Management Competence Contributions to Management Science H.DyckhofflU.Finke A.Scholl Cuttingand Packingin Production Balancingand Sequencing ofAssembly andDistribution Lines 1992.ISBN3-7908-0630-7 1999.ISBN3-7908-1180-7 R. Flavell(Ed.) E.Canestrelli (Ed.) ModellingRealityand PersonalModelling CurrentTopics in QuantitativeFinance 1993.ISBN3-7908-0682-X 1999.ISBN3-7908-1231-5 M.HofmannIM.List(Eds.) W.BiihlerlH.Hax/R.Schmidt (Eds.) PsychoanalysisandManagement Empirical Research on the German 1994.ISBN3-7908-0795-8 CapitalMarket 1999.ISBN3-7908-1193-9 R.L. D'EcclesialS.A.Zenios(Eds.) OperationsResearchModels M.BonillafT.Casasus/R.Sala(Eds.) in QuantitativeFinance Financial Modelling 1994.ISBN3-7908-0803-2 2000.ISBN3-7908-1282-X M.S.Catalani/G.F.Cierico S.Sulzmaier Decision MakingStructures Consumer-OrientedBusiness Design 1996.ISBN3-7908-0895-4 2001.ISBN3-7908-1366-4 M.BertocchilE.Cavalli/SoKom16si (Eds.) C.Zopounidis(Ed.) ModellingTechniquesfor Financial NewTrendsin BankingManagement Markets and BankManagement 2002.ISBN3-7908-1488-1 1996.ISBN3-7908-0928-4 U.Domdorf H.Herbst ProjectScheduling with Time Windows Business Rule-Oriented Conceptual 2002.ISBN3-7908-1516-0 Modeling 1997.ISBN3-7908-1004-5 B.RapplP.Jackson(Eds.) OrganisationandWork Beyond 2000 C.Zopounidis (Ed.) 2003.ISBN3-7908-1528-4 New OperationalApproachesfor FinancialModelling M.Grossmann 1997.ISBN3-7908-1043-6 Entrepreneurship in Biotechnology 2003.ISBN3-7908-0033-3 K. Zwerina Discrete Choice Experimentsin Marketing H.M.Arnold 1997.ISBN3-7908-1045-2 Technology Shocks 2003.ISBN3-7908-0051-1 G.Marseguerra CorporateFinancial Decisions and Market T.Ihde Value DynamicAlliance Auctions 1998.ISBN3-7908-1047-9 2004.ISBN3-7908-0098-8 WHUKoblenz- OttoBeisheimGraduate J.Windsperger/G.Cliquet SchoolofManagement (Ed.) G.HendrikselM.Tuunanen(Eds.) Structureand Dynamicsofthe German EconomicsandManagement Mittelstand ofFranchising Networks 1999.ISBN3-7908-1165-3 2004.ISBN3-7908-0202-6 Andreas Enders Management Competence Resource-Based Management and Plant Performance With 17 Figures and 70 Tables Springer-Verlag Berlin Heidelberg GmbH Series Editors Wemer A. Miiller Martina Bihn Dr. Andreas Enders WHU - Otto Beisheim Graduate School of Management Burgplatz 2 56179 Vallendar Germany [email protected] 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 <http://dnb.ddb.de>. 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. Viola tions 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 1s t 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 4 3 2 1 0-Printed on acid-free paper Foreword Eightyearsago,theproduction management department ofthe WHUlaunched the industrycompetition ,Best Factory / Industrial Excellence Award' jointly withthe media partner Wirtschaftswoche in Germany. Two years earlier, the competition had been initiated successfully by INSEAD faculty inFrance. Over the years,the jointresearchteamexperienced first-hand thatapplication ofManagementQuality was a key driver ofcontinuous improvement along the firm's core business proc esses. Moreover, those companies that exhibited the highest improvement rates achieved mostly the best business results (compared to their industry bench marks). Andreas Enders accompanied us for five rounds ofthe competition as program manager for the German competition. His contributions - among others the launchofourweb sitewww.beste-fabrik.de - aregreatly acknowledged bythe academic advisory team. The fmdings ofthe industry competition greatly influenced this thesis on Man agement Competence. Initially, the main research question though wasto provide a theoretic foundation and an empirical test for the seven-factor Management Quality model (as defined in our recent book on Industrial Excellence).Manage ment Quality consists of strategy formulation and deployment combined with delegation oftasks to workers and their participation. In addition, measurement, integration, communication andtraining complementthe main levers. Whilethere exist numerous studies on superior business performance and key success factors, therearefewsound empirical studies available todate onoperational performance and sustained business success. In this context, the most famous reference and management book is probably Peters and Waterman's bestseller In Search ofEx cellence. For the lEA competition, we developed questions to test whether Management Quality isbeing applied to select business processes ofthe firm. Inparticular, our main contribution to the field was that we operationalized the construct ofMan agement Quality andprovided ageneric process model ofthe firm.Existing qual ity awards genuinely lack a model of the firm and a management concept for achieving (industrial) excellence. We believe that management ofresources (as opposed tomarket positioning) isaprimary driver ofoperational performance and consequently ofbusiness results. A number ofleading European firms, e.g., inthe 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 ofManagement Quality has been exposed to a "markettest" and is"validated" by a large number ofsenior executives invarious industries. VI Foreword The approach taken inthis thesis isrelated but quite different. Andreas Enders examines key strands inthe management literature, i.e.,Market-Oriented Theory, the Resource-Based View and Dynamic Capabilities.New studies confirm a syn thesis of the three literatures. In a nut shell, the main insight is that Management Competence is the dynamic reallocation ofthe firm's resources towards market needs (seechapter 2).Eventhough this ideamaysound simple, ithasneither been thoroughly investigated nor well specified in research. For this reason, this doc toral research can be viewed as a major contribution to the (operations) manage mentandstrategy literature. The thesis then makes the effort to classify the firm's relevant resources (see chapter 3). The statistical details ofa causal model in which internal and external resources driveboth operational performance aswell asdirectly and indirectly the firm's business results are discussed inchapter 4. Inchapter 5,anempirical test of the causal model- when applied to a large data set ofthe German electronics in dustry- isanalyzed. A unique feature ofthe survey is- based ona 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 ofthe study. A further key feature ofthis research is the distinction be tween firmscompetinginstatic asopposed to dynamic branches ofone industries. One would expect that firms operating inmarkets with frequent product introduc tions andtechnology changeovers areoutperformedby firms operating inlesstur bulentenvironments. The results ofthe 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. Onthe other hand, firms operat ing inturbulent - as opposed to static - industries lead inthe degree ofdevelop ment ofManagement Competence skills and exhibit a higher degree ofbusiness performance. This is a rather surprising and unexpected result and has implica tions forthewayfirmsarebeingevaluated, e.g.,forcreditratingpurposes. This research study is very well written and has a clear focus. It aims at ex plaining the drivers ofoperational excellence and superior business performance. The technical parts ofthethesis caneasily be skipped. The resultsoftheempirical study are ofgreat interest to both academics and (operations) managers. It pro vides 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 ofspe cificinternalandexternal resources. While the study is unique in its kind and opens a new field in empirical re search for operations manager, it provides (statistically confirmed) answers to the search ofexcellence question. Therefore, it can also be viewed as revealing the Secrets of(Industrial) Excellence. VallendarlFontainebleau, March2004 Prof Dr.ArndHuchzermeier Prof LukN. VanWassenhove Acknowledgements The research on management competence, which is summarized in the present treatise, was conducted inview ofthe fulfillment ofthe requirements forthe doc toral degree at the WHU, Otto-Beisheim Graduate School ofManagement, at the Production Management department, chaired by Professor Dr. Arnd Huchzer meier. The study originates from the Industrial Excellence Award which I have accompaniedfor manyyears. TheanalysisofEurope's bestmanaged factories has been an invaluable experience forthis research.This booktakes the Industrial Ex cellence Award one step further inthe search for the characteristics oftrue man agement competence. Iamgreatly indepted to mythesis advisors Professor Arnd Huchzermeier, Profes sor Luk van Wassenhove from INSEAD and Professor Holger Ernst from the WHU for their highly competent as well as personal guidance throughout the re search project. Withouttheir continuous supervision, this research would not have beensucha success. Ican nowproudly lookback oninteresting results onafasci nating topic. Thisresearch hastrulynurtured myfascination fortheacademic field ofoperations strategy. Moreover, 1would also liketo especially thank myparents Dr. Hans-Joachim and Loni Enders who have supported me in a wonderful and unique way throughout all stages ofmy life. I would also like to thank my lovely friend Juliane Bergert who has accompanied my way for a longtime as well as my colleagues from the WHU Rolf Hellermann, Jtirgen Mihm, Stefan Spinier, Andreas Trautwein and Claus van der Yelden, who have been ofgreat help whenever necessary. Last but not least, I would like to thank my dearest friends Dnal Drovs, David Steinbeck andAndre Bernemann whohas beenagreathelp incarrying outtheIndustrial Ex cellence Award. Fontainebleau, March2004 AndreasEnders Contents 1Introduction 1 1.1Starting Point ofOur Research 1 1.2ObjectivesofOur Study 2 1.3ResearchAgenda 4 2 Literature Overview 7 2.1 Introduction and ChapterStructure 7 2.2 Business Strategy 8 2.2.1 Market-OrientedTheory 8 2.2.2 The Theory ofthe Resource-BasedView 12 2.2.3 ASynthesis ofMOT and RBV 25 2.2.4 Industry Dynamics 30 2.3 Towards Resource Management.. 31 2.3.1 ManagementinaSituationalContext 31 2.3.2 Defining Capabilities 32 2.3.3Towards aTheoryon DynamicCapabilities 35 2.3.4 Summary onRBV and Dynamic Capabilities 37 2.3.5 The CurrentStateofthe Art 38 2.3.6 Outlook 40 2.4 Onto Operations 42 2.4.1 AStrong CompetitiveWeapon 42 2.4.2CompetitivePriorities 46 2.4.3Summary 49 2.4.4 Outlook 52 2.5TowardsIndustrialExcellence 52 2.5.1CompetitivePrioritiesandPerformance 52 2.5.2 The INSEAD-WHUIndustrialExcellenceAward 54 3ManagementCompetenceModel.......................................•............................59 3.1 BaseModel 59 3.2Competenceand PerformanceDimensions 61 3.2.1 CompetenceDimensions 61 3.2.2 Performance Dimensions 70 3.2.3EnvironmentalDynamism 72 3.3Dependencies 73 3.4 ModeratedDependenceAnalysis 74 3.5Summary 75 X Contents 4Methodology 77 4.1QualitativeAnalysis 78 4.1.1 Conceptualization 78 4.1.2Pre-testingPhase 78 4.1.3DataGeneration 80 4.1.4Sample 81 4.2QuantitativeAnalysis 85 4.2.1 FundamentalMethodologicalAspects 85 4.2.2Construct Quality 86 4.2.3Criteriaofthe Firstand SecondGeneration 88 4.2.4 Multitrait-MultimethodAnalysis 101 4.2.5DependenceAnalysis 107 4.2.6ModeratedDependenceAnalysis 110 5EmpiricalResults ~ 115 5.1Factor Analysis 115 5.1.1CompetenceDimensions 116 5.1.2Performance Dimensions 144 5.1.3EnvironmentalFactors 152 5.2 Multitrait-Multimethod Analysis 155 5.2.1Factors 156 5.2.2ComparisonofEstimation Models 156 5.2.3ConfirmatoryFactorAnalysis(CFA) 157 5.2.4Conclusion 159 5.3 Dependence Analysis 160 5.3.1Conclusion 162 5.4 Moderated Model 162 5.4.1ClusterAnalysis 163 5.4.2Moderated RegressionAnalysis 165 5.4.3 Conclusion 170 6Conclusion 171 6.1Central Results : 171 6.2Scientific Review 174 6.3 ScientificRestrictions 175 6.4 Managerial Implications 176 References 177 Appendix- Questionnaires 193 List of Abbreviations General Abbreviations AMT AdvancedManufacturingTechnology CA CompetitiveAdvantage lEA IndustrialExcel1ence Award IOE IndustrialOrganization Economics JIT Just InTime MBNQA MalcolmBaldrigeNationalQualityAward MOT Market-Oriented Theory MTMM Multrait-Multimethod(analysis) OE OperationalEffectiveness PPM Parts Per Million PWP Plant WithinaPlant(concept) QDCF QualityDependabilityCost Flexibility(priorities) RBV Resource-BasedView SBU Strategic BusinessUnit SCP StructureConductPerformance(paradigm) SWOT StrengthWeaknessOpportunityThreat(framework) TDC Theoryon DynamicCapabilities TPM TotalProductiveMaintenance TQM Total QualityManagement ZVEI Zentralverbandder Elektrotechnik-und Elektronikindustrie e.V. Methodological Abbreviations AGFI Adjusted GoodnessofFit Index AVE Average Variance Explained CFA ConfirmatoryFactorAnalysis CFI ComparativeFit Index CU CorrelatedUniqueness(model) DP DirectProduct(model) FR FactorReliability GFI GoodnessofFit Index GLS GeneralizedLeast Squares IR IndicatorReliability