Hi, I came across a couple of articles I thought you might enjoy. Competitive advantage through people California Management Review; Berkeley; Winter 1994; Pfeffer, Jeffrey; http://www.facstaff.bucknell.edu/pagana/mg330/pfeffer.html I believe this article summarizes a book of the same name: Harvard Business School Press. 1994. 281 pages. $14.95. ISBN 0-87584-717X. >From the introduction: "Suppose that in 1972, someone asked you to pick the five companies that would provide the greatest return to stockholders over the next 20 years. And suppose that you had access to books on competitive success that were not even written. How would you approach your assignment? In order to earn tremendous economic returns, the companies you pick should have some sustainable competitive advantage, something that 1) distinguishes them from their competitors, 2) provides positive economic benefits, and 3) is not readily duplicated. Conventional wisdom then (and even now) would have you begin by selecting the right industries. After all, "not all industries offer equal opportunity for sustained profitability, and the inherent profitability of its industry is one essential ingredient in determining the profitability of a firm."(1) According to Michael Porter's now famous framework, the five fundamental competitive forces that determine the ability of firms in an industry to earn above-normal returns are "the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the rivalry among existing competitors."(2) You should find industries with barriers to entry, low supplier and buyer bargaining power, few ready substitutes, and a limited threat of new entrants to compete away economic returns. Within such industries, other conventional analyses would urge you to select firms with the largest market share, which can realize the cost benefits of economies of scale. In short, you would probably look to industries in which patent protection of important product or service technology could be achieved and select the dominant firms in those industries. You would have been very successful in selecting the five top-performing firms from 1972 to 1992 if you took this conventional wisdom and turned it on its head. The top five stocks, and their percentage returns, were (in reverse order): Plenum Publishing (with a return of 15,689%), Circuit City (a video and appliance retailer; 16,410%), Tyson Foods (a poultry producer; 18,118%), Wal-Mart (a discount chain; 19,807%), and Southwest Airlines (21,775%).(3) Yet during this period, these industries (retailing, airlines, publishing, and food processing) were characterized by massive competition and horrendous losses, widespread bankruptcy, virtually no barriers to entry (for airlines after 1978), little unique or proprietary technology, and many substitute products or services. And in 1972, none of these firms was (and some still are not) the market-share leader, enjoying economies of scale or moving down the learning curve." An Interview with Jeffrey Pfeffer By Joel Kurtzman Journal of Strategy and Business Booz, Allen & Hamilton Third Quarter, 1998 http://www.strategy-business.com/thoughtleaders/98308/page4.html Reprint No.98308 "JEFFREY PFEFFER: What I have learned over and over and over again, and it's brought home to me forcefully whenever I visit organizations, is that individual rewards for performance are not enough. In many cases, you also need to have something, or a set of somethings, that gives people a sense that their success depends upon the success of the collective. Some form of collective incentive system -- profit sharing, bonuses, stock ownership -- is needed so that my success does not depend solely on how well I do. The organizations I have cited always have some collective element to their rewards. In many instances, they even do some things to de-emphasize individual performance. To go back to Men's Wearhouse, while I was doing interviews there for a case study the company fired its best salesperson, which was very traumatic for them. This was a guy in one of their stores in the Northwest who was an exceptional salesperson. But the company's managers believe in the concept of team selling -- they believe in this idea of human development that you always succeed when your colleagues around you succeed, and that you ought to participate in all this training. And this guy said, "I'm not going to do any of this stuff." The company's big measures are the number of transactions and the dollars of sales per transaction. This guy was way above on the number of transactions but not doing very well on dollars per transaction. What that meant was that people would come in the store and he would steal them. Finally, they said to this guy, "We want you to get with the program," and he wouldn't. So they fired him -- and guess what? Sales in the store went up 30 percent. His replacement, of course, did not sell as much as he did. But everybody else in the store sold more. In other words, he was bringing everybody else down. And you see this in other organizations where there is one star. At Men's Wearhouse, then, the information is transferred because the culture says that you are supposed to help other people with the sales process so that they'll help you. I've seen this happen when I've been in these stores getting waited on. I will ask a guy a question, and if he doesn't know the answer, somebody working nearby will come over to help out. That not only helps close the sale -- it also has facilitated the learning process for the first person. They really do have a wonderful team-selling system." Chris
