Standardized Strategic Assessment Framework for
the Small and Medium Enterprises in High-Tech
Manufacturing
Mustafa Demir
Committee
Dr. Gary Waissi
Dr. Jane Humble
Dr. Gerry Polesky
1
Agenda --- 09/27/2012
•
•
•
•
•
•
•
•
Overview
Goal and Objective
Assumptions and Limitations
Theoretical Background of the Standardized Strategic
Assessment Framework(SSAF)
Research Design
Survey Application
Future Data Analysis
Discussion and Summary
2
Introduction
• Goal:
The primary purpose of this study is to lay the groundwork for the SSAF.
The secondary purpose of this study is to develop theoretical models for the SSAF and to provide a framework
for linking these models to the theory and each other.
The SSAF is a tool, consisting of a set of six theoretical models, which will aid with evaluation and assessment of
a SMEs’ current and future strategic positioning.
The six models are R&D activities model, technology adoption model, export performance model, operational
excellence model, product innovation model, and process innovation model.
• Project Phases
Phase I:
Literature review and development of preliminary modeling approaches
(Continuing)
Phase II:
Company visits; model improvement, model testing, survey questions improvement (Fall 2012)
Phase III:
Software development
(Future project)
3
SSAF Theoretical Models
•
Six theoretical models were developed for the purpose of analyzing these factors and developing the SSAF:
–
–
–
–
–
–
•
(1) Research Development (R&D) activities model will attempt to explain the relationship between inputs
(tangible resources, intangible resources and human resources) and outputs (product and process
innovation, and process improvement)
(2) Product Innovation model will attempt to explain the relationship between inputs (e.g. R&D activities,
qualified workforce, etc.) and outputs (e.g. export performance).
(3) Process Innovation model will attempt to explain the relationship between inputs (e.g. R&D activities,
qualified workforce, etc.) and outputs (e.g. export performance);
(4) Technology Adoption Model in this study will attempt to explain the relationship between inputs
(environmental influences, tangible, intangible and human resources) and outputs (company performance);
(5) Operational Excellence Model(process improvement) will attempt to explain the relationship between
inputs (e.g qualified workforce, technical information, etc.) and outputs (critical success factors);
(6) Global Engagement Model will attempt to explain the relationship between inputs (e.g. product and
process innovation, process improvement, etc.) and outputs (company performance).
Supporter Models:
– Qualified workforce: Development and management of the workforce is vital, because sustainable
competitive advantage relies on the company’s qualified workforce (Dahms, 2001).
– Machines and equipment are classified as physical capital resources (other physical capital resources are a
company’s plant, geologic location, and access to raw materials) which are used by companies in their
operations (Barney, 1991).
4
Research Method
The following methodological research techniques were used in this study:
–
Review of fundamental competitive advantage models, including the MOT, the RBM, and
complementary perspective that comprises the MOT and the RBM.
–
Identify theoretical models relating to the proposed SSAF driven by fundamental competitive
advantage models.
–
Develop the SSAF in a systematic way to demonstrate the relationship between theoretical models
from the literature relating to competitive advantage.
–
Identify each theoretical model’s inputs and outputs, based on literature reviews.
–
Develop hypotheses regarding each input and output of these theoretical models.
–
Conduct a pilot survey to SMEs in A&D industry in Arizona area.
–
Analyze the data with appropriate statistical analysis tools.
5
Assumptions
The following assumptions are considered in this study:
•
There are two supporter models in the SSAF, including qualified workforce, and machine and equipment.
•
In literature review, positive and negative relationships are found for the models within the SSAF and their
variables. However, the effects of the relationships on the competitive advantage can be different for each
industry.
•
There are positive and negative externalities which affect company’s sustainable competitive advantage.
•
In order to determine the validity of the SSAF for any specific company, the hypotheses should be tested.
•
There are information gaps between the company and the customer. In due course, customers’ demand
changes, because of new products, and it is difficult for companies to understand customers’ demand.
Therefore, this creates information gaps between customer and company. As a way to reduce these gaps,
a company should communicate (e.g. surveys) with customers in order to meet their demand.
6
Limitations
The study had certain limitations described as follows:
•
This study is limited to development of only six theoretical models: R&D activities, product innovation,
process innovation, technology adoption, operational excellence and global engagement. Only three of
them, R&D activities model, technology adoption model, and global engagement model are explicated in
detail.
•
This study is limited to only two supporter models, including qualified workforce, and machine and
equipment. Qualified workforce, and machine and equipment are explained within each theoretical
model.
•
This study is limited to only the Advanced Manufacturing Technology (AMT) adoption for the technology
adoption theoretical model. There are different types of technology adoption, such as information
technology adoption, AMT adoption, etc..
This study is limited to only export performance for global engagement theoretical model.
This study is limited to only for pilot-test, because of time constraints.
•
•
7
What is Competitive Strategy and Competitive
Advantage?
•
Strategic management is the process of identifying, choosing and implementing activities that will
enhance the long-term performance of an organization by setting direction and by creating ongoing
compatibility between the internal skills and resources of the organization, and the changing external
environment within which it operates as (Smith, Jackson, & Wyatt, 1998, p. 6).
•
A company has a sustainable competitive advantage when “it is implementing value creating strategy not
simultaneously being implemented by any current or potential competitors and when these other
companies are unable to duplicate the benefits of the strategy” (Barney, 1991, p. 103).
•
Competitive strategy “aims to establish a profitable and sustainable position against the forces that
determine industry competition” (Porter, 1985, p.1).
8
Competitive Strategy Models
Figure 1. The Evaluation and Integration of the Concepts
Source: (Bogner, Mahoney, & Thomas, 1998)
9
Theories based on Industry
Industrial Organization Economics (SCP Approach):
The origin of IOE is industry -structure, -conduct, -performance (SCP) which originated in the Harvard School of
Industrial Economics. Wirth & Bloch (1995) define ‘structure’ as market structure, ‘conduct’ as the behavior of
the companies in a market, and ‘performance’ as market performance (p. 17).
Figure 2. More Complex Relationship between Structure, Conduct and Performance
Source: (Ferguson & Ferguson, 1994).
Figure
10
Theories based on Industry
Market Oriented Theory:
Porter’s MOT takes into consideration two factors (Porter, 1985):
•
The attractiveness of industries to enter.
•
Improvement of the relative competitive position.
In order to explain these two factors, Porter (1985) developed the well-known five competitive forces model,
which includes the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the
bargaining power of suppliers, and the rivalry among the existing competitors.
11
Theories based on Company Resources
Resource-Based Model (RBM):
The RBM elucidates that competitive advantage occurs where the company is applying a value creating
strategy which is not being applied at the same time by current or potential competitors, and the competitors
are unable to duplicate the benefits of this strategy (O'Shannassy, 2008, Barney, 1991). Companies are
fundamentally heterogeneous in terms of their resources and internal capabilities (Barney, 1991). According to
Barney (1991), company resources must have four attributes, which are also shown in Figure 5, a company
resource (Barney, 1991):
•
must be valuable which means that it exploits opportunities in a company’s environment;
•
must be rare among a firm’s current and potential competition;
•
must be imperfectly imitable and
•
must not be strategically equivalent substitutes for this resource.
12
Theories based on Company Resources
Company Resources:
There are three types of company resources in company environment
•
Tangible resources are the resources which can be easiest to identified and valued in the company’s
financial statements.
•
Intangible resources can be defined as “a company’s image or its scientific and technological knowledge”
(Del Canto & Gonzales, 1999).
•
Human resources can be classified as resources which “offer to the company their skills, knowledge, and
reasoning and decision-making abilities” (Grant, 1995, p.125).
13
Table 3. Classifying and Assessing the Company's Resources
Resource
Main Characteristics
Key Indicators
Tangible Resources
Financial Resources
Physical Resources
The company’s borrowing capacity and its internal funds generation determine its

Debt/ equity ratio.
investment capacity and its cyclical resilience.

Ratio of net cash to capital expenditure.
-

Credit rating.
The size, location, technical sophistication, and flexibility of plant and

Resale values of fixed assets.
equipment;

Vintage of capital equipment.
-
Location and alternative uses for land and buildings;

Scale of plants.
-
Reserves of raw materials constrain the company’s set of production

Alternative uses of fixed assets.
Stock of technology including proprietary technology (patents, copyrights,

Number and significance of patents.
trade, secrets) and expertise in its application of know-how.

Revenue from patent licenses.
Resources for innovation: research facilities, technical and scientific

R&D staff as a percentage total employment.
possibilities and determine the potential for cost and quality advantage.
Intangible Resources
Technological Resources
-
-
employees.
Reputation
-
Reputation with customers through the ownership of brands,

Brand recognition.
-
Established relationships with customers, the association of the company’s

Price-premium over competing brands.
products with quality, reliability, etc.

Percentage of repeat buying.
The reputation of the company with the suppliers of components, finance,

Objective measures of product performance.
labor services, and other inputs.

Level and consistency of company performance.
-
Human Resources
-
-
The training and expertise of employees determine the skills available to the 
Educational, technical, professional qualifications of
company.
employees.
The adaptability of employees determines the strategic flexibility of the

Pays rates relative to industry average.
company.
-
The commitment and loyalty of employees determines the company’s ability
to maintain competitive advantage.
14
Complementary Perspective
Although their premises are different, the similarities between the market-driven perspective and the RBM
perspective has been recognized
The fundamental compatibility of these two perspectives are (Spanos & Spyros, 2001, p.912):
•
•
•
They are complementary in terms of explanation of company performance, “in the sense that by drawing
insights from both, one can gain a more balanced view on the sources of competitive advantage (internal
and external determinants)” (p.912).
Both of them try to find a way to explain the same phenomenon of interest such as sustained competitive
advantage.
Their unit of analysis is identical, as they both use the company as subject of examination.
15
Methodology
Methodology part of this study describes design, and procedures used in answering the following initial key
research questions for the SSAF development:
R&D Activities Model key research questions:
•
Question 1: How do company R&D inputs (resources) affect R&D activities (capabilities)?
•
Questions 2: How do company capabilities (basic research, applied research and development) affect R&D
outputs (e.g. technological innovations, etc.)?
Technology Adoption Model key research questions:
•
Question 1: How do technology adoption inputs (resources) affect technology adoption?
•
Questions 2: How does company technology adoption affect outputs (company performance)?
Export Performance Model key research question:
•
Question 1: How do export performance inputs (resources) affect technology adoption?
16
Research Design
This study used the quantitative research instead of qualitative research (because this study does not
investigate why something occurs) in order to identify whether there is a relationship between variables and
the strength of their relationship. In quantitative research, experimental or non-experimental designs such as
surveys are considered (Creswell, 2009).
In this study the basic research strategy is followed (Scandura & Williams, 2000):
•
Formal theory (literature review): In order to conceptualize models for empirical testing, researchers
summarize literature in area of research. Literature reviews often applies a deductive process that
generally provides researchers with hypotheses for empirical testing.
•
Sample surveys: maximizes the representative sampling of the population units studied. Although surveys
maximize population generalizability, they are low on realism of context and precision of measurement.
•
Measurement: concerns “how well the measures employed fit the theories for which a test designed”
(Scandura & Williams, 2000, p. 1252). As a way to obtain valid results, measures must be valid
representations of constructs.
•
Conclusion: statistical conclusion refers to the ability draw conclusions on the basis of statistical evidence.
17
Pilot Survey
The measurement scales will be validated using a pilot test (preliminary test) with a view to ensure validity and
reliability.
For the pilot test, academicians and five local key executives from Small and Medium Enterprises (SMEs) in the
Aerospace and Defense (A&D) industry will be interviewed.
By conducting a pilot test, the survey will be evaluated in terms of phrasing, clarity, adequacy of construction;
and in addition, instructions about the instrument will be given.
Sample:
The focus area of this study is how a company can achieve sustainable competitive advantage based on
company resources, capabilities and competitive strategy.
The population for this study will be represented by a total collection of local SMEs in the A&D industry. A
sample of the population will be used to draw conclusions about the entire population, because surveying a
large number of companies would be costly and lengthy.
The sample will be chosen from Arizona A&D supply chain interactive database, which was developed in 2012
by the department of Technological Entrepreneurship and Innovation Management in Arizona State University
(TEIM, 2012).
18
Summary
•
This study involves literature review conducted to understand the sustainable competitive advantage at
the company level, how it occurs, what are the internal and external sources of sustainable competitive
advantage and how they affect each other.
•
This study used the quantitative research in order to identify whether there is a relationship between
variables and the strength of their relationship.
•
As a way to collect the data, companies will be interviewed.
19
Systems Engineering
•
•
•
•
The SSAF was designed by systems engineering approach.
A system can be defined as “an integrated composite of people, products, and processes that provide a
capability to satisfy a stated need or objective” (DOD, 2001, p. 3).
Systems engineering is “ an interdiciplinary engineering management process that evolves and verifies and
integrated, life-cycle balanced set of system solutions that satisfy customer needs (DOD, 2001, p. 3).
Two major fundamental concepts are used, including :
–
–
Integration Definition for Function Modeling (IDEF0) and transformational (or functional system). IDEF0 which is a
functional modeling tool of systems engineering, was used. IDEF0 is a common modeling technique for the analysis,
development, re-engineering, and integration of business processes.
Transformational (functional) system, which is depicted in Figure 13, is a system which “receives inputs from its
environments, and transforms them to outputs, and releases the outputs to the environment, whilst seeking to
maximize the productivity of the transformation” (Katsundo, 1996, p. 27).
20
Standardized Strategic Assessment Framework
General Environmental Influences
Government
Economy
Industry
Culture
Company
Strategy
Global
Operational
Excellence
Technology
Adoption
Process
Innovation
Product
Innovation
R&D
Activities
Qualified
Workforce
Machine
and
Equipment
LABOR
CAPITAL
21
R&D Activities Model
Tangible Resources
Phase 1
Equity
H1: +
Debt
H2: -
Size
H3: +
Capital Intensity
H4: +
Business & Strategic Plan

Mission & Vision

Goals and Objectives
Phase 2
Technological
Innovation
H11: +
Product Innovation
H12: +
Process Innovation
Human Resources
Intangible Resources
R&D Activities
R&D Workforce
H5: +
R&D
Collaboration
H6: +
Process
Improvement
H7: +
Marketing
Orientation
H8: +
Commercial
H9: +
Learning
Orientation
H10: +



Basic Research
Applied Research
Experimental Research
H13: +
Process
Improvement
22