a metal

leading edge protector

The overshoe is an electronic heater mat

fitted to prevent the blade icing up during
flight

The root is the metal insert which attaches

the blade to the propeller
Dowty R-352 propeller (Fokker F50) Composite C-130J blade

Source: WMG Analysis (2002); Fokker Corporate Website (2002)

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CORE COMPETENCE

Agenda

z Introduction

z Case Study
- The Company
- Our Analysis

z Conclusions

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

To analyse core competence we agreed a structure around which to work, and this
image was used to communicate our approach

CORE COMPETENCE

COMPANY STRATEGY
COMPANY LTD

Source: WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

Extensive customer interviewing was used to identify value

z Anonymous Customer Calling was used to get an unbiased customer viewpoint

- what does the customer value (Market)?
- what do they pay for?
- what do they like?
- what might be done differently?

z Customer written questionnaires direct from the company gave greater insight to
how the customers viewed the target company’s product
- what does the customer value from your company?

Source: WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

Working within the company we mapped processes and captured skills and
capability
100
Experience distribution of ‘product A’ Workforce Process maps, with TAKT times
90 Retirement Age Subcontracting

Time with company Hand salvage

80 Machine Shop
Total Experience
Float Propeller
70 Local treat

Paint
60
NDT
Years
50
Common
40
Experience Gap
30

20
Blades
10

0
Age Range
26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65

Future Operators Highly skilled & experienced operators

Employee Capability Analysis

Information flows
VSM •Process
•Management
Distance Analysis •Customer
Goods Entrance
F Customer F
F Customer F
F
F E F Customer Interaction
Local 3. F E 15. Customer Interaction
Paintshop Sealing Paint 3. 15.
Treat Goods 10. 11.
Strip & Wash 10. 11.
6 In/Out
1
Commercial Office
Commercial Office
Blade
Balance Prop
8 Strip NDT
7 1. 6. 12. 9. 13.
Report (comp) 1. 6. 12. 9. 13. 16.
16.
Kit Marshall Process Management
Propeller 3 14.
14. Process Management
Balance RC
RC
2.
NDT 2.
7. 8.
(metal) Assembly Test 7. 8.
Repairs
Blade
Layout
Build

5 2 Strip RC
RC
Report 4. 5.
4. 5.
RC
RC

WIP
WIP
OEM Goods
Entrance 4
Stores

Root KEY
Float Machine Shop Paint
Strip Ground Floor

First Floor

Non F50 Area

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

Initially, the repair shop was not convinced that mapping their process would be
useful as they claimed considerable variability in incoming repairs

F50 Propeller Repairs

100
z The repair shop had 54 repair schedules for
blades and a similar number for hubs

z The shop layout was set to allow all of these

75
to be handled Core competence in
deep damage repair
z Pareto analysis of a history of repairs
revealed that only 7 occurred regularly
Repairs per 50
- of these 3 were carried out on over 25% of propeller
propellers (Percent)

z As lean practitioners we like demand

25
levelling
- the repair shop has been reconfigured for
“repeaters” and “strangers”
- prediction of required maintenance is now
0
improved A B C D E F G

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

A skills matrix of employees and their roles in the value stream flow gave visibility
of individual’s competences

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

We completed global market analysis on DPRO’s competitors

OEM
COMPETITOR
PROFILES
• Who?
• What?
• Where?
• Size?

FINANCIAL
Market
TRENDS
• MARKET SERVICE
•COMPETITORS COMPETITOR
PROFILES
- REVENUES
• Who?
- ROCE
• What?
• Where?
• Size?

Source: WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

Detailed cost modelling stripped out overhead and identified profit drivers linked to
product streams and cell activity
Product
Labour Staff level
Product
Material
Product
Cost Sub con
s Product
All overhead was reattributed to cell
Overhead
Admin activity, using real data where possible
Shareholder Profit
value margin
Product
Direct labour No. of
people
Product
Indirect labour
1650 hrs
Revenue costs
Product

Product Cost Sq ft
Stationary,
audit, software
Consultancy etc

Source: WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

The model allowed us to select and deselect cells, platforms and customers and
view the predicted financial effect this would have on the business

Control Panel Output display

60
Select Select Select
Platform Cell customer 50
40
F50 Metal fabrication Big Airlines
Metal finishing Dutch Airlines
30
Tornado
Typhoon Paint shop MOD 20
Cessna Composite layup Africa Air
10
Lynx Composite finishing Belgium Air
A320 Metal polishing 0
1st 2nd 3rd 4th
747 NDT
Qtr Qtr Qtr Qtr

Cost Revenue Margin

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

High on Customer Value was right first time costing. Using the model, costs can be
better analysed and quotation accuracy improved
Product
Labour
Historic data is inputted and
Product uncertainty values are assigned to the
Material material, sub con and labour values
Product
Cost Sub con
s Product Cumulative distribution
Basic Overhaul

Admin Overhead 0.9

Shareholder Profit 0.8

value margin 0.7

Product 0.6

Product
0.5

0.4

Revenue
Product
0.3

0.2

Product 0.1

0
8000 8500 9000 9500 10000 10500
£

Consultancy

This gives a guide as to where the

quote falls against the expected curve
and what action needs to be taken
Source: WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CASE STUDY

Dowty Propellers Repair and Overhaul now believe they have a good understanding
of their core competence and understand the risks inherent in their future strategy

z Competitors and Markets profiled

z Process and capabilities mapped

z Appreciation of customer value

z Tractability of cost and revenue

z Visibility of costs, and probability analysis of achieving costs

The company has greater confidence in decisions for future growth

and have increased market share & profitability

Source: WMG Analysis

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CORE COMPETENCE

Agenda

z Introduction

z Case Study

z Conclusions

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CONCLUSIONS

Conclusions
z We have an agreed definition for core competence:

Core Competence is a skill/asset/technology that underpins the growth of the business;

differentiates the business from its current and future competitors

z Company strategy is defined as the management of our competences

z We have developed a four step enterprise analysis which identifies core competences
- customer, value stream, market, finance

z Completing this analysis has added to the profits and market share of a company

When transforming our enterprise we will focus on what we do well, protecting and
investing in the activities that are core to the business

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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 CONCLUSIONS

In the Rorschach ink-blot test individuals project their interpretations onto meaningless
shapes

Are your core competences just a projection of what you want to see?

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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For More Details Please Contact

z Dr Glenn Parry z Dr Celine Turner

Senior Research Fellow Senior Research Fellow
UK Lean Aerospace Initiative UK Lean Aerospace Initiative
International Manufacturing Centre International Manufacturing Centre
University of Warwick University of Warwick
Coventry Coventry
CV4 7AL CV4 7AL

Tel: +44 (0)24 7657 2651 Tel: +44 (0)24 7652 4604
Email:glenn.parry@warwick.ac.uk Email:celine.turner@warwick.ac.uk

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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Disclaimer

This document was produced by researchers from the UK Lean Aerospace Initiative (UK LAI) at
Warwick Manufacturing Group, University of Warwick. The UK LAI is a consortium of four
universities lead by the University of Warwick and consisting of some 40 participating company
members of the Society of British Aerospace Companies (SBAC). The initiative is jointly funded by
participating SBAC members and the Engineering and Physical Sciences Research Council.

Members should reference UK LAI and the University of Warwick whenever any information is used
or disclosed relating to this work or any other by the UK LAI at the University of Warwick.

It may not be copied, used or disclosed to non-members in whole or in part except with the prior
written permission of the author. The copyright and foregoing restriction on copying, use and
disclosure extends to all media in which this information may be embodied, including magnetic
storage, computer printout, visual display, etc. In addition to such written permission to copy,
reproduce, or modify this document in whole or part, an acknowledgement of the author of the
document and all applicable portions of the copyright notice must be clearly referenced. The
document is supplied without liability for errors and omissions.

All rights reserved. This document may change without notice.

© 2005 Dr G.C. Parry, Dr C.E. Turner, UK Lean Aerospace Initiative, University of Warwick
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