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MBA Global Operations Management, Project: Experience Curve |
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Experience
Curve Founder 1 First Mover
Advantage 2 Cost Volume
Curve 3 Rapid
Technological Learning 4 Economies of Scale and Learning Curve 7 Horizontal and Vertical Integration 12 Core Competencies of the Firm 14 Advantages of Global Strategies 16 Building Strategy on the Experience Curve 25 Qualitative and Quantitative Information 27 Learning Curve and Chemical Companies 31 Learning Curve in a Competitive Industry 32 Learning Curve and Uncertainty 33 WEB Links to
my Work 35 My WEB sites
for Global Learning 44 Core Competence of the Corporation 48 Strategy and competitive Advantage 48 Experience Curve 50 Profiting From Global Expansion 52 Firm Resources and Competitive Advantage 55 Assessing Corporate Performance 57 Learning Curve Lecture Layout 71 Learning Curve and Optimal Production 72 Learning Curve and Defense Department 72 Flatting the Learning Curve 74 Prior
Knowledge 90 Role OF Intelligence
97 Nonlinearity and Cognitive Studies 102 How
Important is Intelligence 104 Untangling Social Variables 105 Cognitive Abilities are Improved? 108 Intellectual Resources in the Workforce 111 Expert Systems and Computer Systems 113 Experience and Learning Curve Graphing 117 Learning Curve in Nuclear Power Plant Operation 120 Projective Visualization: Learning to Simulate from
Expeience 123 WEB Sites Core Competencies 124 Graduate Mgmt Program…Core Competencies 126 Core Competency in the Air Force 132 Strategic Planning VS Strategic Intent 133
Barriers To Entry VS Barriers to Imitation 134 The Inertness of Knowledge 136 Transformation of Personal To Social
..................KNOWLEDGE.. 137 A new framework for value creation: 139 AC at the Organizational Level 143 The Firm's Incentive to Learn 145 Managing the company's technological assets.' 147 1 Brainpower. and 2. Intellectual capital. 151 Some caveats about intellectual capital: 153 3 Areas of Core Competency: Which One Is for
You? 154 |
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The Henderson Revolution Michael Rothschild This article appeared in Upside Magazine (December 1992). ------------------------------------------------------------------------ Bruce Henderson certainly didn't look
like a revolutionary. No tattered army fatigues. No fiery rhetoric. He
favored starched white shirts and pinstripe suits. He always spoke softly, in
the measured, almost halting, manner of a southern gentleman. But Bruce Henderson
had the "right stuff" of a genuine revolutionary -- profoundly new
ideas that change the way society works. Bruce Henderson, the originator
of modern corporate strategy and founder of The Boston
Consulting Group (BCG), died this summer in his hometown
of Nashville, Tennessee. He was 77. I didn't know Bruce that well. Back in
the late 1970s, when I was a fresh-faced MBA, happy to be a number-crunching
peon at BCG, Bruce was a far-off figure -- the big boss. Whenever I ran into
him in the office, I came down with a severe case of cotton-mouth. But two years ago, after he read the galleys of Bionomics, we
began a correspondence and talked for hours about our shared passion --
rebuilding economics with concepts borrowed from evolutionary biology. With
the enthusiasm of avid sports fans, we argued over how business strategy,
organization design, and public policy would be reshaped by the blending of
biology and economics. Trained as an engineer, Bruce Henderson became fascinated
with economic ideas for terribly practical business reasons. Back in the days
before he established the discipline of corporate strategy, making the big
decisions about a company's long-term future was pretty much a "seat of
the pants" affair. The CEO, with perhaps a few senior executives and
board members, would sit around and talk until they came up with a plan that
seemed sensible. "Bet-your-company" decisions like launching a new
product line, acquiring a subsidiary, or shutting down a factory, were made
on little more than intuition. A rigorous analytical approach to making key decisions was
impossible, because there were no guiding strategic principles, no theories
that could be turned into quantifiable models. Standard
economic models existed, of course, but every sophisticated businessman knew
that the economists' mythical kingdom of "perfect competition" bore
no relationship to reality. To turn corporate strategy into a credible
discipline and consulting assignments that major clients would pay major
money for Henderson had to find a hard link between business and
underlying economic forces. Since the realities of business life were not
about to change, that meant rethinking the most basic ideas of traditional
economics. Henderson's search began with
highly detailed analyses of production costs. Early in his
career, while a purchasing manager for a Westinghouse division, he
wondered why suppliers who produced their goods in virtually identical
factories often put in bids at dramatically different prices. Economic
theory said it wouldn't happen. Producers using similar capital equipment
were supposed to have similar unit costs and offer roughly the same prices.
But economic theory was wrong. In case after case, actual unit costs
varied dramatically among suppliers. Henderson didn't know why, but he had
zeroed in on the crucial question. Then, in 1966, shortly after he
founded BCG, a study for Texas Instruments' semiconductor division revealed
the answer. When TI's unit cost data for a particular part was plotted
against the company's accumulated production experience, the cost of the part
declined quite predictably. For example, if the 1000th unit off the line had
cost $100 to make, the 2000th unit would cost 80% as much, or $80. By the
time the 4000th unit was produced, it would cost just $64 ($80 x 80%). Every
time cumulative experience doubled, unit costs dropped about 20%. Though it's
"old hat" among today's high-tech managers, the notion of
predictably declining costs was a radical concept when Bruce Henderson began
teaching companies about the "experience
.............................................CURVE..........................................."
a quarter century ago. During the 1970s, Henderson's concept became the foundation of
modern corporate strategy. For the first time, it was possible to explain why
building a factory just like your competitor's didn't mean you could match
his costs. If he had a head start in experience, you could wind up chasing
him down the experience .............................................CURVE............................................
If you both sold at the market price, he'd make money on every unit, while
you'd be lucky to break-even. Once the experience
.............................................CURVE...........................................
was understood, the importance of being the first one to enter a new market
became clear. Properly executed, the preemptive strike could mean long-term
market leadership and long-term profits. Similarly, the experience
.............................................CURVE...........................................
explained why defending market share mattered. Raising prices to boost
short-term profits sold off market share, slowed experience growth, and often
handed over low cost leadership to an aggressive competitor. It's a scenario
that's been played out hundreds of times as "experience conscious"
Japanese competitors have overtaken their "profit conscious"
American rivals. Armed with the experience .............................................CURVE...........................................,
Bruce Henderson was the first one to explain and warn against this suicidal
corporate strategy. Without him, many more American firms would have been
overwhelmed. Simply put, Bruce Henderson's experience
..............................................CURVE...........................................
explained how an industry's past shapes its future. Where conventional
economics had banished history by blithely assuming that "technology
holds constant," Henderson used the experience
.............................................CURVE...........................................
to show how the new insights generated by practical experience were
translated into higher productivity and lower costs. Where conventional
economics taught the "law of diminishing returns," Bruce Henderson
taught the "law of increasing returns." Where mainstream economics
taught that marginal unit costs must rise at some point, Henderson proved
that marginal unit costs continually fall. That's why companies are always
eager for more orders. In literally thousands of exhaustively detailed studies in
industries as diverse as paper tissues, gasoline refining, life insurance,
medical electronics, motorcycles, and microprocessors he and his BCG
colleagues proved that all competitive organizations learn from experience,
that there are no limits to productivity. When the cost/performance potential of a particular technology
is nearly exhausted, an industry will shift to a substitute technology and
begin a new "experience
.............................................CURVE............................................"
For example, even as the airlines have shifted from one aircraft technology
to the next, their cost/seat-mile has kept falling, opening up air travel to
the entire population. By substituting new
..................KNOWLEDGE....................... for labor and materials,
experience-driven innovation keeps pushing costs down. As Henderson put it,
when a firm is properly managed, its "product costs will go down
forever." Though he concentrated on the practical problems of clients,
Henderson knew full well that the experience
.............................................CURVE...........................................
had undermined the intellectual foundation of mainstream economics. In 1973,
he wrote: The experience
.............................................CURVE...........................................
is a contradiction of some of the most basic assumptions of classical
economic theory. All economics assumes that there is a finite minimum cost
which is a function of scale. This is usually stated in terms of all
cost/volume
.............................................CURVE...........................................s
being either L shaped or U shaped. It is not true except for a moment in
time. . . Our entire concept of competition, anti-trust, and non-monopolistic
free enterprise is based on a fallacy. By the early 1980s, the lessons of the experience
.............................................CURVE...........................................
led Henderson to shift his thinking beyond the bankruptcy of mainstream
economics. He began to imagine a new and far more powerful kind of economics.
The realization that organizations are not static machines but complex,
dynamic systems that learn from experience, led him to begin seeing companies
as living, growing organisms. Following this logic, Henderson began to argue
that the competition in the economy's market niches was remarkably like
competition in nature's ecologic niches. Many of his former colleagues thought Henderson had gone off the
deep-end with this "biology thing." But instead of retiring quietly
and resting on his considerable prestige, he plunged ahead, ready as ever to
break the mold, start fresh with a radical concept and explore its
implications. In 1989, shortly before his 75th birthday, Henderson published
"The Origin of Strategy" the article that would be his last for the
Harvard Business Review. In it, he concluded, "Human beings may be at
the top of the ecological chain, but we are still members of the ecological
community. That is why Darwin is probably a better guide to business
competition than economists are." Just as the "experience
.............................................CURVE..........................................."
was scorned for years before being accepted by business school professors,
the biologic paradigm will eventually become a core part of the business
school curriculum. And, with academic economists, like Stanford's Brian
Arthur and Kenneth Arrow, now daring to describe the "economy as a
complex, evolving system," there is even some hope that Bruce
Henderson's revolution will finally sweep away the nonsense that still passes
for mainstream theory. Who knows? If the academics finally grasp how the
economy really works, there may even be hope for the politicians. I'm often
asked whether the work of the great Austrian economist F.A. Hayek inspired me
to write Bionomics. Despite my unending admiration for Hayek, the short
answer is no, I'd never read him. Bruce Henderson inspired me to rethink the
received economic wisdom. Without his "experience
.............................................CURVE...........................................,"
there is no final and fully satisfying explanation for falling costs, rising
incomes, and the phenomenon of economic growth. More than anyone else, he
made it both possible and necessary for economic thinkers to break free of
the static, zero-sum mentality that has gripped the "dismal
science" for 200 years. Bruce Henderson gave us the key to
"positive-sum" economics. Thanks for the revolution, Bruce. ------------------------------------------------------------------------ Without objectives a company has no explicit direction, and
there may be no basis for consistent decision making over time. Strategic
planning process models typically locate objective setting as the primary
decision making activity. The following factors affect objective setting: the
size of company, corporate versus SBU objectives and risk aversion.
Objectives are not necessarily immutable once they have been determined, but
can be adjusted in the light of changing circumstances. Objectives are
typically set by the top layer of management; the type of objectives pursued
are to some extent determined by the characteristics of decision makers, for
example prospectors as opposed to analysers. Techniques such as gap analysis
can be used in the process. It is necessary to distinguish between means and ends. There are
many possible dimensions to objectives: financial objectives, economic and
non-financial objectives, social objectives, behavioural objectives,
measurable objectives and ethical considerations. All organisations face the problem of ensuring that individuals
act in accordance with objectives; this is the principal agent problem. Some
issues which relate to overcoming the principal agent problem are credible
and achievable objectives, disaggregated objectives, feedback and
communication, evaluation and incentives. Noise and Learning in Semiconductor
Manufacturing Roger E. Bohn ----------------------------------------------------------------------- ABSTRACT: Rapid
technological learning is critical to
commercial success in VLSI semiconductor manufacturing. This learning is done
through deliberate activities, especially various types of experimentation.
Such experiments are vulnerable to confounding by process noise, caused by
process variability. Therefore plants with low noise levels can potentially
learn more effectively than high noise plants. 1. Introduction Rapid technological learning about manufacturing processes is
critical for success in many industries. New process startups require
particularly rapid learning. Production volume must be increased rapidly
while costs are brought down. In fact the speed and success of the ramp to
high volume is determined by the rate at which problems and opportunities on
the line are detected, diagnosed, and solved. It is clear that process variability,
by obscuring the true cause and effect relationships in the manufacturing
process, makes process improvement and learning more difficult. For example,
two plants making the same product but with different process variability,
will have different functions relating managerial effort to the rate of
process improvement, and therefore have learning .............................................CURVE...........................................s
of different slopes (See Zangwill and Kantor, 1993 for a formalization of the
concept of managerial effort versus slope of the learning
.............................................CURVE............................................ A more
general discussion of learning issures is (Jaikumar and Bohn 1992)). But
despite the importance of rapid process improvement in many technology driven
industries, process variability and its impacts on learning have received
little analytical or empirical analysis. For example, the extensive
literature on learning
.............................................CURVE...........................................s
is devoid of discussion about process noise as a factor influencing the rate
of learning (Dutton and others 1984). Finally, there
is an economics literature on process improvement. Most models of
improvement are based on the concept of the experience
.............................................CURVE...........................................,
which relates declining cost to increases in cumulative
production volume. Consistent evidence across many studies and industries
shows that the rate of cost improvement (per unit of volume) varies across
companies and plants making the same product using the same technology.
Dutton and Thomas (1984) survey 200 studies of cost reduction
.............................................CURVE...........................................s
over time, and comment that contrary to widespread assertion, [the slope
of the experience
.............................................CURVE...........................................]
depends on firm behavior, i.e. is not determined solely by the technology.
Nonetheless there has been little effort to study the micro-foundations of
the experience
.............................................CURVE............................................
However, the full potential of a
Global Information Infrastructure may not be realized if it does not embody
the principle of interoperability. The need for interoperability to interconnect heterogeneous
systems, services, and applications appears to
become only more important, as it becomes more difficult to achieve given the
rates of technical and market change (RPCP, 1994). We argue that interoperability
is different than compatibility as discussed in previous work (Farrell
and Saloner, 1985; Katz and Shapiro, 1985). The main difference is that compatibility
defines the interoperation of components, such as technologies, users,
and standards, within a system. Interoperability exists when information and
services may be accessed from a user of one system while the content may
reside on another system. This is consistent with the definition of
interoperability used by the Computer Systems Policy Project (1994). Interoperability,
therefore, may be present within a heterogeneous communications environment
while compatibility results from one dominant system. Enabling interoperable heterogeneity, we argue, may be the only
way to meet the diverse needs of users given their consumer preferences, and provide
the best incentives for innovation. The last model is a
production model which discusses the learning .............................................CURVE...........................................
effects as technology components are shared across applications and
industries, which is consistent with economies of scale and scope literature
(Hax and Majluf, 1989). The benefits of interoperability are shown to extend
to consumer and producer hardware markets in an open communications
infrastructure. The sensitivity analysis of the
model showed that the parameter with the most sensitivity is the experience
.............................................CURVE...........................................
factor. As the experience
.............................................CURVE...........................................
of a particular industry was increased the benefit of interoperability decreased
because there was less to gain by learning from another industry. The message
to standards bodies from this model is that standardization of an immature
technology may actually decrease the interoperability benefits. Copyright 1992 The Bionomics Institute Growing and Winning Have you been spending too much of the last few years
rationalizing or re-engineering -- cutting expenses, inventory and people? Now that you're leaner, we think it's time to turn your focus on
winning and growing once again. Competitive strategy rooted in the economics
of your business can be the blueprint for that sustained growth. In every business, a few leveragable economic
relationships -- the key sources of comparative advantage -- give one company
competitive superiority. In many businesses, these drivers, like economies of
scale, the
experience
.............................................CURVE...........................................,
or run length economics, relate increased throughput to lower unit cost.
More volume makes your business immediately more profitable. Using low costs to grow. Higher profits creates the steerage to
pursue faster growth by pressing the cost advantage further -- driving down
an experience .............................................CURVE...........................................,
for example-- or leveraging other downstream sources of comparative
advantage. Both can create even higher potential profits. You need to figure out how to leverage lower costs to grow even
faster, gain share and thwart competitive assaults. Growing this way, rather
than through raw price cutting, can have great long term benefits. In
financial services, for example, Fidelity's investment and volume have always
given the company lower costs for transactions, for statements and reporting,
and for marketing than most companies. (Figure 1 is our estimate of the
relationship between volume and cost to serve). As cumulative output increases movement up the experience
.............................................CURVE...........................................
(down the unit cost
.............................................CURVE...........................................)
becomes slower, because each additional 20% cost reduction requires a
doubling of output. The advantage conferred by experience is continually
being eroded. In Figure 6.3 company Y has a substantial unit cost advantage
over company X at the first point, when cumulative output to data was Y1 and
X1 respectively. By the second point company Y has increased its cumulative
lead in output terms, i.e. output Y2 is now much greater than output X2, but
the unit cost advantage has almost disappeared. The difference between economies of scale and experience effects
has some strategic implications. If there are significant experience effects
to be exploited, the company has a limited time to take advantage of them
because of the reducing percentage effect as cumulative output is increased.
If there are also significant economies of scale in the industry, the company
which is first in and is bigger than competitors has the potential for an
early cost advantage. A company which feels it has a cost advantage over
rivals should attempt to identify where the advantage is derived. If it
is from experience effects, the advantage can be expected to decline over
time; if it is from economies of scale the advantage will be retained so long
as competing companies do not increase in size. Economies of
scale and the Experience ...............................CURVE This is an idea which is much used but is frequently
misunderstood. The concept of economies of scale starts from the notion of
comparative statics, i.e. what the cost of production would be at different
scales of operation. It is concerned with the average cost of production in
relation to the productive capacity of a company. For example, if the
productive capacity of a company were doubled, economies of scale would exist
if the average cost fell. The empirical evidence on economies of scale is
mixed: in some industries it is significant, and in others it hardly exists.
The difficulty in attempting to measure the impact of scale economies in real
life is that it is not merely the increase in productive capacity which is
relevant, but whether the higher productive capacity is based on a more
efficient combination of labor and capital. It may be that some larger
companies have not selected the optimum combination of inputs, and hence do
not benefit from potential scale economies; this does not mean to say that they
do not exist and that they might not be exploited by some companies in an
industry. It may be that the difficulties of managerial coordination beyond
some company size make it impossible to benefit from potential scale
economies. The incidence of scale economies helps
explain why some industries are dominated by a few monopolistic companies
while others are characterized by a large number of small companies. There are
pronounced scale economies in industries such as electricity production and
car manufacturing; however, in industries such as specialized machine tool
production there may be considerably less scope for economies of scale. One
of the problems faced by state regulators is to ensure that competitive
pressures can be brought to bear in an industry dominated by a monopolist
without sacrificing scale economies. Economies of scale tend to be confused with the experience
.............................................CURVE...........................................,
which relates to the reduction in average costs resulting from the total
volume of output to date. For example, one of the factors contributing to the
experience
.............................................CURVE...........................................
is the degree to which employees learn to do their job more efficiently over
time. Experience is a dynamic notion which, while being related to economies
of scale in that the larger a company the more output it will have produced,
is conceptually independent of economies of scale. The research carried out on this issue reveals that the effect
of experience varies among companies and industries; it is to be expected
that the evidence on experience will be mixed because of factors such as
variations in production techniques by industry, differences in managerial
ability to take advantage of its potential effects and exogenous shocks. A
general view of the empirical evidence is that it suggests that a doubling of
output has the potential to lead to a 20% reduction in average cost. Whether
this can be used as a benchmark for individual companies is a matter for
managers to resolve, but there seems little doubt that there is a potential
for experience effects in most areas of activities. An important aspect of
the empirical findings is that the effect is not linear, i.e. it takes
successive doubling of output to achieve the same proportional cost
reduction. This would produce a relationship between experience and unit cost
of the following shape: The company has at its disposal a great deal of information
which it can use in identifying the effectiveness with which resources are
being, or have been, allocated. It is at this point that an apparent
disagreement between the practitioners of finance and those of accounting
needs to be clarified. Various problems in using ROI as an investment
appraisal criterion have been discussed; the balance is heavily in favor of
using the formal tools of financial appraisal in determining how resources
should be deployed in the future. But formal financial techniques do not
reveal how well resources are actually being deployed; the type of question
which confronts the company includes: Are we moving up the learning
.............................................CURVE...........................................?
Are we producing the level of sales value per person employed which we
originally thought possible? Are we making effective use of our capital? Are
we keeping inventories under control? The list of questions relating to
effectiveness is endless, but they can be tackled by using historical
accounting information relating to costs and revenues. Therefore the theory
of finance provides the tools for allocating resources in the future;
accounting procedures reveal the efficiency with which resources have been
allocated to date. The approach is to identify a set of useful ratios which relate
inputs and outputs in a meaningful fashion, and track these over time. It
goes without saying that individual ratios have limitations, but it is not
suggested that ratios should be used blindly. Rather, they provide
information on dimensions of company performance. The ratio approach, in
fact, has wider ramifications than simply letting management know how
resources are being deployed. Anyone with access to company accounts can find
published ratios, and by digging into accounts can produce his own. This
information can have implications for the price of the company's shares in
the market. Thus the company which is not being run effectively as indicated
by a variety of ratios may find its share price affected, and as a result may
be susceptible to a takeover. The objective of calculating accounting ratios is to assess the
effectiveness with which resources have been allocated in the past. The
ratios are a useful tool for analyzing accounts; they help to reduce the
amount of information in the accounts which require analysis, and can
identify potential weaknesses in company management. Since the objective of
ratios is to simplify the complexity of accounting information, it would be
pointless to use a vast number of ratios. However, there is no definitive set
of ratios which will provide the correct information for managers; not only
are there many ratios to choose among, individual ratios can be defined in
different ways. It is therefore necessary to select a number of potentially
useful ratios which can be employed over a period of time to ensure the
consistency of the information from which the ratios are derived. The
following ratios are typically encountered in company accounts: ROI Return on Investment RONA Return on Net Assets ROCE Return on Capital Employed DEFINITION (Revenue-Costs)/(Assets-Loans)
------------------------------------------- ROTA Return on Total Assets DEFINITION (Revenue-Cost)/Assets
------------------------------------------- ROAM Return on Assets Managed DEFINITION (Revenue-Cost)/(Assets Managed)
------------------------------------------- Revenue Generation DEFINITION Revenue/Assets
------------------------------------------- Value Added DEFINITION (Revenue-Cost)/(Labor Cost)
------------------------------------------- Earnings Per Share DEFINITION (Revenue-Cost)/(Number of Shares)
------------------------------------------- The reactive option might be to divert resources from that
product. These resources could be kept employed but not used, or
allocated to another product, or fired, in which case firing costs would be
incurred. The problem is that any learning built up in the labor force may be
lost, because if employees are subsequently re-allocated to the product they
may start again at the bottom of the learning .............................................CURVE............................................
There are therefore a number of potential costs associated with this option
which might not be obvious at the time, but which become apparent later when
the company starts to realise that its costs are higher than those of
competitors. The point to bear in mind is that competitors may not be
making these mistakes, and may end up with lower unit costs. A non-reactive option is to produce for inventory, with a view to
ceasing production before the end of the product life cycle. This avoids
firing costs, and ensures that labor keeps moving up the learning
.............................................CURVE...........................................;
against this must be set the additional cost of holding inventories. There
is, of course, no point in producing for inventory if the market is not large
enough ultimately to sell off everything produced. However, even a
rudimentary degree of foresight can avoid this error. Another reason for
holding inventory is to ensure that unexpected future increases in demand can
be satisfied. The optimum inventory to hold for this purpose depends on the
assessment of future prospects, and this involves prediction and risk
analysis. The reactive option may be to re-allocate resources from other
products for which there is already an inventory, or attempt to hire more
resources. Re-allocation will generate hidden costs in terms of the learning
.............................................CURVE...........................................,
while hiring more resources will result in hiring costs. If the increase in
demand is short lived, the costs of meeting the higher level of demand could
be much greater than the value of the additional sales. It is therefore
necessary to take a view on how long the excess demand is likely to persist. There are other options which may not be immediately obvious.
Since part of the demand which is not satisfied will disappear through
backlog withdrawals in any case, the price could be raised, and/or marketing
expenditure reduced, to equalise demand and supply; this would have the
effect of leaving no unsatisfied customers, since only those willing to pay
the higher price would actually buy the product. From the marketing strategy
viewpoint, it is necessary to determine what impact this will have on market
share, and whether it will be permanent; in other words, it is not just the
market share this quarter which might be affected, but market share over the
rest of the product life cycle. Competitors may react aggressively by
taking the opportunity to reduce their prices, thus causing a much greater
impact on market share than would otherwise be the case. Synergy: an
Elusive Efficiency Goal? A rationale often advanced for diversification into different
markets and products is that a single company engaged in diverse
activities has a higher level of performance than a number of individual
companies; this notion differs from economies of scale and experience in that
it is independent of the size of the company, or of the total output to date.
This concept is known as synergy. It
would lead to the situation where a corporation was valued at more than the
sum of the value of its individual parts if they could be separated. In business terms, synergy can be thought of as the 2+2=5
effect; Fuller defines it as ...behavior of integral, aggregate, whole systems unpredicted by
behavior of any of their components or subassemblies of their components
taken separately from the whole.3 Some successful companies attribute at least part of their
success to synergy. It is therefore important to determine whether synergy
can be predicted and therefore capitalised on in formulating strategy. For
example, no one would expect a synergistic effect from a company which
produces ball bearings taking over a company producing ice cream; but is it
possible to use the concept as an operational tool to tell the ball bearing
company which type of company to take over? While the idea of synergy has
an intuitive appeal it turns out to be a difficult principle to pin down in
practice. There are two problems in attempting to benefit from synergy as
a consequence of company actions. The first is to identify where the benefits
of synergy are likely to be generated. The second is that there is little
empirical evidence which can guide the company in individual situations; in
other words, synergy may be little more than wishful thinking on the part of
companies engaged in expansion who have heard that synergy is an outcome of
diversification. The Components
of Synergy. Some texts give the impression that synergy is an almost
mystical effect which makes itself apparent in cost and marketing advantages,
without being explicit about the mechanism which actually causes these
effects. There are in fact a number of areas from which the effects of
synergy are likely to originate. CORPORATE
MANAGEMENT There may be possibilities for individual SBUs to share common
indivisible resources, and to eliminate excess capacity. However, this is not
a case of 2+2=5, but simply making the optimum use of capacity. This benefit
is more properly related to production management. A different corporate management issue is that similarity among
SBUs may make them more amenable to management than a series of SBUs in
unconnected markets. This begs the question of what is meant by
"similar". An SBU which has recently been added to the company may
produce similar products, but may have inherited a management structure and
ethos which is totally alien to the corporation. Synergy at the corporate level may be identifiable after the
event, but whether the addition of any given SBU to an existing company would
generate a positive synergistic impact is impossible to predict. While synergy is different from economies of scale, it is
possible that some dimensions of scale economies can be captured by
diversification into similar products. This is related to the notion that
there is a carry over from experience in similar production and selling
environments; operating in a series of similar markets has elements of doing
more of the same thing, which is the notion underlying both economies of
scale and experience effects. This argument is not very compelling to the economist, whose
rigorous definition of economies of scale takes into account the optimum
deployment of labor and capital. The mere fact of expanding some functions is
no guarantee that scale economies will result. HORIZONTAL AND VERTICAL INTEGRATION The potential for economies in both types of integration is well
known. These economies are related to capacity utilisation, transport costs
and so on. They are usually related to more efficient use of resources,
and do not really accord with the notion of 2+2=5. A company may have concealed excess capacity, in the sense that
its labor force could undertake additional tasks without significant
increases in wages or numbers employed, factory space may not be fully
utilised, and so on. This potential benefit resembles that of similar SBUs
making use of each other's spare capacity from time to time. It has already been discussed how joint production permeates the
modern multi-product company. Take the case of two sheep farmers, one of whom
produced only wool and the other produced only meat. If they were to merge
their operations there would obviously be scope for sheep producing both wool
and meat. There are likely to be many instances of much more subtle benefits
from joint production in modern companies. The mere fact of incorporating another area of activity may
spark off new ideas and approaches. While this is an undoubted possibility,
it is unlikely to be predictable. Even a rudimentary examination of the sources of synergy throws
up an important point: while synergy may exist it is unlikely to be
predictable. From the strategy viewpoint there is no basis on which to
conclude that a particular course of action would lead to a predictable
reduction in costs due to synergy. It is likely that synergy is the outcome
of complex interaction effects specific to individual companies, with the
contributing factors varying from case to case. Empirical
Evidence Because of the problems of defining and identifying synergy, it
is extremely difficult to generate data which can be used as the basis of
statistical analysis. An attempt has been made using the large scale PIMS
database, which contained questions relating to synergy potential in the
fields of sales, operations, investment and management4. The approach adopted
was to compare the ROI of companies which claimed synergistic potential with
the ROI of those which did not. The outcomes demonstrated that while the
overall return to synergy was positive, the pattern of returns was mixed. In
summary, it was found that: On average, synergy has a significant effect on ROI, but the
magnitude depends on both the specific generating components and the type of
business. Among the four components of synergy affecting ROI, the results
across all SBUs suggest that on the average sales synergy results in higher
ROI. Operating synergy has a mixed pattern; for example, purchases
from other SBUs depress ROI, and sales within the company have no effect on
ROI. Investment synergy depresses ROI. Management synergy increases ROI. None of the business types analysed benefit from synergy across
all four dimensions of synergy. This study suggests the impact of synergy varies substantially
with circumstances, and that synergy may have negative as well as positive
effects. Thus, despite its intuitive appeal, and despite the exhortations of
management texts to capitalise on synergy, it cannot be taken for granted
that potential synergy will have a positive impact on ROI. Perhaps this is
not surprising in view of the difficulty of identifying where synergy effects
are likely to be derived. A great deal more information requires to be
generated on this issue prior to formulating usable rules for managers. From
the strategy viewpoint, managers should confront claims that benefits will
accrue from synergy with questions about where the effects are likely to come
from, and what evidence exists that they will be significant in this
instance. Some of the issues involved in take-overs were discussed at 3.3,
together with the poor record on subsequent performance experienced by well
known companies. Perhaps one of the motivating factors for take-overs which
fail is the assumption that there will be benefits from synergy; having taken
a hard look at the reasons for synergy benefits, and the empirical evidence,
it seems that take-overs which are based only on the expectation of synergy
are unlikely to succeed. WEAKNESS: HIGH
TURNOVER The relatively high turnover rate means that the costs of hiring
are higher than they otherwise would be, and the labor force is on average
not as far up the learning
.............................................CURVE...........................................
as it would be if the labor force were more stable. In fact, it is partly
because of the full capacity operation that the turnover rate is so high. Core
Competencies of Firms A. What determines which firms produce what goods? 1. Trade theory tells us where goods are produced and why
production locations may change over time. It does not predict which firms do
the production. What would determine this? 2. Familiarity with the home environment gives home firms have
inherent advantages at producing products made in their own countries--laws,
customs, language, etc. This implies that home firms will tend to produce at
home. 3. However, some firms might have the expertise to minimize
these disadvantages. Moreover, they might be better at production than home
firms in certain countries. Therefore, these companies might be able to
produce in foreign countries which gives rise to multinational companies. 4. The multinational enterprise can minimize the disadvantages
inherent in engaging in business abroad, therefore it can do business
anywhere, easily respond changes in factor abundance, and adapt its
activities to the product life cycle. The Strategy
of the Firm 1. value creation: producing a product valued by customers.
Firms increase their profits by increasing value to customer through
customization, quality improvement or greater service. It also increases
profits by reducing costs. 2. the firm is a value chain: a firm may be thought of as
composed of a series of value creating or cost-reducing activities. What is
the value chain of an automobile producer? a. Perhaps, design, production, marketing and distribution,
after-sales servive. Production involves parts manufacture and procurement,
and assembly. Accounting, personnel management, and financing are supporting
activities. 3. firm strategy concerns identifying and taking actions that
will create value or reduce costs. 1. Core competencies are skills within the firm that competitors
cannot easily copy or imitate. 2. What is the source of a firm's core competence? Technology
and managerial know-how, reputation, or cost advantages based on experience
.............................................CURVE...........................................
effects: learning effects and economies of scale. (1) Learning effects: These are cost
savings that come from learning by doing. With practice, more efficient
practices are developed. This results in higher productivity and managerial
efficiency. Learning
effects will lead to lower costs regardless of volume……keep reading, 1 more
page…learning effects!!! (2) Economies of scale: Average costs are reduced by producing
at higher volumes. Often this results from spreading fixed costs over more
units. Average costs also fall when variable costs decrease with output
(due to, for example, bulk purchases.) Economies of scale at the plant level: may stem from fixed costs
of plant and equipment, plant management, etc. Economies of scale at the firm level: may stem from fixed costs
of marketing, research and development, accounting, finance, etc. Economies of scale at the national level: the presence of a well
developed "diamond" may lower the cost of industry production as
scale increases. When experience
.............................................CURVE...........................................
economies exist, so do first-mover advantages. A company that is first to
develop a new product will enjoy, at least temporarily, advantages over
rivals associated with experience
.............................................CURVE...........................................
economies. Firms with strong core competences are capable of global
expansion. Furthermore, global expansion enhances core competencies through: (1) realizing greater experience
.............................................CURVE...........................................
economies: economies of scale imply costs will fall when output is increased.
If economies of scale are at the plant level, however, then single-site
production may be optimal. (2) realizing location economies: The theory on the competitive
advantage of nations indicate the particular nations should specialize in
goods that intensively use their abundant factors of production. This implies
that certain goods should be produced in specific countries. Examples of leading MNEs and their core competence. (Toyota, Coca Cola, McDonalds) Alternative
strategies global strategy: Dispersing value creating activities in single
production sites around the globe to take advantage of experience
.............................................CURVE...........................................
and location economies. Multidomestic strategy: Establishing a complete set of value
creating activities in each market. Advantages of global
strategies (1) Firms can locate activities in locations that offer the
lowest costs for that activity. (2) Since specific activities are concentrated in single sites,
plant-level economies of scale may be realized. There is no unnecessary
replication of fixed costs and bulk orders may translate into lower costs. (3) Learning effects are maximized as managers can
concentrate on specific activities and develop new methods. This contrasts
with a multidomestic strategy where transferring ideas is difficult among
autonomous national subsidiaries. Drawbacks associated
with concentrating operations in single sites (1) trade barriers (2) transportation costs (especially for products with high
weight-to-value) (3) additional risks: more exchange rates to contend with as
well as political risks (4) distance between production and customer: difficult to
assess unique customer requirements (need for local responsiveness) between
value creating activities: Interactions between R&D centres, production
plants, and suppliers may be inefficient when activities are dispersed. These problems
may justify the use of a multidomestic strategy. Choosing the
best strategy 1. Obviously, the best strategy depends on the industry. A
global strategy is good when location and experience
.............................................CURVE...........................................
economies are available. A multidomestic strategy better serves markets
where local responsiveness is required. 2. Is it possible to create a strategy that achieves low costs
and local responsiveness? While some trade-off is inevitable, these
objectives can partly be achieved by dispersing activities where location and
experience
.............................................CURVE...........................................
activities are important while placing other activities in major markets.
Some firms put assembly facilities in major markets. This allows some
tailoring to local tastes while maintaining low-cost production. IMPLEMENTING
AND EVALUATING STRATEGY A major problem is to identify a benchmark to assess the
relative effectiveness of resource use. For example, it may be found that
unit cost has increased for two consecutive quarters, but the price of factor
inputs and raw materials has also increased. It is therefore necessary to
disentangle the effects of changing productivity and changing input prices,
but this can be difficult to do in practice. One possibility is to attempt to
estimate what is happening to competitors' costs and compare the company's
performance with theirs. One reason why competing prices may decline over
time is that competitors are becoming more efficient, and have moved up the
experience
.............................................CURVE...........................................,
and the general reduction in competitive costs is reflected in lower prices.
Therefore competing price could be used as a benchmark when assessing changes
in unit cost over time. For example, if unit cost increased by 6% one
quarter, and input prices had increased by about 7% generally, it could be
concluded that the company was continuing to increase productivity; however,
if the competing price increased by only 4%, there is a clear implication
that competitors have been able to accommodate the factor price increases
more effectively. A sudden increase in unit cost requires analysis of each
determining factor before any conclusions can be drawn. The Learning
Effect Empirical evidence suggests that a doubling of the number of
units produced by a worker results in approximately a 20% increase in
productivity. Consequently, unit cost would be expected to diminish quickly
at first, with the reduction tailing off as the impact of the learning effect
diminished. If unit cost does not fall significantly in the early stages of a
product's life there are at least two potential reasons: first, it is could
be because of poor labor management, for example, it may be that
indiscriminate hiring and firing has resulted in labor being added
continuously to the bottom of the learning .............................................CURVE...........................................;
second, the market for the product could be growing fast, with the result
that additional labor is continually being added to production. The full
impact of learning on unit cost can only be observed when demand for a
product has stabilised. Once it is judged that most of the impact of the
learning effect has worked through, unit cost should be substantially lower
than in the early stages of production. If this is not the case there is clearly
something far wrong. In order to assess the impact of learning on productivity it is
necessary to split the labor force into cohorts, i.e. the number of workers
with different amounts of experience. This might look something like the
following: The learning effect
--------------------------------------------- Number of
Workers Quarters of Expected
Experience Learning (%)
--------------------------------------------- 50 1 20 2 2 10 175 3 5 15 4 3 100 5 2
--------------------------------------------- While the calculation of the net impact of experience on
productivity can be complicated, the weighted effect on productivity of
moving up the learning
.............................................CURVE...........................................
can certainly be assessed; this can then be translated into an expected
reduction in unit cost. The learning effect is a component of the experience effect,
which includes issues such as lower wastage rates, marginal improvements in
production techniques and improved understanding of markets and consumers,
all of which play a role in reducing unit cost over time. One way of keeping a constant workforce is to work under time
when demand is low and overtime when demand is high. Since the
overtime rate is much higher than the standard rate, it is to be expected
that unit cost will be higher when overtime is worked. However, in the early
stages of a product life when demand is increasing it is possible to use
overtime working to keep only those workers with experience on the product.
Thus relatively large productivity increases can be balanced against overtime
payment rates in the short run. But in the longer run, when all learning
effects have worked through, overtime working will result in unit cost being
higher than it otherwise would have been. A potential cost associated with working a non-standard work
week is that both overtime and undertime working lead to increased
attrition rates; thus if overtime working is significant there will be a
self generating spiral, where the high overtime rate leads to high attrition,
in turn leading to the need to work even more overtime. Since there is an
upper limit to the work week, workers will eventually have to be hired to
replace attrition and they enter at the bottom of the learning .............................................CURVE...........................................,
thus reducing average productivity. The cumulative effect of attrition rates
makes it difficult to pursue a strategy of overtime working designed to
maximize the learning effect. One of the arguments advanced in favor of a "no
firing" policy is that employees become uncertain about their own future
when they see colleagues being fired. This can lead to an increase in the
attrition rate. Thus not only does it cost the company in redundancy payments
to fire a group of employees, the higher resulting attrition rate could
have a significant effect on average labor productivity. Turnover of Labor: Cost
Implications All companies are subject to turnover of the labor force due to
attrition. Some attrition is inevitable: for example, because of the age
structure of the labor force, a certain proportion will leave the labor force
each year; some employees can be expected to leave due to personal circumstances,
and this may be related to the age structure because there is a tendency for
young people to be more mobile. Some attrition is partially under the control
of the company, such as those employees leaving because of better pay and
conditions offered by other competing companies. The attrition which occurs
for reasons outside the control of the company leads to a "normal"
rate of turnover which the company does not need to be concerned with, since
it can do nothing about it; the problem is to identify what the normal rate
is, so that action can be taken if the actual turnover rate exceeds it.
Establishing the normal rate is a matter for the individual company, because
no two companies are identical in terms of the composition of their labor
forces. There are two types of cost arising from turnover: the direct
replacement hiring cost, and the indirect productivity costs. The direct cost arises from the process of search to replace
employees who have left. This includes advertising and interviewing,
both of which take up resources which could be used for other purposes; these
costs are not trivial, and it can cost about a quarter of a year's wages
simply to find a replacement. A further problem is that there is a time
lag between setting the process in motion to acquire workers and their
actually starting work. It takes time to advertise and interview applicants,
and if the worker is in another job, notice must be given to the current
employer. The net effect is that a worker who leaves today cannot be replaced
immediately. Thus if the labor force is to be stabilised, the attrition rate
must be predicted and replacements continually sought. There are a number of indirect costs associated with labor
turnover. The resources spent on training are lost if the worker leaves
to work for another employer. One of the problems faced by companies is the
cost of providing their workers with transferable skills: once the worker has
been trained it is worthwhile for another employer to offer a higher wage
which is less than the new employer would have paid in training that worker.
Thus the company incurs the initial training cost, and the benefits can be
subsequently shared between the trained worker and the new employer. On
balance, it may be more efficient to reduce the training budget and increase
service incentives to encourage employees to remain in the company. Another indirect cost is caused by the reduction in average
productivity which occurs when a new worker replaces an existing worker.
The new employee takes time to become familiar with the job and to make
progress up the learning
.............................................CURVE............................................
As a result, it is to be expected that a company with a relatively high labor
turnover rate will also have a relatively high unit cost. There is a substantial potential cost saving advantage with a
stable labor force, but it may not always be possible for a company to
maintain stability. Some companies claim that they have a "no firing"
policy, which is partly intended to minimize attrition caused by insecurity
of employment prospects. While it is feasible for a company to pursue a
"no firing" policy so long as the demand for its products is
constant or increasing, when there is a downturn in demand, and at the same
time some products reach the end of their life without any replacements on
the horizon, the company can very quickly change its view. Managers need to
be able to distinguish between short and long term changes in labor requirements. Although the demand for products varies, this does not mean that
production should always match demand; in some periods output can be produced
to inventory, thus achieving the benefits of learning
.............................................CURVE...........................................
effects and balancing the costs of inventory against lower unit cost. Thus
the planning of how to meet demand can have implications for turnover rates
and for productivity generally. If output is merely produced in reaction to
current demand there could be serious implications for relative unit cost and
hence for competitive advantage. Capacity
Utilization It is very unusual to find a company which is operating at
exactly 100% capacity utilisation. This arises for several reasons.
First, some productive assets are indivisible, for example, in order to
increase output by 10% it may be necessary to install machines with an
additional capacity of 30% because this is the smallest size of machine on
the market. Second, fixed assets must be acquired in the expectation of
future demand because of the lags involved in installing and starting up
production. Since the acquisition is carried out on the basis of predictions,
it follows that sometimes these predictions will be wrong, and too much or
too little capacity will be acquired. Third, the company can make an explicit
decision to install excess capacity to enable future increases in demand to
be met when there is uncertainty about when this might occur. While these are
all to some extent unavoidable reasons for the existence of excess capacity
at any one time, the fact remains that a continuing mismatch between
capacity and demand will lead to costs being higher than they otherwise would
have been, and the consequent whittling away of competitive advantage. Managers need to address various dimensions of capacity
utilisation. At the factory level, are factories being utilised fully, for
example, is one factory operating with only one assembly line? Is it worth
while running a factory at 10% capacity simply in order to produce a few more
units? At the labor level, some workers may be in the unused labor pool, and
the cost of this must be balanced against hiring and firing costs if the
internal demand for factors has been varying; alternatively, labor may be on
overtime with implications for overtime rates and attrition. Intuitively, it
would seem optimum to have full capacity utilization and a stable labor
force; if this is not the case it is important to assess why it is not, and
identify the costs and benefits involved. In its fullest sense capacity
utilisation is a dynamic concept, and attention should be paid to capacity
utilisation over the life of a product, and over significant periods for the
company as a whole, rather than to individual time periods. Inventory
Holdings No manufacturing company can operate with zero material
inventories; on the other hand, a company producing services does not hold
product inventories, since anything which is produced and not consumed
immediately is lost. Inventory holdings can impose significant costs on
the company, although they may not be obvious. In the first instance, it
is clearly important to gear materials inventories as closely as possible to
requirements. This is consistent with the "just in time" approach.
The cost of holding inventories is the storage cost plus interest foregone
(or the interest paid on additional debt which would not otherwise have been
incurred). The difficulty arises in attempting to define what is meant by
"as closely as possible". The question of optimal inventories has
an apparently simple answer in principle: hold sufficient inventories so that
the company can be confident of meeting current orders out of current
production and inventories combined. The optimality question then hinges on
the notion of "confidence". For example, a company which is risk
averse will attempt to hold higher inventory levels than one which is more
willing to take risks. Taking dynamic factors into account adds another perspective:
if demand is expected to grow relatively quickly in the future, the company
may consider it more efficient to produce for inventory so that the labor
force can be stabilized. Inventory holdings must be seen in the context of
the overall strategy of the company, and it can be misleading simply to trade
off the cost of holding inventory against the cost of meeting current demand
as and when it arises. There is a potentially high cost associated with
producing insufficient quantities to meet demand; the costs of not fulfilling
orders can be high because some unsatisfied customers will go to alternative
suppliers. Thus market share can be affected, with the attendant implications
for competitive advantage. Managers should not be lulled into thinking that sophisticated
inventory handling techniques will magically generate the correct answer on
how much inventory to hold. Inventories are as much a factor of production as
labor and capital, and have a role to play in strategic management.
Inefficient inventory control will, of course, have an adverse effect on
costs, but a short term cost minimizing approach to inventory control is not
necessarily the best approach. The net implication of the influences which affect optimum
inventory holdings is that their use as a performance measure is subject to a
great deal of interpretation. The production manager who attempts to
minimise inventories without considering the wider implications for the
company could wreak havoc with delivery schedules, market response and unit
cost. The Definition
of Competitive Advantage A major objective of strategy is to generate competitive
advantage in core products. How can competitive advantage be recognized? It
is hardly sufficient to wait until a product becomes a "Cash Cow"
and then conclude that competitive advantage has successfully been achieved;
the conditions for competitive advantage can be viewed as prerequisites for
advantage, and there is no guarantee that they will actually occur. If a
product which managers feel has all the characteristics of competitive
advantage does not turn out to be profitable, it could be because of a
weakness in one of the elements which go towards making up competitive
advantage. The following shows some of the main elements of competitive advantage
in a stable market:
--------------------------------------------------- COMPETITIVE
ADVANTAGE IN A STABLE MARKET
--------------------------------------------------- Characteristic Advantage High Market
Share Relatively Low Cost No New
Customers Barriers to Entry Contracts Exist Low Selling Costs Fixed Plant
Capacity Full Utilization Stable Labor
Force Top of Experience
.............................................CURVE...........................................
--------------------------------------------------- If capacity is not fully utilised it may be because of
indivisibilities or poor resource management. Finally, a stable labor force
has the potential to progress up the learning
.............................................CURVE...........................................;
this potential will not exist if turnover rates are high. CARROLL, G (1993), A sociological view on why firms differ, Strategic Management
Journal, 14, 237-49 Much of the theory and research that seeks
to explain why firms differ actually addresses the question of why successful
firms differ. The question of why firms differ must ignore the question of
success and deal with the complete heterogeneity of all firms in existence. Scholars from various social science
disciplines have identified and documented relevant sources of firm
heterogeneity, including: dispositional - the importance of
individual personalities; situational - the importance of
circumstances in encouraging entrepreneurship; spin-offs - the potential of existing
firms to beget new firms; internal change - the transformation of
organizational structure in existing firms; environmental sources - diversity of
resources on which firms depend (technological change, political change,
ethnic change); and organizational blueprints - the original
basis of organizational design structure. There are a number of theories and models
which seek to explain strategic success. Most indicate that efficiency is the
dominating equilibrium criterion, although the models vary widely in their
assessment of this term: Porter’s (1980) economic model, which
implies that a firm’s market positioning is the key to success; Contingency Theory, which specifies that
size, technology and environment are the determinants of efficient
organizational structure; Resource Dependence Models, which stress
the ability of firms to reduce environmental uncertainty in explaining firm
differences; Process Models, which highlight the
important link between strategy and organizational structure and process; Dispositional Models, which focus on the
personal characteristics of the CEO; Transaction Cost Economics, which hold
that efficiency is dependent on cost minimization; Organizational Ecology, which stresses
the survival motive of firms as being a differentiating factor; and Institutional Theory, which proposes
that normative (rather than efficiency-based) models drive organizations. Most of these theories are
adaptation-based, while others, such as organizational ecology, are
selection-based. Strategic management is concerned with both approaches and,
as such, should not only be concerned with the likely success of particular
actions once implemented, but also with the risks entailed in undertaking the
actions in the first place. DAY, G & MONTGOMERY, D (1983), Diagnosing the experience
.............................................CURVE...........................................,
Journal of Marketing, 47, Spring, 44-58. While considerable disenchantment has
surrounded early applications of the experience
.............................................CURVE...........................................,
EC strategy remains a useful organising framework when scale, technology and
learning effects are key forces in the environment. It is also clear that
measurement and interpretation problems have to be overcome before the
.............................................CURVE...........................................
can be productively applied. The notion behind the experience
.............................................CURVE...........................................
is that value-added costs, net of inflation, decline systematically with
increases in cumulative volume (as opposed to calendar time). Progressive
reseach has shown that there are various types of experience
.............................................CURVE...........................................s,
as some products have greater scope for improvement than others; and
that there are different sources of observed experience effects, the three
major ones being: learning
by doing, technological advances, and scale effects. Learning encompasses the increasing
efficiency of labor via improved methods and work specialisation.
Technological improvements, in the form of new products and processes or
changes in the resource mix, can also produce substantial economies and/or
yield improvements. Economies of scale, resulting from increased efficiency
due to size, are another source of EC effects, especially with respect to
investment and operating costs. Increasing scale also creates the potential
for volume discounts, vertical integration and the division of labor. Normally, it is difficult to separate the
contributions of scale, learning and technology, partly because the learning process usually coincides with the expansion of
scale. However, various studies have shown that, while scale plays an obvious
role in the experience effect, it is not nearly as important as technology
and learning. One study of the US chemical industry, for example, revealed
that only 10-15% of the efficiency gains were due to scale effects, while
32-75% were ascribed to learning. Despite its difficulty, decomposing the
experience
.............................................CURVE...........................................
in this way is critical to informed strategic application. This is because: cumulative
experience does not guarantee automatic cost reductions, but simply presents
management with an opportunity to exploit; and, where cost reductions are
primarily being driven by scale economies, then cumulative experience may be
unimportant to the relative cost position. A variety of experience .............................................CURVE...........................................s
can exist within a specific market, depending on whether one is concerned
with: costs or prices, total costs or elements of cost, the effect of
industry or company accumulated experience, or dynamic or static
comparisons. Three combinations of these variables are
particularly interesting because they lead to experience
.............................................CURVE...........................................s
which are interdependent but have very different strategic implications. These are the company cost compression
CURVE............which is derived from internal cost and production records; the competitive cost comparison ....CURVE................, which relates
the relative cost positions of the competitors in an industry; and the industry price experience
.......CURVE..........................................., which relates the
industry average price to industry cumulative experience. The insights gained from these three types
of ....CURVE...........................................s depend on numerous
judgments with regard to the treatment of costs, inflation, shared
experience, and the definition of the units of analysis. These judgments can
significantly limit the strategic relevance of EC analysis. Building strategy on the experience CURVE
Harvard Business Review, 63, March-April,
143-49. While many managers see the experience
.............................................CURVE...........................................
as out of date, experience
.............................................CURVE...........................................
strategies can improve competitive performance in some situations. However,
successful use of the .............................................CURVE...........................................
requires an understanding of how it works and when to apply it. Use of the experience
.............................................CURVE...........................................
concept began over thirty years ago to describe the mathematical relation
between the cumulated output of a product and its costs. Studies have shown
that production costs usually decline by 10%-30% with each doubling of
cumulated output. This has led to the view that the way for a firm to attain
cost advantage is to cut price in order to buy share. The increased share of
current output is then supposed to propel the aggressive firm’s costs down
the experience .............................................CURVE...........................................
more rapidly than its rivals’, thus improving its relative position. History has shown, however, that such a
strategy can be a recipe for failure, because the experience
.............................................CURVE...........................................
is rather more complex than the simplistic market share prescriptions often
attributed to it. Experience
.............................................CURVE...........................................
slopes, for example, vary widely from product to product, and may be as steep
as 60%, or may not occur at all. This is because: a) cost reductions rarely
occur automatically - they must be earned, and b) some products and processes
have greater potential for improvement over time than others. Experience
.............................................CURVE...........................................
strategies usually gain greatest leverage early in a product’s life cycle
when cumulated output doubles very rapidly. A major danger in this stage,
however, is that a company wanting to get a head start can invest in the
wrong technology. In mature or declining industries, EC strategies are
usually less effective because cumulated output doubles so slowly and nearly
all experience-related cost reductions have already been attained. Most experience
.............................................CURVE...........................................
applications confuse three cost reduction sources which are not easy to
separate: exogenous progress, economies of scale, and basic improvements
learned from cumulated output, all of which have different implications for
strategy. Where exogenous progress is the primary source of cost reduction,
for example, it is imperative for a firm to maximise bargaining power with
its suppliers and buyers. Alternatively, if scale economies drive costs, then
the aggressive pursuit of market share is required to sustain competitive
advantage. The most sustainable route to cost advantage,
however, rests with improvements learned from cumulative output. The big difficulty with cost reductions is
that companies cannot always keep them secret from competitors. Such leakages
can seriously reduce the strategic advantage associated with aggressive
output expansion because followers can simply imitate and attain cost
proximity without having to make comparable investments. Another drawback of vigorously pursuing
the experience .............................................CURVE...........................................
is that it usually requires large investments in automation or penetration
pricing in the hope of future profits. Unexpected surges in demand can also cause
disruption to experience .............................................CURVE...........................................
strategy because production systems cannot handle them efficiently, thus
raising costs and reducing labor productivity substantially. Careful analysis of the competitive arena
is also necessary to expose the potential traps in applying EC strategies.
Here, industry structure, the relative position of key competitors, and the
impact of government, especially with regard to its competition policy and
the cost of capital, are the key variables to consider. Unlike BCG experience
.............................................CURVE...........................................
theory which says that learning occurs as a function of cumulative production
volume, quality improvement theory says that, properly managed, learning
occurs as a function of time, where the time required for each cycle of
improvement is largely a function of the complexity and bureaucracy of the
organization. It follows that open and objective communication between people
and between organizations is essential for learning and quality improvement.
Teamwork should be encouraged as an effective way to introduce
..................KNOWLEDGE....................... and
modify behavior; and information systems must reflect common goals and performance
measures for all managers, to encourage cooperation rather than conflict and
competition within organizations. ..................KNOWLEDGE.......................
about how organizations learn is still relatively primitive, highlighting the
need for collaborative research between business schools and industry to
promote innovation and competitiveness. In fact, it is suggested that the
rate at which individuals and organisations learn may become the only
sustainable competitive advantage, especially in ..................KNOWLEDGE.......................-intensive
industries. The challenge, then, is to discover new management tools and
methods to accelerate organizational learning, build consensus for change,
and facilitate the change process. Another factor which is often cited as
contributing to the end of the product life is that of competitive pressures.
It is a fact of life that as time progresses, more companies are likely to
enter a market, while companies already in the market tend to become more efficient
as they gain the advantage of the experience
.............................................CURVE............................................
But this argument stems from the confusion between the product life cycle as
defined here, and the behaviour of an individual company's sales. Increased
competitive pressure does not affect the total size of the market. While the
company may be faced with declining sales and profits as a result of
increased competition, this can be independent of the size of the market. The second factor is the impact of experience on costs. A company with the highest market share to
date must have a higher cumulative output to date than its competitors, and
hence its labor force has the potential to be higher up the learning
.............................................CURVE...........................................,
resulting in lower per unit labor costs. As a company produces additional
units of output, other factors also contribute to continuing cost reductions;
these include fewer rejects and better designed production lines. The
combination of the effect of the learning
.............................................CURVE...........................................
and these influences results in what is known as the experience
.............................................CURVE...........................................;
research suggests that each doubling of output leads to a 20% reduction in
unit cost because of experience effects. Thus having a high market share confers
two types of cost advantage on the company: economies of scale and experience
effects. The combination of the two is a potentially important determinant of
relative production costs. Expanding the basic model to include unit
cost gives the following: Revenue = Total Market * Market Share *
Price Outlay = Number of Workers * Wage Rate +
Units of Capital * Price +
Units of Material * Price
Unit Cost = Outlay/(Total Market * Market Share) The potential advantage conferred by a
higher market share is that unit cost will be lower than that of competitors. From the analysis of product life cycles
it is known that the product is in one of the stages of growth, maturity or
decline. The stage of the product life cycle is of central importance to
strategy, because both revenue and costs are significantly affected by what
is happening to the total market. Cash Cow This is the product which is achieving
economies of scale, is further up the experience .............................................CURVE...........................................
than competitors, and is faced with relatively costless competition. From
time to time the company may have to take action to ward off competition
against a Cash Cow but, by and large, this is the product which makes the
company money. The BCG model is an example of how market
information can be used to develop strategy. Coupled with a view on the
product life cycle, the portfolio model provides indicators of the
appropriate course of action to follow with individual products. 5.12 Qualitative and Quantitative Information The fact that information is qualitative
does not mean that it cannot be used in an analytical fashion. Typically,
qualitative information will indicate whether something is likely to
increase, decrease, or remain unchanged; knowing about the direction of
change can be extremely valuable on its own, independent of the expected
dimension of change. Social analysis can be used in assessing the direction
of possible movements in the demand
.............................................CURVE...........................................
for existing products; opportunities may lie in the anticipation of new
trends, while threats may be identified in factors such as changing fashions. A great deal of economic analysis is based
on qualitative rather than quantitative information. Changes in factors are
identified in general terms, and their likely implications are derived from
the application of economic concepts, without being concerned with the
precise dimensions of the outcomes. It is always possible to refine analyses
with additional data, but the first step is to ensure that appropriate ideas
and concepts have been applied, and the general pattern of likely outcomes
identified. Second Sourcing and the Experience
.............................................CURVE...........................................:
Price Competition in Defense Procurement ------------------------------------------------------------------------ Volume: Volume 18, No. 1 Issue: Spring 1987 Pages: pp. 57-76 Authors: James J. Anton and Dennis A. Yao Title: Second Sourcing and the Experience
.............................................CURVE...........................................:
Price Competition in Defense Procurement Abstract: We examine a dynamic model of
price competition in defense procurement that incorporates the experience
.............................................CURVE...........................................,
asymmetric cost information, and the availability of a higher cost
alternative system. We model acquisition as a two-stage process in which
initial production is governed by a contract between the government and the
developer. Competition is then introduced by an auction in which a second
source bids against the developer for remaining production. We characterize
the class of production contracts that are cost minimizing for the government
and that induce the developer to reveal private cost information. When high
costs are revealed, these contracts result in a credible cutoff of new system
production in favor of the still higher cost alternative system. ------------------------------------------------------------------------ •Search Abstracts •Order Back Issues
•Order Individual Articles •RAND Journal of Economics WWW Page ------------------------------------------------------------------------ RJE@rand.org Second Sourcing and the Experience
.............................................CURVE...........................................:
Price Competition in Defense Procurement ------------------------------------------------------------------------ Volume: Volume 18, No. 1 Issue: Spring 1987 Pages: pp. 57-76 Authors: James J. Anton and Dennis A. Yao Title: Second Sourcing and the Experience
.............................................CURVE...........................................:
Price Competition in Defense Procurement Abstract: We examine a dynamic model of
price competition in defense procurement that incorporates the experience
.............................................CURVE...........................................,
asymmetric cost information, and the availability of a higher cost
alternative system. We model acquisition as a two-stage process in which
initial production is governed by a contract between the government and the
developer. Competition is then introduced by an auction in which a second
source bids against the developer for remaining production. We characterize
the class of production contracts that are cost minimizing for the government
and that induce the developer to reveal private cost information. When high
costs are revealed, these contracts result in a credible cutoff of new system
production in favor of the still higher cost alternative system. ------------------------------------------------------------------------ •Search Abstracts •Order Back Issues
•Order Individual Articles •RAND Journal of Economics WWW Page ------------------------------------------------------------------------ RJE@rand.org The Learning .............................................CURVE...........................................
in a Competitive Industry ------------------------------------------------------------------------ Volume: Volume 28, No. 2 Issue: Summer 1997 Pages: pp. Authors:
Emmanuel Petrakis, Eric Rasmusen, Santanu Roy Title: The Learning
.............................................CURVE...........................................
in a Competitive Industry Abstract: We consider the learning
.............................................CURVE...........................................
in an industry with free entry and exit and price-taking firms. A unique
equilibrium exists if the fixed cost is positive. Although equilibrium
profits are zero, mature firms earn rents on their learning, and if costs are
convex, no firm can profitably enter after the date the industry begins.
Under some cost and demand conditions, however, firms may have to exit the
market despite their experience gained earlier. Furthermore, identical firms
facing the same prices may produce different quantities. The market outcome
is always socially efficient, even if it dictates that firms exit after
learning. Finally, actual and optimal industry concentration does not always
increase in the intensity of learning. ------------------------------------------------------------------------ •Search Abstracts •Order Back Issues
•Order Individual Articles •RAND Journal of Economics WWW Page ------------------------------------------------------------------------ RJE@rand.org The Learning .............................................CURVE...........................................
and Pricing in the Chemical Processing Industries ------------------------------------------------------------------------ Volume: Volume 15, No. 2 Issue: Summer 1984 Pages: pp. 213-228 Authors: Marvin B. Lieberman Title: The Learning
.............................................CURVE...........................................
and Pricing in the Chemical Processing Industries Abstract: Data on 37 chemical products are
used to test a number of hypotheses about the learning
.............................................CURVE...........................................
and industrial price behavior. The results document a strong and consistent
learning effect. Learning is found to be a function of cumulated industry
output and cumulated investment rather than calendar time. Standard economies
of scale appear significant but small in magnitude relative to the learning
effect. Variations in the slope of the learning
.............................................CURVE...........................................
are linked to differences in R&D expenditures and capital intensity. Market
concentration is found to be a strong influence on price flexibility and the
timing of learning-related price changes. The Learning
.............................................CURVE...........................................
and Competition ------------------------------------------------------------------------ Volume: Volume 12, No. 1 Issue: Spring 1981 Pages: pp. 49-70 Authors: A. M. Spence Title: The Learning
.............................................CURVE...........................................
and Competition Abstract: This article develops a model of competitive
interaction and industry evolution in the presence of a learning
.............................................CURVE............................................
The learning
.............................................CURVE...........................................
is a function relating the unit costs of the individual firm to accumulated
volume. The responses of the model to shifts in parameters are explored
through calculated examples. The paper also used a two-period model to
explore differences between open and closed-loop equilibria, and to assess
the impact of learning spillover effects from one firm to the next. The Learning .............................................CURVE...........................................
in a Competitive Industry Title: The Learning
.............................................CURVE...........................................
in a Competitive Industry Abstract: We consider the learning
.............................................CURVE...........................................
in an industry with free entry and exit and price-taking firms. A unique
equilibrium exists if the fixed cost is positive. Although equilibrium
profits are zero, mature firms earn rents on their learning, and if costs are
convex, no firm can profitably enter after the date the industry begins.
Under some cost and demand conditions, however, firms may have to exit the
market despite their experience gained earlier. Furthermore, identical firms
facing the same prices may produce different quantities. The market outcome
is always socially efficient, even if it dictates that firms exit after
learning. Finally, actual and optimal industry concentration does not always
increase in the intensity of learning. The Learning
.............................................CURVE...........................................
and Optimal Production under Uncertainty ------------------------------------------------------------------------ Volume: Volume 20, No. 3 Issue: Autumn 1989 Pages: pp. 331-343 Authors: Saman Majd and Robert S. Pindyck Title: The Learning
.............................................CURVE...........................................
and Optimal Production under Uncertainty Abstract: This article examines the implications of the learning
.............................................CURVE...........................................
in a world of uncertainty. We consider a competitive firm whose costs decline
with cumulative output. Because the price of the firm's output evolves
stochastically, future production and cumulative output are unknown and are
contingent on future prices and costs. We derive an optimal decision rule
that maximizes the firm's market value: produce when the price exceeds a
critical level, which is a declining function of cumulative output. We show
how the shadow value of cumulative production, the total value of the firm,
and the decision to produce depend on the volatility of the price and other
parameters. Uncertainty increases the critical price required for the firm to
produce, but also increases the value of the firm. Thus, during periods of
high volatility, firms facing a learning
.............................................CURVE...........................................
ought to be producing less, but are worth more. MFG.Learning .............................................CURVE............................................ I'd expect this data to take a negative log form, since the
problem effectively describes the manufacturing learning
.............................................CURVE............................................
However, I defined several functional forms as candidates: F={+, --, *, SIN,
COS, EXP, LOG}. My measure of fitness is the average error between the
predicted times and the actual times. For each form, I designed (like Koza,
using Lisp) a set of four equations for which I substituted one or more of
these transformations. For example, one of those generated was the simple
linear-regression form (+ A (* B X)). (A and B are the y-intercept and slope,
respectively, calculated as a part of each form.) The result after each
generation was 24 different functional forms. I threw out the 12 worst and combined
aspects of the most-successful 12 in different ways. My best effort, after
three generations, was (+ A (* COS (B) (LOG (* X (-- 0 1))))), which is
reasonably close to the negative log answer I'd expect. The genetic programming approach may be one of the best proposed
so far for the slippery concept of machine learning. The computer produces a
range of possible outputs, examines the algorithms that produced those
outputs, keeps the best ones for another trial, and produces more through the
genetic-recombination process. The system is clearly learning to produce a
reasonable output. Upon reflection, genetic programming seems comparable to
supervised-learning neural-network techniques. What's the difference between
genetic programming and this class of neural networks? Both have the
capability of learning, both deal well with nonlinear systems, and both can
be viewed as a black box. At one level, the two concepts are clearly related.
Through successive trials, each attempts to converge upon an acceptable
solution. There are also analogies to fitness, in that possible solutions are
discarded if they do not conform well to the expected output. What is different is the learning algorithm. A neural network
adjusts coefficient values as the error is propagated back through the
network. It has no "memory" and can return to previous states
based on succeeding inputs. The genetic algorithm, on the other hand, tries
to improve the overall population fitness in each succeeding generation. Koza
gives an example of a genetic technique to choose the appropriate
neural-network structure to solve a problem. For anyone who has ever
attempted to build a neural net before, this is an attractive alternative to
the usual trial-and-error approach. Lisp is Koza's language of choice for
experimentation in genetic programming. There are advantages to using Lisp,
not the least of which are the easy manipulation of symbols and the ability
to rapidly prototype different genetic structures. Genetic programming won't replace traditional, procedural
programming anytime soon. Most of the programming problems we deal with have
exact and readily available solutions. Genetic programming is similar to the
expert-system paradigm in that it seeks acceptable, though not necessarily
the best, solutions to problems that aren't precisely defined or are
nonlinear in nature. Nonetheless, Genetic Programming is well worth the space on your
bookshelf. More and more problems we deal with have these characteristics,
and, though still in its conceptual infancy, genetic programming is a
potentially powerful approach. Koza's treatment is so comprehensive that,
while this may not be the last word on genetic programming, it may be the
only word you'll need. ------------------------------------------------------------------------ Genetic Programming John R. Koza MIT Press, 1992, 819 pp, $55.00 ISBN 0-262-11170-5 ------------------------------------------------------------------------ WEB Links below to data presented and
more !!! Michael Trick's Operations Research Page Michael Trick's Operations Research Page. Associate Professor of
Industrial Administration, Graduate School of Industrial Administration,
Carnegie Mellon.. Stanford University - Operations Research For department information, please visit the. Department of
Engineering-Economic Systems and Operations Research. This server provides:
Simulation Network. DUT-TWI Statistics, Probability Theory and Operations Research Statistics, Probability Theory and Operations Research. Delft,
University of Technology Faculty of Technical Mathematics and Informatics.
Research... The Cornell University School of Operations Research and
Industrial Engineerin 206 Rhodes Hall/ Cornell University/ Ithaca, NY 14853/ (607)
255-4856. The Cornell Operations Research and Industrial Engineering web site
has been moved.. The Cornell University School of Operations Research and
Industrial Engineerin 206 Rhodes Hall/ Cornell University/ Ithaca, NY 14853/ (607)
255-4856 / (607) 255-9129 (fax) Welcome to the Cornell Operations Research
and Industrial... Operations Research Discussion List: Other References on
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date ][ thread. http://mat.gsia.cmu.edu/ORCS/0028.html ------------------------------------------------------------------------ Searching for "experience
.............................................CURVE..........................................."
found 15 pages. ------------------------------------------------------------------------ •[100%] APICS-TPA - August 1996 - Education Notebook 5.6K Jul
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retailer, roaster and brand of specialty coffee in North America. According
to Starbucks management, the company has experienced more than 60 percent
sales growth for eight consecutive years including retail store growth from
11 stores in 1987 to more than 850 retail locations today. With plans for
more than 2,000 stores by the year 2000, Starbucks has elevated drinking
coffee from a mundane exercise to a social experience. The strategic objective of Starbucks Coffee Co. is to be the
most recognized and respected brand of coffee in the world. To achieve this objective requires commitments to invest in systems, people
and talent ahead of the growth .............................................CURVE............................................
APICS is an important resource that enables Starbucks to
turn objectives into reality….read on!!!!! Growth is part of the everyday work life at Starbucks. The
company currently serves more than 4 million customers in its retail stores
every week and has opened more than 300 new stores a year over the past two
years. Starbucks knows that its internal partners (employees) are the
cornerstone of the company's success, and the company supports APICS as a
significant source for manufacturing and distribution education. (Starbucks
refers to its employees as "partners" because company stock is
included as part of Starbucks' compensation package.) Every member of the Starbucks production and material planning
team is required to obtain APICS certification. Starbucks also has partnered
with Carol Ptak, CFPIM, CIRM, of the consulting firm of Eagle Enterprises to
develop an eight-hour, in-house training course in supply chain management
based on APICS concepts. More than 400 Starbucks partners in supply chain
operations, support functions and business units will participate in this training. The core education encompasses the APICS body of
..................KNOWLEDGE....................... -- certification programs,
workshops, local chapter meetings, information from APICS-The Performance
Advantage and the APICS international conferences. All of which are important
learning tools for Starbucks' implementation success. Vertical and horizontal integration ensures compliance with
Starbucks' quality standards. Starbucks is vertically integrated via the
control of coffee sourcing, roasting and packaging and distribution through
company-owned retail stores. The company uses distribution requirements
planning and materials requirements planning to determine its long-term green
coffee-buying requirements and positioning of green coffee beans for roasting
and packaging at its manufacturing facilities on the East and West coasts. Inventory management of an agricultural product affected by
weather, as well as political, economic and commodity market conditions,
requires expertise in investment trade-offs. Capacity requirements planning
assists Starbucks with equipment utilization and new equipment acquisitions.
This is very important in a high-growth environment with long equipment lead
times. Constrained production planning and finite scheduling will help smooth
production demand and optimize resources. Apart from the retail locations, Starbucks sells its coffee
products through licensed airport stores, a national mail-order business and
its specialty sales group, which serves fine dining, food services, travel
and hotel accounts. The challenges of multiple channels of distribution for
similar products require timely and accurate reporting of inventory,
allocation capabilities, and dynamic safety stock. Joint ventures provide the opportunity to leverage the company's
brand into innovative products. Recent joint ventures include one with
Dreyer's Grand Ice Cream and one with Pepsi-Cola. These joint ventures create different supply chain
opportunities. Instead of independent demand for finished goods whole-bean
coffee and coffee beverages, Starbucks is faced with exploding a sales
forecast through a dependent component demand for its proprietary coffee
extract and other coffee particulates. The sourcing network for these
products can include as many as nine levels from grower to consumer. Starbucks' supply chain partners are challenged daily by the
numerous exciting business opportunities with the company. Starbucks
envisions its role as a provider of the best tools to support the success of
its partners, enhance shareholder value and continue to build on innovative
ways to share the Starbucks experience with its customers. On a personal
note, I firmly believe APICS education, baseline
..................KNOWLEDGE....................... for systems implementation,
common terminology and provisions to "think out of the box" are
critical to Starbucks' success. Reward
.............................................CURVE........................................... What's in it for me? That's the cry often heard when change
presents itself. It is important that the reward system be motivational. So
often we find that the biggest gripe among workers is that those who really
do work hard and hustle throughout the day get paid similar wages to those
who strive to do as little as possible. Across-the-board pay increases and
shallow reward
.............................................CURVE...........................................s
do not reward those who make the greatest contribution nor motivate others to
improve. The fix is simple. The final score associated with a pay
increase is best calculated as a weighted average of the total peer and
supervisory score. Bend the reward
.............................................CURVE...........................................
upward, so that those who score highest receive a significantly higher
reward, and those who score lowest receive a significantly lower reward (See
Figure 1). <Picture>Figure 1 It's a redistribution of the reward money to the high
performers. You'll find that your work force will approve of this strategy
and there is no incremental cost to the company. Payroll
pools can be effectively managed by knowing the bell-shaped .............................................CURVE...........................................
of scores and adjusting the reward
.............................................CURVE...........................................
to meet budget. The experience of ABB The Power T&D Division of ABB, located in Allentown, Pa.,
produces a broad product line of "black boxes" as components of
power generation systems. The production process includes the assembly and
test of PC boards and the final product. The market is highly competitive,
and the need to deliver product of high quality at competitive price on time
is ever present. When first presented with the peer appraisal concept, human
resource manager Larry Volkel was deeply concerned about the potential
problems. "At first it scared the heck out of me. I lost a lot of sleep,
but came to realize that this makes sense. The light came on, and I began to
see that this is what I needed to help run the business. "Some need a crisis before they are willing to consider
real change. But I didn't want to wait. I knew that the old system had
serious flaws, but it still did allow me the control I felt comfortable with.
But this new approach reinforced teams. Which is what we need to stay ahead
of the competition," Volkel said. "I quickly began to see that this new system would demand a
high level of skill from our leaders and facilitators, and that it would
change my role, human resources," he explained. "We've got to roll
up the sleeves, get up from behind the desk and get out there with the people
on the floor and in the team meetings. And you might find out that you're
going to learn a lot about the business. It's a humbling process." The design and implementation of the Frontline Peer Appraisal
System at ABB was conducted with full participation from the work force,
which reduced risk and built ownership. An improvement project team's first
task was to develop the performance standards. This effort alone had
significant impact in that it required the participants to define the values
and behavioral standards for the company. Everyone in the company had an
opportunity to review the standards and provide feedback. A full benchmark
peer evaluation of all company members was then conducted with no impact on
compensation. The results were as expected: the distribution of grades
showing a bell-shaped .............................................CURVE............................................ Q. Can S&OP work in a smaller company? A. At Moog, some of the smaller divisions have annual sales of
around $10 million, while others are much larger. S&OP is equally
effective in these smaller businesses. Q. How long does it take to implement S&OP? A. It's taken most companies between six months to a year to get
really proficient at it. As with any new process, there's a learning
.............................................CURVE...........................................
involved, and with S&OP, that
.............................................CURVE...........................................
is lengthened because the cycle is monthly; incremental expertise is gained
only once per month. The good news is that benefits start to come within several
months after getting started. Early on, people are able to identify and
correct problems that wouldn't have been visible until much later. Further, S&OP is relatively inexpensive to implement. It
doesn't cost a lot and relatively few people are involved. The important
issue is this: Is top management prepared to adopt a new business process?
Are they willing to run the business using a more effective tool? When operators are given an opportunity to become familiar with
a system before it is installed, the learning
.............................................CURVE...........................................
with the real system is significantly reduced, and product quality increases
because the rate of error decreases. Simulation is generally more
cost-effective than classroom lecture training because it allows operators to
work with something that is more similar to a real system, leading to a
higher level of information comprehension and retention. Simulation also has
the benefit of providing a safe training environment, because operators can
make mistakes and see the effects without the risk of damaging a real system,
schedule or work area. They can explore many possibilities quickly without
the expense of trying them out. In determining an optimal sequence of
activities, operators can see why a particular sequence is better than any
other and learn what not to do. Some simulation models are interactive. Operators are provided
with a virtual image of a factory or control system, are allowed to make
decisions and then view the effects in a real-time display model. They can
also make decisions and immediately determine the effect these decisions will
have on the future by running ahead in simulation time and analyzing the
model output. Operations Once a system has been installed, accepted and is meeting a
customer's performance goals, everyday operational issues become important.
The purpose of integrating simulation models with real operations is to
increase the accuracy of decision-making. Since the detailed decision and
scheduling algorithms of the simulation model are already constructed, taking
advantage of this technology only requires integrating the model with the system
controls. Operational models are useful in several ways: •Integration provides the capability of simulating forward in
time from the real-time status of the operation to forecast system
performance. The real-time status provides a current image of the factory,
i.e., machine status, part status, and operator availability. Scheduling
algorithms can be evaluated with discrete event simulation before the
schedules are incorporated into the operation. •Integration helps determine
the most effective response to unforeseen events such as machine failure and,
at the very least, provides an understanding of the impact that an unplanned
event will have on the system. •Integration provides a real-time display in
conjunction with a shop floor control system to animate the actual status of
the system. This can be particularly valuable in large operations, where
there is no one vantage point to view the operation. Application-specific experimentation The industry is seeing a trend toward the development and use of
more application-specific models. These run-time models or templates are
constructed in general-purpose simulation languages and are geared toward
individual applications to test the future requirements of a system. There
are two types of simulation application software packages: simulators and
simulation languages. Simulators are typically easy to use, but due to
reduced flexibility, generally fall short on accuracy. In most cases, models
developed using simulators are less accurate because not all systems fit
exactly into a simulator model, and simulators usually have little
flexibility for modification. Simulators usually do not require that
developers are experienced in using simulation. Simulation languages, on the
other hand, provide greater power and flexibility. The advantage is that
systems can be remodeled with a high degree of accuracy. Simulation languages
typically require that developers are experienced. The run-time version model is constructed on top of a simulation
language by an experienced user. It is created (as a simulator model) of some
specific application. Data files and input spreadsheets are used to provide
data and factor input for the model. The data input and output are in terms
of the actual system, limiting the simulation experience required of the
user. The run-time model is used for testing the future requirements of a
system. They are developed for specific types of experimentation and provide
answers to specific operational or capacity analysis, such as which machines
should be run, how to respond to machine failure or which delivery dates can
be met. Another tool in the toolbox As manufacturing and material handling systems become
increasingly complex and the market becomes more demanding, there is a
greater need for improvement in manufacturing sales, capacity management,
controls development, scheduling and product throughput. Simulation software
packages are providing more flexibility, are becoming more user-friendly, and
are faster and more powerful than ever before. Advances in simulation
technology are making it possible to use simulation in new ways to improve
both communication and operations. The use of simulation is expanding as
companies realize the benefits of using it throughout all aspects of
business. As simulation technology expands to become a data-transfer tool,
the benefits are astounding. ------------------------------------------------------------------------ Searching for "global learning"
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Number 7 APICS Now And In The Information Age By Jeffry Raynes, CAE Executive
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Resource Management In his book,... http://lionhrtpub.com/apics/apics-7-96/guested.html THE CORE COMPETENCE OF THE
CORPORATION Prahalad & Hamel, HBR, 1990 "In the short run, a company’s competitiveness derives from
the price/performance attributes of current products…In the long run,
competitiveness derives from an ability to consolidate corporatewide
technologies and production skills into competencies that empower individual
businesses to adapt quickly to changing opportunities." Identifying the Core Competence of a Company: (1) It should provide potential access to a wide variety of
markets. (2) It should make a significant contribution to the perceived
customer benefits of the end product. (3) It should be difficult for competitors to imitate. From core Competencies to Core Products (1) The tangible link between identified core competencies and
end products is what we call the core products - the physical embodiments of
one or more core competencies. (2) Core products are the components or subassemblies that
actually contribute to the value of end products. (3) To sustain leadership in their chosen core competence areas,
companies seek to maximize their world manufacturing share in core products. (4) A dominant position in core products allows a company to
shape the evolution of applications and end markets. A few companies have proven themselves adept at inventing new
markets, quickly entering new markets, and dramatically shifting consumer
behavior in markets. These are the ones to emulate. "Everything which is properly business we must keep
carefully separate from life. Business requires earnestness and method; life
must have a freer handling" Goethe (1809) Elective Affinities, 4. STRATEGY AND COMPETITIVE ADVANTAGE Winning Business Strategies are grounded in sustainable
Competitive Advantage. * Core Competencies * Competitive Advantage Competitive Advantage: A company has competitive advantage whenever it has an edge over
rivals in securing customers and defending against competitive forces. Sources of Competitive Advantage: (1) Highest Quality Product (2) Superior Customer Service (3) Achieving Lower Costs than Rivals (4) More Convenient Geographic Location (5) Better Performing Product (6) Better Value Product (Quality, Service, Price) The research carried out on this issue reveals that the effect
of experience varies among companies and industries; it is to be expected
that the evidence on experience will be mixed because of factors such as
variations in production techniques by industry, differences in managerial
ability to take advantage of its potential effects and exogenous shocks. A
general view of the empirical evidence is that it suggests that a doubling of
output has the potential to lead to a 20% reduction in average cost. Whether
this can be used as a benchmark for individual companies is a matter for
managers to resolve, but there seems little doubt that there is a potential
for experience effects in most areas of activities. An important aspect of
the empirical findings is that the effect is not linear, i.e. it takes
successive doubling of output to achieve the same proportional cost reduction.
This would produce a relationship between experience and unit cost of the
following shape: The difficulty involved in disentangling the factors which
affect unit cost is illustrated by the following influences: <Picture> Figure 8.1 Factors determining unit cost Unit cost is subject to a number of influences, which may be
operating in different directions, and which have an indeterminate effect.
Therefore, a sudden increase in unit cost requires analysis of each
determining factor before any conclusions can be drawn. The Learning Effect Empirical evidence suggests that a doubling of the number of
units produced by a worker results in approximately a 20% increase in
productivity. Consequently, unit cost would be expected to diminish quickly
at first, with the reduction tailing off as the impact of the learning effect
diminished. If unit cost does not fall significantly in the early stages of DAY, G & MONTGOMERY, D (1983), Diagnosing the experience .............................................CURVE...........................................,
Journal of Marketing, 47, Spring, 44-58. While considerable disenchantment has
surrounded early applications of the experience
.............................................CURVE...........................................,
EC strategy remains a useful organizing framework when scale, technology and
learning effects are key forces in the environment. It is also clear that
measurement and interpretation problems have to be overcome before the
.............................................CURVE...........................................
can be productively applied. The notion behind the experience
.............................................CURVE...........................................
is that value-added costs, net of inflation, decline systematically with
increases in cumulative volume (as opposed to calendar time). Progressive
research has shown that there are various types
of experience
.............................................CURVE...........................................s,
as some products have greater scope for improvement than others; and that
there are different sources of observed experience effects, the three major
ones being: learning by doing, technological advances, and scale effects.
Learning encompasses the increasing efficiency of labor via improved methods
and work specialization. Technological improvements, in the form of new
products and processes or changes in the resource mix, can also produce
substantial economies and/or yield improvements. Economies of scale,
resulting from increased efficiency due to size, are another source of EC
effects, especially with respect to investment and operating costs.
Increasing scale also creates the potential for volume discounts, vertical
integration and the division of labor. Normally, it is difficult to separate the
contributions of scale, learning and technology, partly because the learning
process usually coincides with the expansion of scale. However, various
studies have shown that, while scale plays an obvious role in the experience
effect, it is not nearly as important as technology and learning. One study
of the US chemical industry, for example, revealed that only 10-15% of the
efficiency gains were due to scale effects, while 32-75% were ascribed to
learning. Despite its difficulty, decomposing the experience
.............................................CURVE...........................................
in this way is critical to informed strategic application. This is because:
cumulative experience does not guarantee automatic cost reductions, but
simply presents management with an opportunity to exploit; and, where cost
reductions are primarily being driven by scale economies, then cumulative
experience may be unimportant to the relative cost position. A variety of experience
.............................................CURVE...........................................s
can exist within a specific market, depending on whether one is concerned
with: costs or prices, total costs or elements of cost, the effect of
industry or company accumulated experience, or dynamic or static
comparisons. Three combinations of these variables are particularly
interesting because they lead to experience
.............................................CURVE...........................................s
which are interdependent but have very different strategic implications.
These are the company cost compression
.............................................CURVE...........................................,
which is derived from internal cost and production records; the competitive
cost comparison
.............................................CURVE...........................................,
which relates the relative cost positions of the competitors in an industry;
and the industry price experience
.............................................CURVE...........................................,
which relates the industry average price to industry cumulative experience.
The insights gained from these three types of .............................................CURVE...........................................s
depend on numerous judgments with regard to the treatment of costs,
inflation, shared experience, and the definition of the units of analysis.
These judgments can significantly limit the strategic relevance of EC
analysis. GHEMAWAT, P (1985), Building strategy on
the experience
.............................................CURVE...........................................,
Harvard Business Review, 63, March-April, 143-49. While many managers see the experience
.............................................CURVE...........................................
as out of date, experience
.............................................CURVE...........................................
strategies can improve competitive performance in some situations. However,
successful use of the
.............................................CURVE...........................................
requires an understanding of how it works and when to apply it. Use of the experience
.............................................CURVE...........................................
concept began over thirty years ago to describe the mathematical relation
between the cumulated output of a product and its costs. Studies have shown
that production costs usually decline by 10%-30% with each doubling of
cumulated output. This has led to the view that the way for a firm to attain
cost advantage is to cut price in order to buy share. The increased share of
current output is then supposed to propel the aggressive firm’s costs down
the experience
.............................................CURVE...........................................
more rapidly than its rivals’, thus improving its relative position. History has shown, however, that such a
strategy can be a recipe for failure, because the experience
.............................................CURVE...........................................
is rather more complex than the simplistic market share prescriptions often
attributed to it. Experience
.............................................CURVE...........................................
slopes, for example, vary widely from product to product, and may be as steep
as 60%, or may not occur at all. This is because: a) cost reductions rarely
occur automatically - they must be earned, and b) some products and processes
have greater potential for improvement over time than others. Experience
.............................................CURVE...........................................
strategies usually gain greatest leverage early in a product’s life cycle
when cumulated output doubles very rapidly. A major danger in this stage,
however, is that a company wanting to get a head start can invest in the
wrong technology. In mature or declining industries, EC strategies are
usually less effective because cumulated output doubles so slowly and nearly
all experience-related cost reductions have already been attained. Most experience
.............................................CURVE...........................................
applications confuse three cost reduction sources which are not easy to
separate: exogenous progress, economies of scale, and basic improvements
learned from cumulated output, all of which have different implications for strategy.
Where exogenous progress is the primary source of cost reduction, for
example, it is imperative for a firm to maximise bargaining power with its
suppliers and buyers. Alternatively, if scale economies drive costs, then the
aggressive pursuit of market share is required to sustain competitive
advantage. The most sustainable route to cost advantage, however, rests with
improvements learned from cumulative output. The big difficulty with cost reductions is
that companies cannot always keep them secret from competitors. Such leakages
can seriously reduce the strategic advantage associated with aggressive
output expansion because followers can simply imitate and attain cost
proximity without having to make comparable investments. Another drawback of
vigorously pursuing the experience
.............................................CURVE...........................................
is that it usually requires large investments in automation or penetration
pricing in the hope of future profits. Unexpected surges in demand can also
cause disruption to experience
.............................................CURVE...........................................
strategy because production systems cannot handle them efficiently, thus
raising costs and reducing labor productivity substantially. Careful analysis
of the competitive arena is also necessary to expose the potential traps in
applying EC strategies. Here, industry structure, the relative position of
key competitors, and the impact of government, especially with regard to its
competition policy and the cost of capital, are the key variables to
consider. Overhead 7 PROFITING FROM GLOBAL EXPANSION Expanding globally allows firms both large and small to increase
their profitability in a number of ways not available to purely domestic
enterprises. What are some of these ways? Firms that operate internationally have the ability to: (i) earn a greater return from their distinctive skills or core
competencies, (ii) realize location economics by dispersing individual value
creation activities to those locations where they can be performed most
efficiently, and (iii) realize greater experience
.............................................CURVE...........................................
economies, thereby lowering the costs of value creation. Overhead 8 Definitions Core Competences skills withing a firm that competitors cannot easily match or
imitate. Location Economies benefits gained by basing each value creation activity at a
specific location. Experience .............................................CURVE...........................................s the systematic reduction in production costs that occur over the
life of a product. Production costs tend to decline each time output doubles. Learning Effects the cost savings that occur from learning by doing various parts
of the value creation activities. PROFITING FROM GLOBAL EXPANSION For some companies international expansion is a way of earning
greater returns by transferring core competencies to markets where indigenous
competitors lack those skills. By building sales volume more rapidly, international expansion
can assist a firm in the process of moving down the experience
.............................................CURVE............................................ It is useful to distinguish between learning effects and
economics of scale Overhead 10 THREE TRADITIONAL STRATEGIES Historically, firms that have expanded abroad have pursued one
of three strategies a global strategy, an international strategy, and a multidomestic strategy. Overhead 11 Global Strategy Firms pursuing a global strategy focus on reaping the cost
reductions that come from experience
.............................................CURVE...........................................
and location economies. However, they may suffer from a lack of local responsiveness. Overhead 12 International Strategy Firms pursuing an international strategy transfer the skills and
products derived from core competencies to foreign markets, while undertaking
some limited local customization. However, they may suffer from a lack of extensive local
responsiveness and from an inability to exploit experience
.............................................CURVE...........................................
and location economies. GHEMAWAT, P (1986), Sustainable advantage, Harvard Business Review,
64, September-October, 53-58. Amidst an environment of intensifying
competition, where rivals are imitating and upgrading product and process
inventions with relative ease, businesses need to establish sustainable
advantages if they wish to maintain their competitive edge. Sustainable
advantages fall into three categories: size in the targeted market, superior
access to resources or customers, and restrictions on competitors’ options. Since markets are finite, there are
compelling advantages to being large. These exist in the form of scale
economies, experience effects, and economies of scope. Scale economies arise
from spreading production/distribution costs over a national, regional or
even local level at a particular point in time. Frequently, when a business
is the first to make a long-term, largely unrecoverable investment in a
region, it gains a local monopoly which renders competing regional businesses
unviable. Likewise, experience is a kind of irreversible, market-specific
investment over time. Product pioneers, for example, can sometimes have a
first-mover advantage which often builds strong customer loyalty and allows
for incremental technological improvements to keep ahead of rivals. Economies
of scope arise when a firm is able to share resources across interrelated
markets and products, while keeping the cost of those resources largely
fixed. Long-term proprietary access to resources
or customers is a sustainable advantage because competitors are discouraged
by the penalty they would incur if they tried to imitate the leader. Superior
access to information may reflect the benefits of scale or experience but,
more often, hinges on hidden know-how. The ability to tie up inputs also
constitutes a sustainable advantage if the commodity’s supply is limited and
the company has the right to use it on favorable terms. Companies can also
secure preferred access through self-enforcing mechanisms such as their
reputations or established relationships. This is especially the case in
securing preferred access to markets. Sustainable advantage can also arise from
the inability of competitors to imitate a firm’s strategy simply because
their options may differ substantially from the advantaged firm. Rivals may
be frozen in their present positions for a number of reasons, including
government policy, the desire to defend investments which would be threatened
by imitation, or because of lags in responsiveness. To integrate the notion of sustainability
into strategy formulation, a number of points need to be remembered. First,
managers cannot afford to ignore contestable advantages because, if they
survive uncontested, they become sustainable advantages. It also has to be
recognized that not all industries offer equal opportunities to sustain an
advantage. For example, industries that evolve gradually offer more room to
sustain advantages than those that are constantly rocked by drastic changes.
Finally, it is easier to create a sustainable advantage when competitors’
options are either limited or able to be preempted. Overall, the search for
sustainability would seem to involve a tradeoff between remaining committed
to a certain way of doing things and being flexible enough to compete
effectively in new ways. HAYES, R & CLARK, K (1986), Why some
factories are more productive than others, Harvard Business Review, 64,
September-October, 66-73. While it is generally accepted that
manufacturing provides an essential source of competitive leverage, it is no
longer accepted that clever marketing alone can provide the means to outdo
competitors. However, before managers can pinpoint exactly what is needed to
boost performance, they need to understand why some factories are more
productive than others, that is, to clarify the variables that influence
productivity growth at the micro level. They also need dependable measures
for judging and comparing such differences, and a framework for improving
their performance. Traditional measures of factory performance,
such as profit and loss statements and standard cost systems, often obscure
performance details and provide a blurry picture of what is really going on. An overall measure of efficiency such as total
factor productivity (TFP) - the ratio of total output to total input -
helps to clarify distortions brought about by periods of high inflation, and
to integrate the contributions of all the factors of production into a single
measure of total input. Such a system highlights the frequently misplaced
preoccupation of managers with direct labor costs and their relative
inattention to the effect of materials consumption or productivity. A TFP
approach also clarifies the difference between the data that managers see and
what those data actually measure. Once poor measurement systems are cleared
away, it is possible to identify the real levers for improving factory
performance. Apart from some structural factors such as plant location or
size, which lie outside the control of managers, there are clearly certain managerial
actions which make a difference. Capital investment in new equipment, for
example, is essential to sustaining growth in TFP over a long period of time.
Correctly managed, new investment supports long-term productivity improvement
and process understanding (learning). The real boost in TFP comes not just
from the equipment itself, but also from the opportunities it provides to
seek out and apply new ..................KNOWLEDGE....................... to
the overall production process. The downside of such investment is that
managers often underestimate the hefty indirect costs associated with
introducing new equipment, especially the ripple effects on inventory levels,
quality, equipment utilization, reject rates, downtime, and material waste.
Consequently, while capital investment is essential to long-term
productivity, if poorly managed, it can destroy the benefits of TFP. Defective products, mismanaged equipment,
and excess work-in-process inventory are not only problems in themselves,
they are also sources of confusion. While many managers may feel that such
confusion is a natural response to changing customer demands and
technological opportunities, the number of changes introduced at any one time
should be limited and carefully implemented. Data from studies on engineering
change orders (ECO’s), for example, reflected that ECO’s which were
introduced in an unannounced, uncontrolled fashion were detrimental to TFP,
while those which allowed adjustment by plant managers were less disruptive. To achieve full competitive leverage out
of manufacturing, managers must create clarity and order, and make a
commitment to ongoing learning. These are the two essential tasks of factory
management. Attempts to improve manufacturing performance via sophisticated
computerised technology, or any other means, without first reducing the
complexity of operations and boosting the rate of learning, will not be
successful. Research in the field of strategic
management suggests that firms obtain sustainable competitive advantages by
implementing strategies that exploit their internal strengths, while
neutralizing external threats and avoiding internal weaknesses. Recent work
has tended to focus primarily on analyzing a firm’s opportunities and threats
within its competitive environment. The purpose of this article is to analyze
the conditions under which firm resources can be a source of sustained
competitive advantage for a firm. The study builds on the assumptions that
strategic resources are heterogeneous and immobile across firms, and that
these resources are stable over time. Four empirical indicators of the
potential of firm resources to generate sustained competitive advantage are
proposed: value, rareness, imitability and substitutability. Within this
context, for a firm resource to have the potential of generating competitive
advantage, it must be: valuable, in the sense that it exploits
opportunities and/or neutralizes threats in a firm’s environment; rare among a firm’s current and
potential competition; imperfectly imitable (either through
unique historical conditions, causal ambiguity, or social complexity); and without strategically equivalent substitutes. As an example of how this framework might
be applied, it is used in the analysis of the competitive implications of
three firm resources that others have suggested might be sources of sustained
competitive advantage, namely, the strategic planning process, information
processing systems, and positive firm reputations. It was found that all
three resources may be capable of generating sustained competitive advantage
under certain conditions. Further, it is also maintained that the proposed
resource-based model of strategic management is perfectly consistent with
traditional social welfare concerns and organization theory and behavior
models. Finally, it is suggested that the role of
managers in understanding and describing the particular resource endowments
controlled by a firm is crucial in the achievement of sustained competitive
advantage. COLLIS, D and C MONTGOMERY (1994), Competing on Resources: Strategy in the 1990s,
Harvard Business Review, July-August, pp. 118-128. The resource-based view of the firm (RBV)
combines the internal analysis of phenomena within companies (a preoccupation
of many management gurus since the mid-1980s) with the external analysis of
the industry and the competitive environment (the central focus of earlier
strategy approaches). The RBV builds on, but does not replace,
the two previous broad approaches to strategy by combining internal and
external perspectives. It derives its strength from its ability to explain in
clear managerial terms why some competitors are more profitable than others,
how to put the idea of core competence into practice and how to develop
diversification strategies that make sense. The RBV will be as powerful and
as important to strategy in the 1990s as industry analysis was in the 1980s. The RBV sees companies as very different
collections of physical and intangible assets and capabilities. No two
companies are alike because no two companies have had the same set of
experiences, acquired the same assets and skills, or built the same
organizational cultures. These assets and capabilities determine how
efficiently and effectively a company performs its functional activities. A
company will be positioned to succeed if it has the best and most appropriate
stocks of resources for its business and strategy. Competitive advantage, whatever its
source, ultimately can be attributed to the ownership of a valuable resource
that enables the company to perform activities better or more cheaply than
competitors. This is true both at the single-business level and at the
corporate level, where the valuable resources might reside in a particular
function, such as corporate research and development, or in an asset, such as
corporate brand identity. Superior performance will therefore be based on
developing a competitively distinct set of resources and deploying them in a
well-conceived strategy. For a resource to qualify as the basis for
an effective strategy, it must pass a number of external market tests of its
value. Some are so straight forward that most managers grasp them intuitively
or even subconsciously. Suggested market tests of value include those for
inimitability, durability, appropriability, substitutability, and competitive
superiority. Because all resources depreciate, an
effective corporate strategy requires continual investment in order to
maintain and build valuable resources. Upgrading resources means moving
beyond what the company is good at. Perhaps the most successful examples of
upgrading resources are in companies that have added new competencies
sequentially, often over extended periods of time. Corporate strategies must
strive to leverage resources into all the markets in which those resources
contribute to competitive advantage or to compete in new markets that improve
the corporate resources or preferably both. The RBV helps us understand why the track
record of corporate diversification has been so poor and identifies three
common and costly strategic errors companies make when they try to grow by
leveraging resources. First, managers tend to overestimate the
transferability of specific assets and capabilities. Second, managers
overestimate their ability to compete in highly profitable industries. Third,
they assume that leveraging generic resources will be a major source of
competitive advantage in a new market - regardless of the specific
competitive dynamics of that market. DAVIS, E and KAY, J (1990), Assessing Corporate Performance,
Business Strategy Review, Summer, pp. 1-16. Several measures are commonly used in
assessing corporate performance. These include profitability, earnings per
share, return on assets and market share. These measures will often give
conflicting answers about the performance of any one company. The authors
argue for using added value as an alternative measure of performance. Added value is the amount by which the
value of corporate output exceeds the value of all the inputs which the
company uses, including not only material inputs, but also capital and labor.
It is the economic loss which would result if a corporation were broken up
and its inputs dispersed elsewhere in the economy. Added value generates returns for the
various stakeholders in the business, over and above what they could expect
from using their resources elsewhere. Added value is generally shared between
these stakeholders. The authors refer to a corporate league
table produced by PE International consultants as well as six leading UK
supermarket chains. They show how particular attributes of a business or the
industry in which it operates can distort conventional measures of corporate
performance. All the usual measures capture some aspect of corporate success,
but none gives the whole picture. Concentration on any one of them is likely
to mislead. Particular firms will do well or badly for reasons that have
little to do with the true underlying quality of their performance. All the usual measures are aspects of the
underlying concept of added value. Conventional assessments of corporate
success compile a rate of return by dividing the resulting profit by the
capital employed. An alternative approach is to charge the firm for the
capital which is employed in the business on a par with all the other inputs
which it uses. The net profit after this is the pure profit, or rent, or
added value generated by the firm. It measures the net value which is
contributed to the economy by the existence of the firm. On the basis that
all the inputs it uses are costed at the wage, prices, or return which they
would have held elsewhere, added value measures the extra value of output
which is gained by using them in that particular corporate form. It is the
amount that would be lost - to the firm, to shareholders and to the economy -
if the firm were broken up and all its resources dispersed. What is conventionally called operating
profit has two components: one is the normal return to capital, which pays a
reward to capital in much the same way that wages pay a reward to labor. The
other is economic rent - or added value - that may or may not actually accrue
to the shareholders or investors, but is created by the existence of the
whole firm, rather than being derived from the contribution of any one of its
stakeholders. A firm with no competitive advantage
cannot expect to sell its output for more than the going rate which the
inputs it uses earn elsewhere in the economy if the inputs it uses are
sufficiently comprehensively defined. Thus added value is a measure of
competitive advantage. Added value can also be viewed as a means of valuing
the intangible assets of the firm. TEST
1. The chief weakness
of the delegate-it-to-others approach to strategy formation is A. that the calibre of
the strategy depends on how many managers really get involved in putting the strategy together. B. the serious lack
of top-down direction and strategic leadership. C. whether there will
be strong buy-in to strategy from lower-level managers. D. that too many
people will get involved in shaping the strategy and no real consensus will emerge. E. None of these. 2. Companies
sometimes change their mission and long-term direction because A. their profitability
exceeds expectations. B. of fundamental
changes they see coming in their business. C. they change to a
different strategy and thus need a new mission to match it. D. their strategic objectives
are in conflict with their financial objectives. E. none of the above
really explain why the mission changes. 3. The benefits of a
well-said, well-conceived mission statement do not include A. helping to
crystallize top managements' own view about the firm's long-term direction and make-up. B. helping the
organization prepare for the future. C. helping to keep
the direction-related actions of lower-level managers on the right path. D. obtaining
organizational support for strategy implementation. E. giving employees a
stronger sense of organizational purpose and organizational identity. 4. In forming a
strategy out of all the many options that exist, the strategist acts as A. a forger of
responses to external changes. B. a seeker of new
opportunities. C. a synthesizer of
the many different moves and approaches taken at various points in time in various parts of the organization. D. a planner of new
moves and approaches that need to be taken to strengthen the company's position and performance. E. all of these. 5. A necessary step
in charting a firm's mission and long-term direction is A. market research to
determine what needs and wants people have. B. analysis of the
firm's profit and loss statements. C. setting long-range
strategic and financial objectives. D. to decide on a
long-range strategic plan. E. none of the above. 6. Which of the
following is not a factor to consider in identifying an industry's dominant economic features? A. Market size and
growth rate b B. The extent of backward
and forward integration C. Whether the
products or services of rival firms are strongly differentiated, weakly differentiated, or essentially idnetical. D. How strong driving
forces and competitive forces are. E. Barriers to entry
and exit and capital requirements 7. Which of the
following is not one of the five competitive forces? A. The strength of the
driving forces B. The power of
suppliers C. The threat of
potential entry D. Competition from
substitute products E. None of these. 8. Which one of the
following is not one of the seven key questions associated with industry and competitive analysis? A. What are the chief
economic characteristics of the industry? B. Which companies
are in the strongest and weakest competitive positions? C. What are the
industry's strengths, weaknesses, opportunities, and threats? D. What competitive
forces are at work in the industry and how strong are they? E. How attractive is
the industry in terms of its prospects for above average profitability? 9. Key success
factors A. target what a firm
must concentrate on doing well if it is to capture enough patronage to be competitively strong and profitable. B. are a function of
an industry's driving forces, competitive advantage opportunities, and strategic group structure. C. vary from firm to
firm within an industry. D. are important
elements of industry and competitive analysis because they indicate the size and importance of scale economies,
experience .............................................CURVE...........................................
effects, and barriers to entry. E. All of these. 10. In analyzing the
strength of competition among rival firms, an important consideration is A. the potential for
entry of new competitors. B. the maneuvering of
firms to try to gain a competitive edge and recognizing that the success of any one firm's move hinges in
part on what rival firms do in defense. C. the number of
firms pursuing differentiation strategies versus the number pursuing low-cost leadership strategies and focus
strategies. D. the extent to
which economies of scale are related to capital requirements, entry barriers, and competition from substitute
products. E. All of these. 11. Which of the
following is not an example of an external threat to a company? A. The appearance of
attractively priced substitute products B. Adverse
legislative decisions and government regulations C. Changing needs and
preferences of buyers D. The entry of
powerful new competitors E. The lack of a core
competence 12. When a company
performs some activity truly well in comparison to competitors, it is said to have A. an internal
strength. B. a competitive
opportunity. C. a strategic
advantage. D. a core competence. E. a market edge. 13. A company's value
chain A. identifies the
primary activities that create value for customers and the related support activities. B. identifies
structural and executional cost drivers. C. is a tool for
understanding which company activities create value for customers and which don't. D. is a useful device
for identifying core competencies. E. all of these. 14. Calculating
competitive strength ratings for rival firms using the industry's most telling measures of competitive strength or
weakness A. is a way of
determining which competitor has the greatest overall competitive advantage in the marketplace and which competitor
has the greatest overall competitive disadvantage. B. is a technique for
benchmarking the industry's competitors from highest to lowest in terms of core competence capability. C. is a way of
gauging which competitor has the best value chain and overall approach to creating customer value. D. all of these E. both (a) and (b) 15. The best example of
a company strength is A. the opportunity to
grow slower than the market as a whole. B. growing
complacency among rival firms. C. reputation as a
market leader. D. the opportunity to
serve additional customer groups. E. being less
vertically integrated than rivals. 16. Preemptive
strategies involve A. trying to out-focus
rivals by appealing to customers in every attractive growth segment. B. moving first to
secure an advantageous position that rivals are foreclosed or discouraged from duplicating. C. launching
price-cuts in areas where weak rivals are the strongest. D. using a best-cost
provider approach to block off the market leaders. E. filing lawsuits to
block competitors from investing in different technological processes and new plant capacity. 17. Sustaining a
low-cost leadership strategy involves A. providing customers
more value for the money. B. having each and
every functional strategy aimed at contributing to a low cost advantage relative to competitors. C. managing costs
down, year after year, in every activity segment of the value chain. D. All of the above E. Just b and c are
correct 18. Which one of the
following is not a way to defend a competitive position against challenger firms? A. Avoiding suppliers
that also serve competitors B. Patenting
alternative technologies C. Leapfrogging into
next-generation technologies to replace existing products or production processes. D. Increasing
warranty coverages E. Granting dealers
and distributors attractive volume discounts in order to discourage them from handling the lines of rivals 19. The production
emphasis of a company pursuing a broad differentiation strategy usually involves A. a search for
continuous cost reduction without sacrificing acceptable quality and essential features. B. strong efforts to
be a leader in manufacturing process innovation. C. above-average
expenditures for new product R&D and efforts to build-in whatever features that buyers are willing to pay for. D. aggressive pursuit
of economies of scale and experience
.............................................CURVE...........................................
effects. E. All of the above 20. The various
approaches to offensive strategy include A. simultaneous attack
on many fronts. B. guerrilla warfare
attacks. C. preemptive
strikes. D. attacks on
competitors' weaknesses. E. all of these. 21. The strategic
approaches likely to be most attractive for underdog or runner-up firms include: A. a distinctive image
strategy. B. an aggressive
attempt to become the industry's overall low-cost producer by capturing the benefits of scale economies and
experience
.............................................CURVE...........................................
effects. C. imitating what the
leader is doing. D. a harvesting
strategy. E. a grand offensive
strategy that aims at catching up to the leaders quickly. 22. Successful
international competitors can gain a low-cost competitive advantage from A. opportunities to
transfer skills and business expertise from country to country at little incremental cost. B. marketing and
distribution economies associated with multinational operations. C. scale economies
and experience
.............................................CURVE...........................................
benefits that extend beyond the savings realizable from competing in just one national market. D. locating plants in
countries where production costs are lowest. E. all of these. 23. High-risk strategy
options for market challengers include A. electing to engage
in price-cutting without having a cost advantage. B. cheapening product
quality (to save on costs and make it easier to cut prices). C. spending heavily
on promotional efforts and advertising. D. imitating what the
leaders do. E. All of these run a
big risk of failure. 24. The motivation for
participating in international markets includes A. a desire to seek
new markets. B. a desire to access
natural resource deposits in other countries. C. a desire to lower
costs. D. the need to
compete on a more equal footing with foreign competitors endeavoring to build a globally dominant market position. E. All of these. 25. One of the major
mistakes a firm can make during the transition to industry maturity is A. to make no
commitment to achieving competitive advantage via any of the basic competitive strategies, thus ending up "stuck in the
middle" with a fuzzy strategy and no competitive advantage. B. to expand into
foreign markets. C. to attack weaker
firms and try to capture some of their market share. D. to purchase rival
companies at low prices. E. none of the above. 26. Which of the following
is NOT likely to be a strong candidate strategy for a multi-business enterprise? A. A portfolio
restructuring strategy B. Divestiture
strategies C. Vertical
integration strategies D. A concentration
strategy E. A related
diversification strategy 27. Which of the
following is not a source of sharing opportunities associated with market-related strategic fit? A. Shared brand name B. Shared
after-the-sale service C. Shared sales force
activities D. Shared advertising
and promotional activities E. Shared process
technologies and/or technology development 28. The appeal of
related diversification as a portfolio-building approach is that it A. allows a firm to
maintain a degree of unity in its business activities and gain any skills transfer on cost-sharing benefits, while at
the same time spreading the risks of the total enterprise across a
broader base. B. promotes the
building of a core competence in the original core business. C. helps fortify the
competitive position the company has in its other businesses. D. is nearly always
more profitable than unrelated diversification. E. all of these. 29. Foregoing
diversification and, instead, concentrating on a single line-of-business offers the advantage of A. creating a core
competence in lowering manufacturing costs. B. guaranteeing that
the business strategy will have adequate strategic fit. C. helping to focus
management attention more squarely on capturing a stronger long-term competitive position and being responsive to
the winds of industry change and emerging customer needs. D. reducing
shareholder risk that the enterprise will fail. E. all of these. 30. Which of the
following is normally not among the frequent approaches to improving the performance of a diversified company's business
portfolio? A. Liquidation of the
corporation B. Reducing the scope
of diversification to a smaller number of businesses. C. Revamping the
composition of the corporate portfolio by divesting marginal businesses or businesses that don't fit and reinvesting
the proceeds in new and existing businesses where profit prospects
are more attractive. D. A de-emphasize of
weak performing units and the allocation of more resources to better performing units E. Launching of
efforts to restore profitability in money-losing business
units 31. A cash-hog business A. is one which is
losing large sums of money. B. is well-suited to
the use of a retrenchment strategy or a turnaround strategy. C. should be
considered as a strong candidate for divestiture. D. requires large
infusions of cash to sustain its strategy and achieve its growth potential. E. all of these. 32. The primary
strength of the life-cycle matrix is A. the emphasis it
puts on the profitability of a diversified company's business units. B. how well it exposes
the distribution of a diversified company's business units across the industry life cycle stages. C. how well it
portrays the strengths and weaknesses of a diversified company's business units. D. its power to
identify which business units a diversified company should consider for divestiture. E. All of the above
except (a). 33. The most
significant contributions to strategy-making in diversified companies provided by the attractiveness-strength portfolio
matrix include A. the use of weights
to evaluate each key determinant of strategic fit. B. justification for
rating all of the company's business units as to potential for becoming a cash cow. C. increased ability
to identify market leaders. D. increased ability
to identify potential winners and losers among newly-added businesses. E. None of these 34. A diversified
company's most viable option for building competitive advantage is primarily based on A. coordinating the
various business units to yield the maximum experience .............................................CURVE...........................................
benefits. B. concentrating on
diversifying into businesses that employ the same type of competitive strategy (low-cost leadership, differentiation,
best-cost producer, and so on). C. coordinating and
managing the interrelationships in the value chains of related business units so as to capture the strategic fit
benefits. D. concentrating on
diversifying into businesses that employ the same basic technology. E. All of the above. 35. A business
portfolio matrix can be described as A. a two-dimensional
graphical depiction of investment returns for a diversified company. B. a two-dimensional
pictorial description of the possible strategies for a single business. C. a two-dimensional
graphical portrait which compares the strategic positions of various business units of a diversified company. D. a methodology to
describe potential diversification opportunities for a company considering expanding on an international basis. E. a two-dimensional
graphical illustration of which businesses in a diversified company's portfolio have the greatest potential for competitive advantage. 36. The
strategy-related advantages of a functional organization structure include A. being well-suited to
building and developing functional competencies. B. allowing the
benefits of specialization to be fully exploited. C. preserving
centralized control over strategic results. D. being very
effective in single business units where key activities revolve around well-defined skills and areas of functional
specialization. E. all of these. 37. Which of the
following is most likely not to be a strategy-critical area where it is very important to create a strong
"fit" with strategy? A. Organization
skills, capabilities, and structure B. The methods used
to train employees C. Rewards and
incentives D. Beliefs,
attitudes, shared values, and ethics E. Policies,
procedures, and support systems 38. Recruiting outside
managerial talent to help form a core executive group for executing strategy makes particularly good
organization-building sense A. in turnaround
situations and in rapid growth situations. B. when the firm is
pursuing unrelated diversification. C. when the firm is
making a number of new acquisitions in related businesses. D. when the firm has
been successful in a takeover attempt. E. All of these. 39. When it is
difficult or impossible to out strategize rivals (beat them with a superior strategy), the other main avenue to industry
leadership is to A. beat them with a
superior organization structure. B. out compete them
with superior support systems. C. out execute them
on the basis of superior strategy implementation and execution. D. beat them with a
superior corporate culture. E. All of these 40. Responsibility for
implementing strategy A. is primarily the
job of the chief executive officer. B. is a task for
every manager and the whole management team. C. is primarily a
senior management responsibility. D. should be assumed
by a chief strategy implementer appointed by the chief executive officer. E. None of these 41. Perhaps the most
dependable way to keep people's eyes trained on the competent execution of their part of the company's strategic
plan is A. to provide all
employees with monthly updates on how well the company is doing with regard to accomplishing the plan. B. to create a system
of policies and controls that keep the organization on a straight and narrow path. C. to define jobs in
terms of what to do and how to do it, then train them extensively in following the prescribed procedures. D. to provide
adequate rewards to individuals who achieve their strategic targets and to deny rewards to those who don't. E. none of the above
are unusually dependable. 42. New strategies
often call for A. new executive
leadership. B. significant budget
reallocations, revised policies, and perhaps different incentives. C. a fundamental
revision of the company's core values, business principles, and cultural norms. D. empowering
employees and shifting to a total quality management type of culture. E. All of the above. 43. An early step in
creating a strategy-supportive system of rewards and incentives is to A. write clear job
descriptions defining what each jobholder is supposed to do. B. organize employees
into self-directed work teams. C. define jobs and
assignments in terms of the results to be accomplished. D. reengineer core
business processes for maximum efficiency. E. stress that
across-the-board wage and salary increases depend on supervisors' assessments of whether employees are staying busy,
working hard, and providing an ample number of suggestions for
continuous efficiency improvement. 44. In trying to stay
on top of what strategic progress is being made, a strategy-implementer A. should depend
mainly on formal reporting and communication channels to provide the needed information. B. is well advised to
make personal contact with subordinates and customers, to be a close observer of the competitive actions of
rival firms, and to deliberately seek out informal sources of
information. C. should run a tight
ship and preserve strong, centralized control over internal activities. D. should insist upon
the installation of a comprehensive data base and computerized information system to provide all managers and
employees with as much information as possible. E. both (a) and (b). 45. Budget allocations
should primarily be based on A. the number of new
strategic initiatives being implemented in each department. B. the numbers of
people employed in each of the divisions. C. how much each
department needs to carry out its part of the strategic plan efficiently and effectively. D. the costs of
performing value chain activities as determined by benchmarking against best-in-industry competitors. E. how challenging
each department's objectives are. 46. A strong culture
and a tight strategy-culture fit are powerful levers for A. influencing people
to do their jobs in a strategy-supportive fashion. B. promoting high
ethical standards. C. gaining widespread
employee conformance to prescribed policies and procedures. D. instituting best
practices and a TQM philosophy in an effective manner. E. all of these. 47. In order to promote
an organizational climate where champion innovators can blossom and thrive, strategy managers need to A. encourage
individuals and groups to bring their ideas and proposals forward and to exercise initiative. B. tolerate the
maverick style of the champion and give people with innovative ideas room to operate. C. not look upon
people with creative ideas as disruptive and troublesome. D. all of these. E. only a and c. 48. The leadership task
of empowering champions includes A. tolerating the
maverick style of the champion and giving him/her room to operate. B. tolerating
mistakes and failures and not punishing those people whose ideas don't succeed. C. using many kinds
of organizational forms to support ideas and experimentation. D. providing large,
visible rewards for successful champions. E. All of these 49. Company politics
presents strategy leaders with the challenge of A. how best to
practice MBWA. B. how much reliance
to place on corporate culture in containing excessive political behavior. C. building consensus
for the strategy and for how it implement it. D. establishing and
enforcing high ethical standards. E. None of these. 50. When approaching
the task of creating a "fit" between strategy and culture, the strategist's first step should be to A. design a plan for
cultural change. B. contact an organizational
behavior consultant. C. obtain a set of
guidelines from senior management. D. conduct an
employee survey. E. identify which
aspects of the culture are congruent with the strategy and which ones are not. Answer Sheet for Test
"Strategic Management 8/e", 5/15/96 Chapter/ Test Correct Question Quest Answer 2-79 (-,a,-) 1 B 2-11 (-,a,-) 2 B 2-13 (-,b,-) 3 D 2-39 (-,b,-) 4 E 2-12 (-,b,-) 5 E 3-10 (-,a,-) 6 D 3-36 (-,a,-) 7 A 3-5 (-,b,-) 8 C 3-93 (-,b,-) 9 A 3-47 (-,b,-) 10 B 4-29 (-,b,-) 11 E 4-31 (-,b,-) 12 D 4-50 (-,b,-) 13 A 4-63 (-,b,-) 14 A 4-20 (-,b,-) 15 C 5-77 (-,a,-) 16 B 5-21 (-,b,-) 17 E 5-81 (-,b,-) 18 C 5-44 (-,b,-) 19 C 5-68 (-,a,-) 20 E 6-73 (-,b,-) 21 D 6-30 (-,b,-) 22 E 6-75 (-,a,-) 23 E 6-27 (-,a,-) 24 E 6-13 (-,b,-) 25 A 7-26 (-,a,-) 26 D 7-40 (-,a,-) 27 E 7-35 (-,b,-) 28 A 7-7 (-,a,-) 29 C 7-14 (-,b,-) 30 A 8-15 (-,b,-) 31 D 8-38 (-,b,-) 32 B 8-35 (-,b,-) 33 E 8-53 (-,b,-) 34 C 8-12 (-,b,-) 35 C 9-47 (-,a,-) 36 E 9-19 (-,b,-) 37 B 9-20 (-,b,-) 38 A 9-5 (-,b,-) 39 C 9-14 (-,a,-) 40 B 10-36 (-,b,-) 41 D 10-5 (-,b,-) 42 B 10-31 (-,b,-) 43 C 10-18 (-,b,-) 44 B 10-4 (-,b,-) 45 C 11-13 (-,b,-) 46 A 11-37 (-,a,-) 47 D 11-50 (-,a,-) 48 E 11-48 (-,b,-) 49 C 11-43 (-,b,-) 50 E <Picture> <Picture>Course Outline - Learning ..................CURVE.......................s ------------------------------------------------------------------------ <Picture>Learning
..................CURVE....................... Theory and Application is a 16-hour, two-day program.
Designed for cost estimators, pricing analysts, IEs, program and production
managers, buyers, financial managers and accountants, the program shows how
to use learning ..................CURVE.......................s to estimate
costs and price and negotiate agreements with customers or suppliers. This is
the most widely-presented and enthusiastically received program on
..................CURVE....................... application in the country
today. It has been presented to literally thousands of professionals since
inception in 1975. It is of particular value to manufacturers of aerospace
and electronic equipment, and those companies that deal with the Federal
government. Many exercises and examples are used. Attendees work and discuss
multiple estimating problems. In this program, participants are also given
learning ..................CURVE....................... templates and a copy
of Production Technology's new proprietary learning
..................CURVE....................... software, CURV1™. ------------------------------------------------------------------------ 1.0 Introduction to
Learning ..................CURVE....................... Theory 2.0 Preliminary
Discussion 2.1 Documents 2.2 Workshop Notebook Materials 2.3 Software and Template 2.4 Reference/Bibliography 3.0 Lecture - History
and Theory 3.1 History 3.2 Theory 3.3 Introduction of Formulae 3.4
..................CURVE....................... Slope 3.5 Types of
..................CURVE.......................s 3.6 Notations and Graph Paper 3.7
..................CURVE....................... Phenomena 3.8
..................CURVE....................... Fitting Techniques 3.9 Midpoints 3.10 Using Lot Data 3.11 Wright vs. Crawford ..................CURVE.......................s 3.12 Construction and Use of Tables 4.0 Major Issues 4.1 "Industry Average
..................CURVE.......................s" 4.2 Factors Affecting Slope 4.3 Estimating Slope for a New Program 4.4 Methods of Determining Slope 4.5 Effects of Production Rate Change 4.6 Effects of Production Breaks 4.7 Methods for Break Analysis 5.0 Problems 5.1 Part I - Use of Graphical Techniques 5.2 Part II - Estimating Problems 5.3 Part III - Use of
..................CURVE....................... Factor Tables 6.0 Problem Wrap-Up -
Question/Answer 7.0 Material Cost
..................CURVE.......................s and Total Cost/Price
..................CURVE.......................s The Learning
..................CURVE....................... and Optimal Production under
Uncertainty ------------------------------------------------------------------------ Volume: Volume 20, No. 3 Issue: Autumn 1989 Pages: pp. 331-343 Authors: Saman Majd and Robert S. Pindyck Title: The Learning
..................CURVE....................... and Optimal Production under
Uncertainty Abstract: This article examines the implications of the learning
..................CURVE....................... in a world of uncertainty. We
consider a competitive firm whose costs decline with cumulative output.
Because the price of the firm's output evolves stochastically, future
production and cumulative output are unknown and are contingent on future
prices and costs. We derive an optimal decision rule that maximizes the
firm's market value: produce when the price exceeds a critical level, which
is a declining function of cumulative output. We show how the shadow value of
cumulative production, the total value of the firm, and the decision to
produce depend on the volatility of the price and other parameters.
Uncertainty increases the critical price required for the firm to produce,
but also increases the value of the firm. Thus, during periods of high
volatility, firms facing a learning
..................CURVE....................... ought to be producing less,
but are worth more. ------------------------------------------------------------------------ Volume: Volume 18, No. 1 Issue: Spring 1987 Pages: pp. 57-76 Authors: James J. Anton and Dennis A. Yao Title: Second Sourcing and the Experience ..................CURVE.......................:
Price Competition in Defense Procurement Abstract: We examine a dynamic model of price competition in
defense procurement that incorporates the experience
..................CURVE......................., asymmetric cost information,
and the availability of a higher cost alternative system. We model
acquisition as a two-stage process in which initial production is governed by
a contract between the government and the developer. Competition is then
introduced by an auction in which a second source bids against the developer
for remaining production. We characterize the class of production contracts
that are cost minimizing for the government and that induce the developer to
reveal private cost information. When high costs are revealed, these
contracts result in a credible cutoff of new system production in favor of
the still higher cost alternative system. The Learning ..................CURVE....................... in a
Competitive Industry ------------------------------------------------------------------------ Volume: Volume 28, No. 2 Issue: Summer 1997 Pages: pp. Authors: Emmanuel Petrakis, Eric
Rasmusen, Santanu Roy Title: The Learning
..................CURVE....................... in a Competitive Industry Abstract: We consider the learning
..................CURVE....................... in an industry with free entry
and exit and price-taking firms. A unique equilibrium exists if the fixed
cost is positive. Although equilibrium profits are zero, mature firms earn
rents on their learning, and if costs are convex, no firm can profitably
enter after the date the industry begins. Under some cost and demand
conditions, however, firms may have to exit the market despite their
experience gained earlier. Furthermore, identical firms facing the same
prices may produce different quantities. The market outcome is always
socially efficient, even if it dictates that firms exit after learning.
Finally, actual and optimal industry concentration does not always increase in
the intensity of learning. ------------------------------------------------------------------------ DFAS: The DoD Accounting Firm Flattening the learning
..................CURVE....................... Customers, accountants and system administrators recently
gathered in Denver to learn about current end-of-year requirements and other
cost accounting systems news. At the first “user’s conference,” customers presented ideas and
discussed products and the use of cost information. The Job Order Cost
Accounting System (JOCAS) II is the backbone for collecting job-ordered costs
for Air Force customers in a non industrial fund environment. JOCAS II is a
DFAS interim migratory system within the general accounting financial
system’s suite and is responsible for tracking and reporting appropriated
funds approaching $1 billion annually. The conference brought together the entire spectrum of JOCAS II
users and customers, from field experts to financial managers who are
dependent upon JOCAS II to report costs and earn reimbursements. Everyone had
a chance to learn, to share and to ask why it works this way. It is critical
for fiscal responsibility that everyone using cost accounting data understand
where costs came from, who reported costs and what to do with the
information. The operational version of JOCAS II, in existence about two
years, replaced the original early 1970s technology and methodology used to
collect cost at the former systems command bases for the Air Force. Today’s JOCAS II provides faster, easier data access, processing
and reporting. It’s interactive and provides real-time access to an on-line
database, giving users more timely information — a big change from “card
input” and batch processing technology of the past. Of course, with change
comes a learning ..................CURVE........................ The
conference was an attempt to flatten the
..................CURVE....................... and solve problems in a
listening and learning environment. Lori Siedow, accountant and financial database administrator for
JOCAS II at the Eglin Air Force Base, Fla., defense accounting office, said,
“It’s [JOCAS II] a usable tool, formatted the way the user wants. Data is
easily transferred to the local manager’s management information system. It
saves me time tracking earnings and provides information for budget
preparation. Running an ad hoc report gives me the data and totals quickly,
and it looks good. I’m looking forward to the civilian pay interface with
DCPS (Defense Civilian Pay System) and the elimination of dual entry.” JOCAS II customers are varied. Originally, a job-order cost
accounting system was needed to support major range test facility bases. The
first Air Force customers were part of what is now Air Force Materiel
Command, responsible for research, development, test and evaluation
(RDT&E) efforts. Organizational changes within the Air Force moved the
space launch ranges from the RDT&E arena to an operational environment in
the Air Force Space Command. These two commands are currently the primary
customers of JOCAS II. Not to miss out on a good thing, potential customers
began reviewing JOCAS II’s flexibility to adapt to local fiscal structure and
report locally-determined data. Almost any activity requiring cost accounting
capabilities can use JOCAS II. While most installations use JOCAS II to report costs and bill
reimbursable customers, others use only portions of the system to meet local
management requirements. This flexibility is a key feature of a system
developed in a relational database. New user requirements, which may result in system changes, can
be submitted to the system functional review board that meets quarterly.
Additionally, changes directed by policy, law or standards can be quickly
modified without re-engineering the entire system. The bottom line is cost
accounting is historical data, but no manager today can use “old”
information. ------------------------------------------------------------------------ November 30, 1995 http://www.dfas.mil/news/dfaszine/dec95/dec95_11.htm Brought To You By How to Battle the Learning
..................CURVE....................... by Helen Papa Companies are spending thousands of dollars on computer
hardware, software, and training, only to find that they are not more
productive with a computerized system than they were with a manual system.
Studies have shown that there is really only a 15 percent increase in
productivity of PC users. For all the money spent on advanced technology, is
this really enough? There is a myth that as new computers and software applications
come out, they become easier to use. The truth is that it's becoming harder
than ever to keep up with all the changes. Not only do you need to know a
word processor or spreadsheet, but now you must know how to work on the
Internet, how to use a network, modem, fax board, and e-mail, and how to
integrate all the software packages together. It can become overwhelming. How do we go about learning this new technology without spending
all of our time in front of a computer? Most of us don't catch on to software the way that a twelve year
old can. Here are some ways that you can speed up your learning time: ¨ Learn one software package well. Once you know one package, it
will be easier to pick up the next. Learning software is like learning a
foreign language. You wouldn't expec to be fluent in the language unless you
spent a lot of time practicing it. The Windows and Macintosh environments are
designed to allow you to go from one software package to the next very
quickly and easily. ¨ Get on the Internet. America On Line, Prodigy, or CompuServe
gets you on the Internet for a minimal monthly charge. It is easy to learn
and it's fun. You will get experience working in the Windows environment and
with subdirectories. Compu-Serve is the best for business. It has records
dating back to 1976. Just be careful not to spend too much time on the
Internet in the office. You may actually spend more time looking things up
electronically than the old-fashioned way. ¨ Go to training classes, it's the quickest way to learn. You
can save several months of frustration by going to just a few days of
training. Don't tell yourself you don't have time for training. You will
waste a lot more time trying to learn by yourself. A word of warning though,
after training, use the software. The old rule applies here: If you don't use
it, you lose it! Set up some applications right away, so that you must use the
new options you learned. Also work with a training firm that customizes the
training to fit your needs. Just like there are "supermarket"
hardware dealers, there is also the same in training companies. Most just
want to get you in and out of the seats as quickly as possible. Find one that
will spend a lot of time with you. ¨ If you can't go to training classes, buy a training manual
from a training firm. You can teach yourself by walking through the examples.
The manuals that come with the software should just be used as a reference
guide, after you know the software. ¨ When you register your software, get on the software company's
mailing list. You will get short-cut information in the mail that can save
you a lot of time. ¨ Ask many questions. You can pick up information from
coworkers, salespeople at hardware and software stores, or from kids. ¨ Buy the "using" books by QUE or "The _______
for Dummies" books. ¨ Bring in someone to the office to work with you one-on-one.
This can be extremely beneficial, because you can focus just on those areas
that are important to you. ¨ Find out about all the software's capabilities. If you don't
know that an option is available, you won't use it. This is probably the
biggest problem in business productivity. Individuals try to set up the same
information on the computer as they did manually, but to do the work it still
takes the same amount of time. It just looks better. The whole purpose of
technology is to do it better. In the future, software will be able to talk to us, telling us
when we are making mistakes. But until that time, we must continue to do
things the old-fashioned way, we "learn" it. Helen Papas is the Assistant to the President of Innovative
Micro Technologies - The Business Productivity Firm. She is also the Quality
Control/Customer Support Manager. Helen's background is extensive in the area
of customer service and customer support. ..................KNOWLEDGE.......................
based learning <Picture> <Picture> ..................KNOWLEDGE....................... Based
Learning (KBL) Within the School of Computer Science and Software Engineering,
research into various facets of Artificial Intelligence (AI) and what is
increasingly being termed Soft Computing is being pursued on a variety of
fronts by a small, but increasingly active, band of researchers. Soft
computing is a "new" coherent discipline encompassing
"approximate" computing necessitated by dealing with imprecise and
uncertain data (very much the area previously claimed by Al). Some of the
research is conducted solely under the auspices of the School while other
projects are cooperative with other areas of Swinburne's research community,
and with external bodies it is difficult to classify many of the research
efforts into specific areas as they are inter-related, however for the
purpose of this report the following fuzzy classification is adopted. The
researchers mentioned under these classifications are only those directly
within the School's jurisdiction, where researchers external to the School
are involved in particular projects this will be indicated subsequently. Our Approach At TLA/OLKM we believe the first step toward achievement of
performance excellence through organizational learning, and systemic
..................KNOWLEDGE....................... management, is the
identification of the strengths and shortcomings of the key performance
elements. These performance elements are generic to all performance whether
it be individual, team, organization, community or whatever. There are three such performance elements; they are related to
(a) what the performer knows (b) what the performer feels, and (c) what
resources the performer can bring to bear. A simple but very powerful model
is used to visualize the systemic action of these three elements. By
appropriately administering one or more tailored instruments, the individual
strengths and weaknesses of these elements (with regard to their potential to
achieve performance targets) can be estimated. The necessary remedial
activities can then be undertaken to address concerns. The approach has been
successfully applied in all manner of organizations including commercial
firms with thousands of employees and church groups with a handful of
members. The scope of the approach has been described at length in Drew,
S.A.W. & Smith, P.A.C., The Learning Organization: "Change
Proofing" and Strategy, The Learning Organization, Vol. 2, No. 1, 1995. Where an exceptional development environment for managers and
executives is not in place within an organization, we at TLA/OLKM believe
creation of such an environment is critical, including superior programs for
Hi Potentials (see XEC Development International Ltd.). Any inadequacies in
the development environment will be highlighted in the performance audit
described above. Any shortfalls will be very serious; absent the breadth and
clarity of vision that evolves through concern for leadership capability,
organizational learning and systemic ..................KNOWLEDGE.......................
management initiatives will always be ineffective. TLA/OLKM defines Organizational Learning (OL) as an emergent
property, which depends on the interactions among an organization's
population of learners; OL is not an additive property which depends on an
organization's learners simply sharing their learnings. This definition has
significant impact on the design of an organization's learning system, and
accounts for why so many of these systems are sub-optimal. TLA/OLKM will assist
in tailoring the design of an Organizational Learning System to fit the
requirements of a particular organization. These requirements are identified
and characterized when TLA/OLKM carries out a performance audit (described
above) targeting Organizational Learning. For more details on the audit and
the design please contact us. TLA/OLKM defines Systemic
..................KNOWLEDGE....................... Management (SKM) as the
processes, tools and infrastructure by which an organization continuously improves,
maintains and exploits all those elements of its
..................KNOWLEDGE....................... base which the
organization believes are relevant to achieving its goals; SKM includes the
processes, tools and infrastructure by which these goals are modified as the
organization's ..................KNOWLEDGE....................... base
changes. TLA/OLKM tailors the design of each
..................KNOWLEDGE....................... Management System to fit
the requirements of the particular organization. These requirements are
identified and characterized when TLA/OLKM carries out a performance audit
targeting ..................KNOWLEDGE....................... Management. For
more details on the audit and the design please contact us. TLA/OLKM defines an organization's
..................KNOWLEDGE....................... base to include the data,
information, intuition, ..................KNOWLEDGE.......................
(know how), understanding (know why), and wisdom, residing throughout the
organization. Publications on the Nature of Skill and Expertise 1985-1996 Bedard, J., & Chi, M. T. H. (1992). Expertise. Current
Directions in Psychological Science, 1(4), 135-139. In the past two decades, there has been a significant amount of
research conducted on the nature of expertise. Researchers have examined
expertise with respect to a variety of tasks, such as problem solving of
either puzzles, games, or classroom problems; decision making;
troubleshooting mechanical systems; or diagnosing illnesses. The studies have
shown that a large, organized body of domain
..................KNOWLEDGE....................... is a prerequisite to
expertise. This ..................KNOWLEDGE....................... influences
the perceptual processes and strategies of problem solving. Thus, it is
important to understand how experts'
..................KNOWLEDGE....................... is organized. The authors
begin with a presentation of the differences in
..................KNOWLEDGE....................... between experts and
novices. The impact of the differences on problem solving and then transfer
is then discussed. Finally, the limitations of expertise are examined.
1992-008 Bedard, J., & Chi, M. T. H. (1993). Expertise in auditing.
Auditing: A Journal of Practice and Theory, 12, 21-45. The purpose of this article is twofold. First, the objective is
to contrast the results of these auditing studies with studies of expertise
with respect to other types of problems such as puzzle problems, games,
classroom problems, and real-world problems. This contrastive analysis
indicates that the characteristics of expertise found in other domains also
hold true in auditing. As the nature of expertise in auditing comes to be
understood, it becomes increasingly important to understand how an auditor
acquires expertise. A better understanding of how expertise develops in
auditing might help to achieve one of the objectives of expertise research in
auditing: to facilitate the transfer of expertise to nonexperts. While very
few studies have examined how expertise develops in auditing, this topic has
been widely studied in psychology. The second objective of this article is to
review some relevant literature on the formation of expertise. 1993-077 Chi, M. T. H., Bassok, M., Lewis, M. W., Reimann, P., &
Glaser, R. (1989). Self-explanations: How students study and use examples in
learning to solve problems. ..................COGNITIVE.......................
Science, 13, 145-182. This article analyzes the self-generated explanations (from
talk-aloud protocols) that "good" and "poor" students
produce while studying worked-out examples of mechanics problems, as well as
their subsequent reliance on examples during problem solving. The findings
suggest that "good" students learn with understanding: they
generate many explanations which refine and expand the conditions for the
action parts of the example solutions and relate these actions to principles
in the text. These self-explanations are guided by accurate monitoring of
their own understanding. "Poor" students generate insufficient
self-explanations, monitor their own learning inaccurately, and subsequently
rely heavily on worked-out examples. The closing discussion is then devoted
to the role of self-explanations in facilitating problem solving, as well as
the adequacy of current AI models of explanation-based learning to account
for these psychological findings. 1989-015 Chi, M. T. H., & Bjork, R. (1991). Modeling expertise. In D.
Druckman & R. A. Bjork (Eds.), In the mind's eye: Enhancing human
performance. Washington, DC: National Academy Press. This chapter has four main sections. In the first section, the
authors note that complex ..................COGNITIVE.......................
skills may not be readily learned by modelling or imitating expert
behavior. In the second section, they review ways in which experts excel,
other than in the given skill itself, and the ways their abilities and other
skills are not exceptional. Since their expertise is based on the
..................KNOWLEDGE....................... that they possess, which
in turn generates the actions they take, the authors focus in the third
section on the difficult process of extracting an expert's
..................KNOWLEDGE........................ Several ..................KNOWLEDGE.......................
elicitation methods are reviewed. Finally, the last section focuses on how
..................KNOWLEDGE....................... extracted from experts can
be imparted to novices. 1991-010 Chi, M. T. H., & Glaser, R. (1985). Problem solving ability.
In R. J. Sternberg (Ed.), Human abilities: An information-processing approach
(pp. 227-250). New York: Freeman. This chapter presents an overview of the general characteristics
of human problem solving ability. Two important factors that influence
problem solving are the nature of the task (the task environment) and the
..................KNOWLEDGE....................... brought to the problem by
the solver. The centrality of these two factors dictates the organization of this
chapter. In the first main section, the authors consider puzzle problems and
general processes of solution. In the second, they discuss the solving of
problems that require domain
..................KNOWLEDGE........................ The authors also consider
various task environments that involve insight, creativity, and
ill-structured problems. 1985-010 Chi, M. T. H., Glaser, R., & Farr, M. J. (Eds.). (1988). The
nature of expertise. Hillsdale, NJ: Erlbaum. The majority of the chapters in this volume were presented at a
conference held at the Learning Research and Development Center at the
University of Pittsburgh, sponsored by the Personnel and Training Research
Program, Office of Naval Research. The chapters focus on four areas:
practical skills, programming skills, medical diagnosis, and ill-defined
problems. For each domain, work that is representative and offers a diversity
of approaches is assembled. The different approaches employed show the
influence of methodologies from ..................COGNITIVE.......................
psychology, artificial intelligence, and
..................COGNITIVE....................... science in general. The
chapters also make a case for increased attention to learning-to how
expertise is acquired and to the conditions that enhance and limit the
development of high levels of
..................COGNITIVE....................... skill. 1988-007 Chi, M. T. H., Hutchinson, J. E., & Robin, A.F. (1989). How
inferences about novel domain-related concepts can be constrained by
structured ..................KNOWLEDGE........................ Merrill-Palmer
Quarterly, 35(1), 27-62. Three studies are focused on (a) the definition of structure in
a specific domain of ..................KNOWLEDGE....................... (in
this case, dinosaurs), and (b) the relationship between how
..................KNOWLEDGE....................... is structured and how it
is used. The evidence suggests that the
..................KNOWLEDGE....................... of children who are
experts on dinosaurs is structured hierarchically into well-defined families
and family groups. Furthermore, within each level of this hierarchy, the
..................KNOWLEDGE....................... appears to be locally
cohesive. Greater hierarchical structure allows expert children to use domain
features to generate causal explanations, use categorical reasoning, induce
attributes about novel dinosaurs, and sort dinosaurs into well-defined family
types. The consequences of hierarchically structured ..................KNOWLEDGE.......................
is that expert children can use it to constrain their inferences, whereas
novices must rely on their general world
..................KNOWLEDGE......................., thereby making less
accurate and often inappropriate inferences. 1989-016 Glaser, R. (1986). On the nature of expertise. In F. Klix &
H. Hagendorf (Eds.), Human memory and
..................COGNITIVE....................... capabilities: Mechanisms
and performances (pp. 915-928). Amsterdam, the Netherlands: Elsevier Science
Publishers. Studies show that high levels of competence result from the
interaction between ..................KNOWLEDGE.......................
structures and processing abilities. Expert performance is characterized by
rapid access to an organized body of conceptual and procedural
..................KNOWLEDGE........................ Propositions are
presented in this chapter that summarize findings confirming this view.
1986-007 Glaser, R. (1986). Training expert apprentices (Learning Research
Laboratory: Proposed research issues. AFHRL-TP-85-54). Brooks Air Force Base,
TX: Air Force Human Resources Laboratories. Encouraging the capabilities that can enable trainees to learn
from subsequent workplace experiences is a core aim of many training
programs. The objectives appropriate to this aim are being specified in
studies of the dimensions along which expertise develops. This article offers
recommendations on how understanding of these dimensions can guide
instruction and research on training. 1986-009 Glaser, R. (1987). Thoughts on expertise. In C. Schooler &
W. Schaie (Eds.), ..................COGNITIVE.......................
functioning and social structure over the life course (pp. 81-94). Norwood,
NJ: Ablex. In recent years, ..................COGNITIVE.......................
psychologists have investigated human performances that are acquired over
long periods of learning and experience. These studies have contrasted the
..................KNOWLEDGE....................... and skill of experts with
that of novices. The generalizations presented in this chapter summarize
current findings on the nature of expertise. 1987-020 Glaser, R. (1989). Expertise and learning: How do we think about
instructional processes now that we have discovered
..................KNOWLEDGE....................... structures? In D. Klahr
& K. Kotovsky (Eds.), Complex information processing: The impact of
Herbert A. Simon (pp. 269-282). Hillsdale, NJ: Erlbaum. This essay comments on the impact of ..................COGNITIVE.......................
analyses of human performance on the design of new forms of instruction.
Citing programs that aim to produce specific competencies that have been
described in key studies of the past two decades, the discussion turns to research
on experts' rapid pattern recognitions and representational abilities. The
focus here is the possibilities that lie in studies of effective
self-elaboration of problems for revealing ways to foster quick acquisition
of these tactics. 1989-026 Glaser, R. (1990). Expert
..................KNOWLEDGE....................... and the thinking process.
Chemtech, 20, 394-397. This article is an account in a professional magazine for
chemists of the general characteristics of expertise. The implications of research
on expert performance for instruction are also discussed. 1990-020 Glaser, R. (1990). Expertise. In M. W. Eysenck, A. Ellis, &
E. Hunt (Eds.), The blackwell dictionary of
..................COGNITIVE....................... psychology (pp. 139-140).
Oxford, England: Basil Blackwell. Studies of experts' problem solving, in domains ranging from
physics, medical diagnosis, computer programming, skilled memory, and mental
calculation to taxi driving and typing have produced generalizable findings
that permit characterization of expertise along well-defined lines. Across
the results, specialized ..................KNOWLEDGE.......................
shaped experts' performances in ways that indicate that certain features of
performance are typical of high levels of proficiency. 1990-021 Glaser, R. (1990). Expertise and assessment. In M. C. Wittrock
(Ed.), Cognition and testing. Englewood Cliffs, NJ: Prentice Hall. Studies of expertise have investigated the nature of the
..................KNOWLEDGE....................... and
..................COGNITIVE....................... processes that underlie
developing competence in various domains of learning. Findings on the nature
of expertise can serve as a basis for integrating
..................COGNITIVE....................... theory with psychometric
techniques in the design of achievement tests that assess growing proficiency
in subject-matter learning. 1990-081 Glaser, R. (1992). Expert
..................KNOWLEDGE....................... and processes of thinking.
In D. F. Halpern (Ed.), Enhancing thinking skills in the sciences and
mathematics (pp. 63-75). Hillsdale, NJ: Erlbaum. This paper explores and integrates research on expert
..................KNOWLEDGE....................... and processes of thinking.
Six generalizations of expert's
..................KNOWLEDGE....................... are presented: specificity
of proficiency; perception of meaningful patterns; selective memory search;
procedural and goal oriented ..................KNOWLEDGE.......................;
self-regulatory processes; and routinized proficiency. The domain of writing
competence is used to illustrate the properties of expertise. Concepts
examined in the writing example include: specificity, integrated
..................KNOWLEDGE......................., representation, task
monitoring and goal orientation, the nature of practice, self-monitoring,
principled performance, and the social context of learning. 1992-020 Understanding how expertise is acquired poses a great challenge to
learning theory. This chapter addresses the challenge by considering
expertise in terms of the learning phenomena involved and the conditions for
optimal acquisition of competence. The author identifies the changing sense
of agency as the outstanding feature of how learning occurs in acquiring
expert performance. Initially, the learner depends on others, and with time,
begins to increasingly rely on self-mechanisms and on self-judgment about
when to engage others as participants and coaches. Important elements in
processes of acquisition include organized structured
..................KNOWLEDGE......................., self-regulation,
representation and procedural
..................KNOWLEDGE......................., and environment and the
discipline. This chapter, one of an entire volume based on expertise, closes
with recommendations for future areas of study to further understand the
development of expertise. 1996-019 Glaser, R., & Chi, M. T. H. (1988). Overview. In M. T. H.
Chi, R. Glaser, & M. J. Farr (Eds.), The nature of expertise (pp.
xv-xxviii). Hillsdale, NJ: Erlbaum. In recent years, research on expertise has examined performances
that are based on hundreds and thousands of hours of learning and experience.
These studies of expertise in ..................KNOWLEDGE.......................
rich domains, together with theories of competent performance and attempts at
the design of expert systems, have sharpened the contrast between novice and
expert performances in showing strong interactions between structures of
..................KNOWLEDGE....................... and processes of reasoning
to be essential to highly proficient performance. This volume assembles
reports of major advances in research in this area. 1988-012 Glaser, R., & Pellegrino, J. W.
(1987). Aptitudes for learning and
..................COGNITIVE....................... processes. In F. Weinert
& R. Kluwe (Eds.), Metacognition, motivation, and understanding (pp.
267-288). Hillsdale, NJ: Erlbaum. This summary report of research attempts to identify directly
the ..................COGNITIVE....................... processing components
of performance on tasks used to assess aptitude. The immediate goal is to
analyze test tasks, develop process models of task performance, and utilize these
models as a basis for describing individual differences. The ultimate goal is
to use the ..................KNOWLEDGE....................... gained to
design conditions for learning that could be adjusted to these individual
characteristics. 1987-022 Gobbo, C., & Chi, M. T. H. (1986). How
..................KNOWLEDGE....................... is structured and used by
expert and novice children.
..................COGNITIVE....................... Development, 1, 221-237. This research contrasts the ..................KNOWLEDGE.......................
structures of expert and novice children in the domain of dinosaurs, as well
as how this ..................KNOWLEDGE....................... is used.
Several measures were developed to assess differences in ..................KNOWLEDGE.......................
structures, such as how frequently children use connecting words in their
production protocols, and the frequency with which they switch topics in
their discussion of a dinosaur. How children use their ..................KNOWLEDGE.......................
was assessed by measures such as the frequency with which they infer new
implicit information or make semantic comparisons about unknown dinosaurs.
These differences in the structure and use of ..................KNOWLEDGE.......................
suggest that expert children can better use and access their
..................KNOWLEDGE....................... than novice children
because it is more cohesive and integrated. 1986-011 Gott, S., & Glaser, R. (1985). ..................COGNITIVE.......................
components of expertise and the transfer of training. Brussels, Belgium:
Learning Research Laboratory, NATO. This report discusses the impact of psychological advances in
studies of expertise for transfer of technical training skills. Analysis of
components of expert performance can be useful to understanding how
..................KNOWLEDGE....................... is acquired and adaptive
skill is generated. 1985-016 Gott, S. P., Hall, E. P., Pokorny, R. A., Dibble, E., &
Glaser, R. (1993). A naturalistic study of transfer: Adaptive expertise in
technical domains. In D. K. Detterman & R. J. Sternberg (Eds.), Transfer
on trial: Intelligence, cognition, and construction (pp. 258-288). Norwood,
NJ: Ablex. The research presented in this chapter investigates the practice
of intentional transfer: a learning process characterized by a person's need
to transfer prior ..................KNOWLEDGE....................... and
skills to new situations. This chapter focuses on how subjects attempt
intentional transfer and describes a range of adaptive to maladaptive
behaviors. An important theoretical dimension of the preliminary research is
the strong influence of mental models on both
..................KNOWLEDGE....................... access and subsequent
reasoning. The results show that the primary content of transfer takes the
form of abstract ..................KNOWLEDGE.......................
representations. Subjects used prior models as interpretive structures. Better
learners were flexible when applying their prior models to novel situations.
Less able performers displayed maladaptive behaviors, sometimes
oversimplifying new problems or focusing on specific problem-solving
procedures. 1993-014 Leinhardt, G. (1986). Expertise in mathematics teaching.
Educational Leadership, 43(7), 28-33. Findings from a contrastive study of expert and novice
elementary mathematics teachers are reviewed and examples from one expert's
teaching are used to discuss elements of expertise. These elements include
maximizing time usage and content coverage; using effective routines and
activity structures in constructing lessons; developing meaningful,
content-based agendas for lessons; and providing rich explanations that build
on students' prior ..................KNOWLEDGE......................., use
well known representations to introduce new material, provide complete
demonstrations, and prove the legitimacy of the new concept or procedure.
1986-019 Leinhardt, G. (1988). Expertise in instructional lessons: An
example from fractions. In D. A. Grouws & T. J. Cooney (Eds.),
Perspectives on research on effective mathematics teaching (pp. 47-66).
Hillsdale, NJ: Erlbaum. This chapter describes major components of expertise in the
teaching of elementary mathematics, drawing primarily on findings from a
contrastive study of novice and expert teachers teaching fractions. Lesson
segments, routines, scripts, agendas, and explanations are described and a
model of an expert explanation of specific subject matter is presented.
1988-017 Leinhardt, G. (1988). Situated
..................KNOWLEDGE....................... and expertise in teaching.
In J. Calderhead (Ed.), Teachers' professional learning (pp. 146-168).
London: Falmer Press. In this chapter, expert teachers'
..................KNOWLEDGE....................... of teaching is discussed
in terms of the anthropological and psychological construct of situated
..................KNOWLEDGE........................ As an example, the author
traces the (partially hypothetical) development of one teacher's
..................KNOWLEDGE....................... of how to teach a
particular math topic to second graders. Four scenarios of teaching and
learning subtraction with regrouping, taken across 40 years in this teacher's
lifetime, are presented and discussed. 1988-019 Leinhardt, G. (1989). Development of an expert explanation: An
analysis of a sequence of subtraction lessons. In L. B. Resnick (Ed.),
Knowing, learning, and instruction: Essays in honor of Robert Glaser (pp.
67-124). Hillsdale, NJ: Erlbaum. (Also in Cognition and Instruction, 1987,
4(4), 225-282) This chapter traces the teaching and learning that occurred
during an 8-day unit on subtraction with regrouping in an expert teacher's
second-grade classroom. Detailed analyses of this expert's lessons focused
both on the teacher's explanations and on students'
..................KNOWLEDGE....................... growth (assessed before,
during, and after instruction). Content analyses generated models of the
teacher's and students' ..................KNOWLEDGE........................ A
structural analysis of the lessons generated a model of an expert explanation
in elementary mathematics. 1989-032 Leinhardt, G. (1989). Math lessons: A contrast of novice and
expert competence. Journal for Research in Mathematics Education, 20(1),
52-75. From a study of novice and expert teachers, three important
elements needed for constructing expert mathematics lessons are identified
and described: rich agendas, consistent but flexible lesson structures, and
explanations that meet the goals of clarifying concepts and procedures and
having students learn and understand them. The novice-expert contrast
highlighted the nature of the competencies expert teachers possessed and
suggested some areas of instruction for future teachers. 1989-033 Leinhardt, G. (1990). Capturing craft
..................KNOWLEDGE....................... in teaching. Educational
Researcher, 19(2), 18-25. This exploration raises some problems and poses some solutions
in identifying the craft ..................KNOWLEDGE.......................
of teaching. Craft ..................KNOWLEDGE......................., or
wisdom of practice, is one important component in the design and validation of
new national teacher assessments. The prototype assessment exercises for
National Board certification are one site in which such craft
..................KNOWLEDGE....................... has been used. From that
experience and others, some guides for inspecting exercises are suggested.
1990-035 Leinhardt, G. (1990). A contrast of novice and expert competence
in math lessons. In J. Lowyck & C. M. Clark (Eds.), Teacher thinking and
professional action (pp. 75-97). Leuven, Belgium: Leuven University Press. Using techniques from ethnography and
..................COGNITIVE....................... psychology, lessons taught
by novice and expert elementary math teachers were observed, analyzed, and
compared to reveal specific competencies expert teachers possess. The
author identifies three important elements in expert teachers' math lessons:
rich agendas, consistent but flexible lesson structures, and explanations
that meet specific goals. 1990-034 Leinhardt, G. (1990). Towards understanding instructional explanations
(Tech. Rep. No. CLIP-90-03). Pittsburgh, PA: University of Pittsburgh, LRDC. This report discusses the nature of instructional explanations
as they differ from common, disciplinary, and self explanations. Each type is
examined and compared with respect to specific features (problem type,
initiation, evidence, form, and audience). Given this context, three examples
of instructional explanations are explored, one by a teacher in history, one
by a student in history, and one by teachers and students together in
mathematics. 1990-032 Leinhardt, G. (1990). Weaving instructional explanations in
history (Tech. Rep. No. CLIP-90-02). Pittsburgh, PA: University of
Pittsburgh, LRDC. This report examines the nature of and occasions for
instructional explanations in history. Based on theoretical and empirical
evidence, the author proposes a typology that consists of two major types of
instructional explanations (ikat and blocked) and four sites or occasions for
their use (i.e., to explain metasystems, events, structures, and themes).
Examples of classroom use of these kinds of explanations are provided.
1990-033 Leinhardt, G., & Greeno, J. (1986). The
..................COGNITIVE....................... skill of teaching. Journal
of Educational Psychology, 78(2), 75-95. (Also in P. Goodyear (Ed.), Teaching
..................KNOWLEDGE....................... intelligent tutoring.
Norwood, NJ: Ablex, 1991). The complex ..................COGNITIVE.......................
skill of teaching is described in terms of two fundamental
..................KNOWLEDGE....................... systems: lesson structure
and subject matter. A formal model of the process of instruction in
elementary mathematics is presented and examined in light of empirical data
from both expert and novice teachers. Instructional segments are carefully
analyzed in order to clarify the nature of instructional action and goal
systems that support competence in this socially dynamic and complex task
domain. 1986-051 Leinhardt, G., & Ohlsson, S. (1990). Tutorials on the
structure of tutoring from teachers. Journal of Artificial Intelligence in
Education, 2(1), 21-46. This article examines how five exemplary elementary math
teachers use meta-communication to facilitate the task of the learners in their
classrooms. Based on theoretical considerations, the authors hypothesize the
five categories of meta-communication. Results of the study generated some
principles for the design of good instruction. 1990-036 Leinhardt, G., & Putnam, R. T. (1986). Profile of expertise
in elementary school mathematics teaching. Arithmetic Teacher, 34(4), 28-29. This article describes three distinct programs of expert-novice
research that each revealed important aspects of expertise in teaching. Based
on these findings, a profile of expertise in elementary mathematics
instruction was developed. Experts have specialized pedagogical content
..................KNOWLEDGE.......................; they provide explanations
that are cohesive and tightly connected to the representations being used;
they have intricate mental agendas for lessons; and they develop and
continually refine curriculum scripts for frequently taught topics. 1986-020 Leinhardt, G., & Putnam, R. T. (1987). The skill of learning
from classroom lessons. American Educational Research Journal, 24(4),
557-587. This article presents a model of the skills a student needs to
have to make sense of a mathematics lesson taught by a good teacher. The
model of the learner contains a variety of ..................COGNITIVE.......................
competencies: an action system, a lesson parser, an information gatherer, a
..................KNOWLEDGE....................... generator, and an
evaluator. A description of how the model functions during a two-day lesson
sequence provides an empirical example. 1987-026 Leinhardt, G., Putnam, R. T., Stein, M. K., & Baxter, J.
(1991). Where subject ..................KNOWLEDGE.......................
matters. In J. Brophy (Ed.), Advances in research on teaching: Teachers'
subject matter ..................KNOWLEDGE....................... and
classroom instruction (Vol. 2, pp. 87-113). Greenwich, CT: JAI Press. Subject-matter
..................KNOWLEDGE....................... is one important element
in the complex ..................COGNITIVE....................... skill of
teaching. Focusing on elementary mathematics instruction, this chapter
discusses how the nature of a teacher's subject-matter
..................KNOWLEDGE....................... influences his or her
teaching. Four sites are examined for teachers' use of subject-matter
..................KNOWLEDGE.......................: agendas, curriculum
scripts, explanations, and representations. 1991-032 Leinhardt, G., & Smith, D. (1985). Expertise in mathematics
instruction: Subject matter
..................KNOWLEDGE........................ Journal of Educational
Psychology, 77(3), 247-271. This expert-novice study explores the relationship between
teachers' classroom behavior and their subject matter
..................KNOWLEDGE....................... of a topic, in this case
fractions. Among the experts studied, some displayed rich conceptual
..................KNOWLEDGE....................... of fractions and others
relied on precise ..................KNOWLEDGE....................... of
algorithms. Implications of these
..................KNOWLEDGE....................... differences are discussed.
1985-019 Leinhardt, G., Weidman, C., & Hammond, K. M. (1987).
Introduction and integration of classroom routines by expert teachers.
Curriculum Inquiry, 17(2), 135-176. Successful teachers establish, rehearse, and maintain a set of
routines (shared, socially scripted behaviors) to reduce the
..................COGNITIVE....................... complexity of the
instructional environment and allow instruction to proceed fluidly and
efficiently. From extensive observations of 6 experts' classrooms, three
types of routines were identified: management, instructional support, and
teacher-student exchange. Approximately 85% of the routines introduced in the
first four days of school were still in use at midyear. 1987-027 Leinhardt, G., & Young, K. M. (1996). Two texts, three
readers: Distance and expertise in reading history. Cognition and
Instruction, 14(4), 441-486. This study compared the reading practices of historians reading
familiar texts with those reading unfamiliar texts to determine when and how
historians use general historical
..................KNOWLEDGE....................... versus topic-specific
expertise. Two expert historians were asked to select a document critical to
their current work, and then to read and interpret their own and a
colleague's selection. Results confirmed that historians have general
document reading ..................KNOWLEDGE......................., which
includes schemas and action systems for identification and interpretation;
historians' general ..................KNOWLEDGE.......................
dynamically interacts with their topic-specific expertise; historians read
familiar and unfamiliar documents differently; and historians read
intertextually. Further, the manner in which historians construct text base
and situation models as they read reveals the nature and extent of their
expertise. The analysis of expert historians' reading practice provides an
exemplar for student learning and also leads to recommendations for
instruction. 1996-029 Leinhardt, G., Young, K. M., & Merriman, J. (1995).
Integrating professional ..................KNOWLEDGE.......................:
The theory of practice and the practice of theory. Learning and Instruction,
5(4), 1-8. This article provides a commentary for featured articles in a
special issue on the nature of professional
..................KNOWLEDGE....................... in several
professions-architecture, engineering, medicine, and teaching. The authors
examine the tensions that exist between theory and practice, focusing on the
dualities inherent in various forms of professional
..................KNOWLEDGE........................ Professional ..................KNOWLEDGE.......................
can vary by the location of the learning (in the academy or in practice), the
type of ..................KNOWLEDGE....................... (declarative or
procedural), the generality of ..................KNOWLEDGE.......................
(abstract or specific), and the nature of principles (conceptual or
pragmatic). After discussing how each of these features varies according to
the location of learning, the authors discuss how transforming
..................KNOWLEDGE....................... learned in one location
into forms associated with the other location might lead to increased
integration of professional
..................KNOWLEDGE....................... and ultimately to more
skillful practice. An extended example from the teaching profession
illustrates the authors' meaning. 1995-022 Lesgold, A. M. (1988). Medical decision making: Formal or
intuitive? [Review of S. Schwartz and T. Griffin, Medical thinking: The
psychology of medical judgment and decision making]. Contemporary Psychology,
33(9), 781-782. Review of S. Schwartz and T. Griffin, Medical Thinking: The
Psychology of Medical Judgment and Decision Making. (1986). New York:
Springer-Verlag. 1988-022 Lesgold, A. (1989). Context-specific requirements for models of
expertise. In D. A. Evans & V. L. Patel (Eds.),
..................COGNITIVE....................... science in medicine:
Biomedical modeling (pp. 373-400). Cambridge, MA: The MIT Press. This chapter proposes new methods of modeling medical expertise
and of student modeling for computer-assisted medical education. A
context-specific abstracted problem space approach, though inelegant, may be
more practical than exhaustive modeling of the student's
..................KNOWLEDGE.......................; and hybrid connectionist
models may have advantages for modeling expertise. 1989-035 Lesgold, A., & Lajoie, S. P. (1991). Complex problem solving
in electronics. In R. Sternberg & P. A. Frensch (Eds.), Complex problem
solving: Principles and mechanisms (pp. 287-316). Hillsdale, NJ: Erlbaum. Drawing in part on analytic and training studies of Air Force
technicians, this chapter discusses what does and does not make for expertise
in electronics troubleshooting and its acquisition. For example, deep conceptual
..................KNOWLEDGE....................... is neither sufficient nor
necessary. 1991-082 Lesgold, A., Rubinson, H., Feltovich, P., Glaser, R., Klopfer,
D., & Wang, Y. (1988). Expertise in a complex skill: Diagnosing x-ray
pictures. In M. T. H. Chi, R. Glaser, & M. Farr (Eds.), The nature of
expertise (pp. 311-342). Hillsdale, NJ: Erlbaum. This chapter compares highly expert radiologists' diagnoses of
x-ray pictures to those of radiology residents. In contrast to the residents,
the experts immediately (perceptually) reach the stage where a general schema
is in control. Such schemas have sets of processes that enable them to reach
and confirm a diagnosis. Also, the residents are less able to accommodate new
information to schemas it may not match perfectly. 1988-025 McQuaide, J., Fienberg, J., &
Leinhardt, G. (1991). Transcript of George Polya's film Let Us Teach Guessing
(Tech. Rep. No. CLIP-91-01). Pittsburgh, PA: University of Pittsburgh, LRDC. This report consists of a transcript of George Polya's film Let
Us Teach Guessing. It includes drawings of all of the visual elements in the
lesson and thus provides in print format a valuable tool for analyzing the
presentation of mathematical concepts by this eminent teacher. It was
prepared for use in an ongoing research project which has as its theme the
relationship between teaching and learning in particular subject-matter
areas. 1991-037 Means, M. L., & Voss, J. F. (1996). Who reasons well? Two
studies of informal reasoning among children of different grade, ability, and
..................KNOWLEDGE....................... levels. Cognition and
Instruction, 14(2), 139-178. This paper presents the results of two experiments addressing
the relation of reasoning skill to student grade, ability, and
..................KNOWLEDGE....................... levels. In the first,
students-designated as intellectually gifted, average, or below average-were
given tasks involving everyday problems for which they provided solutions and
justifications. The second experiment included the measurement of domain
..................KNOWLEDGE....................... with grade and ability
level. Results showed a substantial relation between ability level and
performance, with ..................KNOWLEDGE.......................
significantly related to performance measures such as number and type of
reasons generated, but not to measures involving soundness or acceptability
of arguments, which were explained by ability level. Grade was related only
to an increase in personal and broadly defined social reasons. Findings were
interpreted in terms of a two-component model of informal reasoning: a
..................KNOWLEDGE.......................-experiential component and
informal reasoning skill component based on the acquisition of language
structures. 1996-034 Odoroff, E., & Leinhardt, G. (1990). Writing tales with
details (Tech. Rep. No. CLIP-90-05). Pittsburgh, PA: University of
Pittsburgh, LRDC. A study of an exceptional writing teacher showed how one teacher
moved students beyond the recognition of desired features in examples of good
short-story writing to the generation of those features in their own writing.
Analysis of videotaped lessons helped produce a model that shows how this
teacher carefully constrains writing processes so that they lead to
acceptable stories. 1990-052 Ohlsson, S. (1993). The interaction between
..................KNOWLEDGE....................... and practice in the
acquisition of ..................COGNITIVE....................... skills. In
A. Meyrowitz, & S. Chipman (Eds), Foundations of
..................KNOWLEDGE....................... acquisition:
..................COGNITIVE....................... models of complex learning
(pp. 147-208). Norwell, MA: Kluwer Academic Publishers. The role of prior
..................KNOWLEDGE....................... in skill acquisition is to
enable the learner to detect and to correct errors. Computational mechanisms
that carry out these two functions are implemented in a simulation model
which represents prior ..................KNOWLEDGE....................... in
constraints. The model learns symbolic skills in mathematics and science by
noticing and correcting constraint violations. Results from simulation runs
include quantitative predictions about the learning
..................CURVE....................... and about transfer of
training. Because constraints can represent instructions as well as prior
..................KNOWLEDGE......................., the model also simulates
one-on-one tutoring. The implications for the design of instruction include a
detailed specification of the content of effective feedback messages for
intelligent tutoring systems. 1993-038 Ohlsson, S. (1994). Declarative and procedural
..................KNOWLEDGE........................ In T. Husen & T.
Neville-Postlethwaite (Eds.), The international encyclopedia of education
(Vol. 3, 2nd ed., pp. 1432-1434). London, UK: Pergamon Press. There are two types of
..................KNOWLEDGE........................ Declarative ..................KNOWLEDGE.......................
is ..................KNOWLEDGE....................... about the world. It is
inherently neutral to how, or in what context, it is used. Procedural
..................KNOWLEDGE....................... is ..................KNOWLEDGE.......................
about how to perform specific tasks. Such
..................KNOWLEDGE....................... necessarily refers to the
relevant agent's goals and capabilities. Examples of both types of
..................KNOWLEDGE....................... are discussed. [Topics: 2,
6, 13] 1994-048 Ohlsson, S. (1994, February). From general methods to
task-specific ..................KNOWLEDGE.......................: A mythical
advance in the theory of intelligence (Tech. Rep. No. KUL-94-1). Pittsburgh,
PA: University of Pittsburgh, LRDC. It is widely believed that the
..................COGNITIVE....................... sciences discovered that
intelligence resides in task-specific
..................KNOWLEDGE....................... rather than in general
methods in the late 1960s or early 1970s. This belief is incoherent. No known
computational mechanism operates solely with either general methods or
task-specific ..................KNOWLEDGE........................
Intelligence emerges in the application of one or more general methods to
some task-specific ..................KNOWLEDGE........................ Turing
machines, general methods, and
..................KNOWLEDGE.......................-based systems all
exemplify this principle. To locate intelligence in either general methods or
task-specific ..................KNOWLEDGE....................... is a
category mistake. The supposed advance in our understanding of intelligence
was an intellectual retreat. Artificial Intelligence abandoned the quest for
a theory of agency and began building useful but uninteresting
implementations of classical logic.
..................COGNITIVE....................... psychology rejected the
goal of identifying the human ..................COGNITIVE.......................
architecture for traditional forms of inquiry. Consequences were devastating
for both. 1994-049 Ohlsson, S., & Rees, E. (1992). A model of
..................KNOWLEDGE.......................-based skill acquisition.
In Proceedings of the Fourteenth Annual Conference of the
..................COGNITIVE....................... Science Society (pp.
1020-1025). Hillsdale, NJ: Erlbaum. The authors hypothesize that two important functions of
declarative ..................KNOWLEDGE....................... in learning is
to enable the learner to detect and to correct errors. They describe
psychologically plausible mechanisms for both functions. The mechanisms are
implemented in a computational model which learns
..................COGNITIVE....................... skills in three different
domains, illustrating the ..................COGNITIVE.......................
function of abstract principles, concrete facts, and tutoring messages in
skill acquisition. 1992-052 Rabinowitz, M., & Glaser, R. (1985).
..................COGNITIVE....................... structure and process in
highly competent performance. In F. D. Horowitz & M. O'Brien (Eds.), The
gifted and talented: A developmental perspective (pp. 75-98). Washington, DC:
American Psychological Association. What allows people to perform in highly competent ways? In
contrast to attributing such performance to general intelligence, recent
approaches characterize intelligence and aptitude in terms of competent
processes. The research reviewed here compares skilled and novice
performances in terms of such components and gives particular attention to
the role of ..................KNOWLEDGE........................ 1985-036 Raghavan, K., & Glaser, R. (1994). Studying and teaching
model-based reasoning in science. In S. Vosniadou, E. De Corte, & H.
Mandl (Eds.), Technology-based learning environments: Psychological and
educational foundations (pp. 104-111). Berlin: Springer-Verlag. A model-centered science curriculum is developed and implemented
to help middle-school students learn to reason with qualitative explanatory
models that underlie scientific phenomena. The curriculum focuses on concepts
important for understanding floating and sinking, coordinating traditional
laboratory experiments with interactive computer tasks that permit students
to inspect, manipulate, and predict with models of the underlying theoretical
entities. 1994-091 Schiano, D. J., Cooper, L. A., Glaser, R., & Zhang, H. C.
(1989). Highs are to lows as experts are to novices: Individual differences
in the representation and solution of standardized figural analogies. Human
Performance, 2(4), 225-248. Findings are reported from two experiments that compared the
strategies used by high and low scorers on standardized figural analogy tests
to represent and solve problems. The findings converge to suggest specific
aptitude-related differences in the representation and solution of
standardized figural analogy problems. These differences resemble
expert-novice differences in a number of other problem solving domains.
1989-059 Silver, E. A., & Metzger, W. (1989). Aesthetic influences on
expert mathematical problem solving. In D. B. McLeod & V. M. Adams
(Eds.), Affect and mathematical problem solving: A new perspective (pp.
59-74). New York: Springer-Verlag. Building on an already existing body of literature relating to
expert problem solving behavior, data in the form of interview protocols and
summaries of protocols of expert problem solvers were examined, and the role
of aesthetic judgments on expert mathematical problem solvers was
investigated in this chapter. The authors argue that the results indicate
that problem-solving expertise is a function of taste as well as competence.
Aesthetic factors appear to play two roles in the behaviors of expert problem
solvers: (a) aesthetic principles serve as a basis for post hoc evaluation of
solutions or problems, and (b) aesthetic principles guide decision making
during problem solving. The relevance of these findings for instruction is discussed
briefly. 1989-070 Stein, M. K., Baxter, J., &
Leinhardt, G. (1989). Teacher subject matter
..................KNOWLEDGE....................... and its relationship to
classroom instruction (Tech. Rep. No. CLIP-89-01). Pittsburgh, PA: University
of Pittsburgh, LRDC. This report investigates the level and kind of teacher
subject-matter ..................KNOWLEDGE....................... needed for
elementary instruction. An experienced fifth-grade teacher was studied in the
context of teaching functions and graphing. The teacher's subject-matter
..................KNOWLEDGE....................... was compared to that of
two math experts. Results of this comparison and an examination of lesson
transcripts showed limitations in the teacher's subject matter
..................KNOWLEDGE....................... and instances of missed
opportunities in classroom presentations. 1989-072 Stein, M. K., Baxter, J., &
Leinhardt, G. (1990). Subject-matter
..................KNOWLEDGE....................... and elementary
instruction: A case from functions and graphing. American Educational
Research Journal, 27(4), 639-663. This article describes the relationship between teachers'
subject-matter ..................KNOWLEDGE....................... and their
lesson presentations by reporting on a study of one experienced 5th-grade
mathematics teacher teaching 25 lessons on functions and graphing. The
teacher's subject matter ..................KNOWLEDGE.......................
(gleaned from lesson videotapes and interviews) was compared to that of a
math educator. Specific limitations in the teacher's
..................KNOWLEDGE....................... were identified and
implications of this, both for instruction and for teacher education, are
discussed. 1990-076 VanLehn, K. (1992). A model of long-term learning: Integration
of ..................KNOWLEDGE....................... acquisition and
..................KNOWLEDGE....................... compilation (Tech. Rep.
No. PCG-36). Pittsburgh, PA: University of Pittsburgh, Learning Research and
Development Center. In order to understand how experience increases expertise, the
author proposes to model the development of expertise in physics problem
solving over long periods of training. The model will provide an explanation
of 30 well-known phenomena, including expert-novice differences, practice
effects and transfer effects. The resulting model should provide a unified
theory of the acquisition of expertise in self-study settings. [Topics: 7,
13, 19] 1992-085 VanLehn, K. (1993). Cascade: A simulation of human learning and
its applications. In P. Brna, S. Ohlsson, & H. Pain (Eds.), Proceedings
of the World Conference on Artificial Intelligence in Education (pp. 1-3).
Edinburgh, Scotland: AACE. This article briefly describes the goal of the Cascade project
and the current work in extending and demonstrating the capabilities of
Cascade. 1993-062 VanLehn, K., & Ball, W. (1991). Goal reconstruction: How
Teton blends situated action and planned action. In K. VanLehn (Ed.), Architectures
for intelligence (pp. 147-188). Hillsdale, NJ: Erlbaum. People can reconstruct goal structures and other aspects of
their internal state that have been forgotten. This capability is called goal
reconstruction. Because goal reconstruction requires no special training and
does not have to be acquired separately for each new problem solving
procedure one learns, goal reconstruction is arguably a fundamental,
task-general capability of human problem solvers. Goal reconstruction is also
a useful capability for an artificial problem solver. It permits recovery
from interruption of the problem solving by processes that modify the body of
procedural ..................KNOWLEDGE......................., such as an
inferential learning process or a programmer debugging the procedural
..................KNOWLEDGE........................ In short, goal
reconstruction is both a fundamental human capability and a useful capability
for AI architectures. This paper discusses computational mechanisms for
implementing an in principle tradeoff between perceptual and
..................COGNITIVE....................... maintenance of goals.
1991-072 VanLehn, K., & Jones, R. M. (1993). Better learners use
analogical problem solving sparingly. In P. E. Utgoff (Ed.), Machine
Learning: Proceedings of the Tenth Annual Conference (pp. 338-345). San
Mateo, CA: Morgan Kaufmann Publishers. When solving homework exercises, human students often notice
that the problem they are about to solve is similar to an example. They then deliberate
over whether to refer to the example or to solve the problem without looking
at the example. We present protocol analyses showing that effective human
learners prefer not to use analogical problem solving for achieving the
base-level goals of the problem, although they do use it occasionally for
achieving meta-level goals, such as checking solutions or resolving certain
kinds of impasses. On the other hand, ineffective learners use analogical
problem solving in place of ordinary problem solving, and this prevents them
from discovering gaps in their domain theory. An analysis of the task domain
(college physics) reveals a testable heuristic for when to use analogy and
when to avoid it. The heuristic may be of use in guiding multistrategy
learners. 1993-063 VanLehn, K., & Jones, R. M. (1993). Integration of
analogical search control and explanation-based learning of correctness. In
S. Minton (Ed.), Machine learning methods for planning (pp. 273-315). San
Mateo, CA: Morgan Kaufman. Many machine systems acquire new domain rules by trying to
derive a solution to a problem, reaching an impasse, guessing a new rule that
resolves the impasse, and going on. If the new rule allows the derivation to
be eventually completed, that is taken as justification for including it in
the domain theory, at least provisionally. This chapter analyzes a particular
derivation completion learner, Cascade, that guesses new rules by
specializing overly general rules. The analysis concentrates on three issues:
(1) How can a derivation completion learner intelligently decide which
impasses should be resolved and learned from? (2) Can Cascade's learning
method acquire any domain rule, or are there limits to its power? (3) What
would a library of overly general rules look like for a particular task
domain-would it be adhoc or show some kind of structure? 1993-064 VanLehn, K., & Jones, R. M. (1993). Learning by explaining
examples to oneself: A computational model. In S. Chipman & A. L.
Meyrowitz (Eds.), Foundations of ..................KNOWLEDGE.......................
acquisition: ..................COGNITIVE....................... models of
complex learning (pp. 25-82). Boston: Kluwer. Several investigations have found that students learn more when
they explain examples to themselves while studying them. Moreover, they refer
less often to the examples while solving problems, and they read less of the
examples each time they refer to them. These findings, collectively called
the self-explanation effect, have been reproduced by the authors'
..................COGNITIVE....................... simulation program,
Cascade. Moreover, when Cascade is forced to explain exactly the parts of the
TPQuPTes that a subject explains, then it predicts most (60 to 90%) of the
behavior that the subject exhibits during subsequent problem solving. Cascade
has two kinds of learning. It learns new rules of physics (the task domain
used in the human data modeled) by resolving impasses with reasoning based on
overly general, non-domain ..................KNOWLEDGE........................
It acquires procedural competence by storing its derivations of problem
solutions and using them as analogs to guide its search for solutions to
novel problems. 1993-065 VanLehn, K., & Jones, R. M. (1993). What mediates the
self-explanation effect? ..................KNOWLEDGE.......................
gaps, schemas or analogies? In M. Polson (Ed.), Proceedings of the Fifteenth
Annual Conference of the ..................COGNITIVE.......................
Science Society (pp. 1034-1039). Hillsdale, NJ: Erlbaum. Several studies have found that learning is more effective when
students explain examples to themselves. Although these studies show that
learning and self-explanation co-occur, they do not reveal why. Three
explanations have been proposed and computational models have been built for
each. The gap-filling explanation is that self-explanation causes subjects to
detect and fill gaps in their domain
..................KNOWLEDGE........................ The schema formation explanation
is that self-explanation causes the learner to abstract general solution
procedures and associate each with a general description of the problems it
applies to. The analogical enhancement explanation is that self-explanation
causes a richer elaboration of the example, which facilitates later use for
the example for analogical problem solving. We claim that, in one study at
least, gap filling accounts for most of the self-explanation effect. 1993-066
Voss, J. F. (1989). On the composition of experts and novices.
In E. Maimon, B. Nodine, & F. O'Connor (Eds.), Thinking, reasoning, and
writing. White Plains, NY: Longman Press. This chapter presents the position that the development of a
better understanding of the processes underlying the solving of ill-defined
problems, including the processes of informal reasoning, will lead to a
better understanding of the complex acts of everyday behavior, including
tasks such as writing. Brief summaries of research on the solving of
ill-structured problems by experts and novices and of some research on
informal reasoning are presented, indicating how such research on problem
solving and reasoning may enhance our understanding of instruction in other
complex tasks. 1989-076 Voss, J. F., Blais, J., Means, M. L., Greene, T. R., &
Ahwesh, E. (1989). Informal reasoning and subject matter
..................KNOWLEDGE....................... in the solving of
economics problems by naive and novice individuals. In L. B. Resnick (Ed.),
Knowing, learning and instruction: Essays in honor of Robert Glaser (pp.
217-250). Hillsdale, NJ: Erlbaum. This chapter reports on a study which investigated how subject
matter ..................KNOWLEDGE....................... and the use of
informal reasoning mechanisms are related to the solving of economics
problems by naive and novice individuals. Participants answered questions
about changes in automobile prices, the federal deficit, and interest rates.
The results suggest that classroom instruction in economics does not
necessarily lead to superior performance on everyday economics tasks and that
individuals with a strong intellectual history may not acquire economics
..................KNOWLEDGE....................... from everyday experience.
Application of an informal reasoning model indicates that college educated
individuals differ from those with no college education on several reasoning
measures. 1989-079 Voss, J. F., Carretero, M., Kennet, J., & Silfies, L. N.
(1994). The collapse of the Soviet Union: A case study in causal reasoning.
In M. Carretero & J. F. Voss (Eds.),
..................COGNITIVE....................... and instructional
processes in history and the social sciences (pp. 403-429). Hillsdale, NJ:
Erlbaum. This chapter concerns how people perceive historical causation:
What do people believe to be the causes of historical events? The authors
chose to study the issue of historical causation primarily because it is one
of the most fundamental topics of historical understanding, and therefore
also one of the most important aspects of history and instruction. Moreover,
the study of historical causation is related to other fundamental questions
of understanding history. The authors addressed the question of historical
causation by asking individuals to write an essay on what produced the
collapse of the Soviet Union. Subsequently, subjects were asked to rate the
importance of a number of potential causes of the collapse and show how at
least some of the causes produced it. The chapter discusses the nature of
causal reasoning, especially as related to the topic of history, describes
the study that was conducted, and discusses the findings with respect to
history-related causal reasoning. 1994-076 Voss, J. F., Fincher-Kiefer, R. H., Greene, T. R., & Post,
T. A. (1986). Individual differences in performance: The contrastive approach
to ..................KNOWLEDGE........................ In R. J. Sternberg
(Ed.), Advances in the psychology of human intelligence (Vol. 3, pp.
297-334). Hillsdale, NJ: Erlbaum. This chapter presents a review of research involving the
contrastive method, the extent to which a characteristic in question is
related to performance on some other task. Of specific interest is use of
this method when the characteristic in question is some type of ..................KNOWLEDGE.......................
assessment and the comparison task is performance on some type of information
processing task. A methodologically centered summary of research is
presented, providing a type of case study in the use of contrastive
methodology. Finally, a critical evaluation of contrastive methodology is
presented. 1986-045 Zeitz, C., & Glaser, R. (1994). The expert level of
understanding. In T. Husen & T. N. Postlethwaite (Eds.), The
international encyclopedia of education (2nd ed., pp. 2194-2199).
Oxford/Leuven: Pergamon Press. ..................COGNITIVE....................... scientists have studied
the phenomenon of expertise to understand the effects of acquired
..................KNOWLEDGE....................... and extensive experience
on human competence. This article examines the properties of expert
performance that define the characteristics of human
..................COGNITIVE....................... attainment acquired
through education and learning. The organization of experts'
..................KNOWLEDGE....................... is explored through topics
such as memory performance and the representation of problems. Expert
..................KNOWLEDGE....................... in ill-structured domains
is considered as well, highlighting experts imposition of constraints and
justification of proposed solutions. The article concludes with several
instructional methods, including innovative approaches to assessment that
cultivate aspects of expertise. 1994-080 The Role of Intelligence in
Modern Society by Earl Hunt Last year, Richard Herrnstein and Charles Murray published The
Bell ..................CURVE.......................: Intelligence and Class
Structure in American Life. Although it had more graphs than a Ross Perot
speech, The Bell ..................CURVE....................... made its
authors' names household words, sometimes accompanied by four-letter words.
Herrnstein and Murray maintained that America is splitting into the
intelligent, who will move and shake society, and the less intelligent, who
will be moved and shaken. They thought that the split is inevitable, because
our technological society requires intelligence to run it. Finally, they said
that intelligence is largely hereditary, and that numerous government
programs, especially Affirmative Action, are undesirable because they amount
to discrimination against the capable. Such thoughts are not entirely politically correct. The first
reactions to The Bell ..................CURVE....................... were
expressions of public outrage. In the second round of reaction, some
commentators suggested that Herrnstein and Murray were merely bringing up
facts that were well known to the scientific community, but perhaps best not
discussed in public. A Papua New Guinea language has a term for this, Mokita.
It means "truth that we all know but agree not to talk about." The uproar over The Bell
..................CURVE....................... is remarkably similar to a
debate in the early 1970s. The earlier debate began when Arthur Jensen (1969)
wrote that the educational enrichment programs of the Great Society were
inherently limited by the immutability of intelligence and when Herrnstein
(1973) claimed that differences in intelligence are largely genetic.
Counterattacks followed, and by the early 1980s widely read books and
articles maintained that there is no such thing as general intelligence
(Gardner 1983), or that if there is it is largely a statistical artifact of
the way that tests are constructed (Gould 1983), and that even if IQ exists
it has little to do with life outside of a few narrow academic settings (Ceci
and Liker 1986). Some of these authors have recanted (Ceci and Bruck 1994,
pg. 79). A central question in the debate is whether or not mental
competence is a single ability, applicable in many settings, or whether
competence is produced by specialized abilities, which a person may or may
not possess independently. Almost equally important is the question of how
..................COGNITIVE....................... skill, as evaluated by IQ
tests, translates into everyday performance. Popular presentations on both
sides of these questions leave the impression that these questions have
simple answers. They do not. My goal in this essay is to discuss different
theories of how intelligence is related to performance in modern society. The
plural was chosen intentionally, Although we know a good deal about
individual differences in human cognition, there is no monolithic,
agreed-upon, all-purpose theory to organize these facts, nor is there likely
to be one. There are a number of different theories that are neither right
nor wrong, but are useful for different purposes. Psychometric Views of Intelligence In popular discussions of intelligence, including The Bell
..................CURVE......................., the term generally refers to
scoring well on tests that have been developed to measure mental ability as
psychologists have come to see it. I shall refer to this emphasis on test
scores as the psychometric view of intelligence. Its core belief is that
individual differences in human cognition can be adequately measured by
performance on intelligence tests, and that intelligence itself can therefore
be defined by variations in test scores, across people. This notion was
expressed most pungently when the psychologist Edwin Boring (1923), in a
public debate with the columnist Walter Lippman, said that "intelligence
is what the intelligence test measures." It turns out that that
statement is not quite so arrogant or self-serving as it sounds. To see why
we have to look at what intelligence tests are and how intelligence measures
are inferred from test scores. Although it is not always clear in our everyday use of language,
scientists distinguish carefully between a conceptual variable and its
operational definition--the way that it is measured. Physicists distinguish
between mass as a concept and scale readings as data to be analyzed. In the
best of situations there is a clearly understood link between the two.
Physicists can provide a theory of the relation between a scale's movement
and the mass of the object being weighed. The relation between the data for
and the concept of intelligence is not at all like the relation between scale
readings and mass, because in psychometrics the concept is inferred from the
measuring instrument, rather than having the measurement technique dictated
by the concept. Most intelligence tests do not measure just one thing, in the
sense that a scale measures only the gravitational attraction between an
object and the earth. Instead, intelligence tests are made up of a number of
component subtests, in which people are asked to perform different
..................COGNITIVE....................... tasks. The test score is
supposed to measure the common thread that runs through performance on the
subtests. For instance, the widely used Wechsler Adult Intelligence Scale
(WAIS) contains subtests that evaluate a person's vocabulary, short-term
memory, arithmetical ability, world ..................KNOWLEDGE.......................
and several other specific skills. The Scholastic Achievement Test (SAT),
which is a widely used college-screening test, and the Armed Service
Vocational Aptitude Battery (ASVAB), which is used to screen military
recruits, are organized in somewhat the same way. Instead of thinking of
these tests as ..................COGNITIVE....................... yardsticks
measuring intelligence the way a real yardstick measures length, it is better
to think of an intelligence test as a sort of mental track meet, in which
..................COGNITIVE....................... ability is inferred by
combining subtest scores, just as athletic ability can be inferred by
combining the scores in a decathlon. This brings us to the question of how the subtest scores are to
be combined. Although there is some variation from test to test, the formal
basis for test combination is a statistical procedure called factor analysis.
Suppose that an intelligence test consists of K subtests. (To continue the
analogy to the decathlon, K is usually 10 or 12.) A person's scores on the
subtests can be represented by a K-dimensional vector. The collective scores
of all people in the group can be thought of as a swarm of points in a
K-dimensional space. Factor analysis attempts to reduce the K-dimensional
space to a smaller P-dimensional space, where P \ K and the axes defining the
dimensions are orthogonal, or at right angles to one another. Unless the
scores of two of the original tests are perfectly correlated, this always
entails some loss of accuracy. The loss can be measured, so we can determine
how much of the variation in the original K-space lies along a particular
dimension in the reduced P-space. To get an intuitive idea of factor analysis, imagine buying a
hot dog with pimientos embedded in it. The hot dog is a three-dimensional
object, so it takes three dimensions to specify the exact location of each
pimiento. However, you can locate a pimiento reasonably accurately by saying
where it is along the long axis of the dog. In factor-analytic terms the
pimientos are the data from each person, and the three dimensions of the hot
dog represent the individual tests. The long axis of the hot dog would be the
first factor to be extracted and would capture most of the variation between
pimiento locations. If we apply factor analysis to test scores, instead of
hot dogs, the first factor accounts for most of the variation between people
just as the length of the hot dog accounts for most of the positioning of the
pimientos. But instead of saying "length of hot dog," we say
"general intelligence." There are two objections to this argument. One is that when the
data are reduced from the K-dimensional to the P-dimensional space, the
orientation of the orthogonal dimensions in the P-dimensional space is
arbitrary. To see this, consider the hot-dog example again. Although locating
pimientos can be reduced from a problem in three dimensions to a problem in
one dimension, the one dimension does not have to point exactly along the
long axis of the hot dog. It could be rotated to any angle at all, excepting
at a right angle to the long axis, and the pimientos could still be located
with equal accuracy. This fact led one critic of the idea of general intelligence,
Stephen Jay Gould (1983) to argue that factor analysis is not an appropriate
way of defining the variables underlying test scores, because one solution is
statistically as a good as another. Gould was wrong. There are statistical
methods (which were well known to specialists at the time) that make it
possible to compare the goodness of fit of one factor-analytic solution to
another. When these methods are applied, investigators virtually always find
a highly reliable first factor. The case for general intelligence, the
unitary IQ score, is far from trivial. However, there are alternative
explanations for the data, based on the idea that there are different types
of intelligence, even when one restricts oneself to the notion that
intelligence is what the tests measure. To understand what they are, we need
to delve into factor analysis a bit more. Suppose that the statistical variation in the data can be
reduced from K dimensions (the original test space) to P orthogonal
dimensions. This is only possible if the K original tests are positively
correlated, which they virtually always are. In this case there will also be
a solution in M dimensions, where P < M < K, in which some of the M
dimensions are not orthogonal to each other. (In psychological terms, if two
abilities are statistically unrelated to each other, the dimensions
representing them will be orthogonal.) Now, suppose that you had some
theoretical reason to believe that the data from the original K tests had
been generated by two or more underlying mental factors that were
statistically related to each other. Returning to the athletic example, you
might want to argue that decathlon scores were determined by the strength and
speed of the athletes, and that there is a statistical relationship between strength
and speed. Reasoning such as this is called specifying a factor structure for
the underlying abilities. Gould claimed that psychometricians could not
distinguish between alternative factor structures. Today they can. During the 1970s the Swedish psychometrician Karl Jr¨eskog
developed a statistical technique for evaluating the fit of a multivariate
data to an arbitrary, a priori specified factor structure. This made it
possible to compare two proposals about the structure of intelligence to
data, to see which theory best fit the facts. The new methods have been
applied to a number of new data sets (notably Gustafsson 1984) and have
become standard in evaluating models of intelligence. In a related, highly
technical but very important volume, John Carroll (1993) used somewhat
different methods to reanalyze a great many important data sets that have
been collected over the past 60 years. The results of these independent
analyses were quite consistent. Skipping over some details, human
intellectual competence appears to divide along three dimensions. Following
Raymond Cattell (1971) and John Horn (1985), I
shall refer to these dimensions as fluid intelligence (Gf), crystallized
intelligence (Gc), and visual-spatial reasoning (Gv). Cattell and Horn
describe them as follows: Fluid intelligence is the ability to develop techniques for
solving problems that are new and unusual, from the perspective of the
problem solver. Crystallized intelligence is the ability to bring previously
acquired, often culturally defined, problem-solving methods to bear on the
current problem. Note that this implies both that the problem solver knows
the methods and recognizes that they are relevant in the current situation. Visual-spatial reasoning is a somewhat specialized ability to
use visual images and visual relationships in problem solving--for instance,
to construct in your mind a picture of the sort of mental space that I
described above in discussing factor-analytic studies. Interestingly,
visual-spatial reasoning appears to be an important part of understanding
mathematics. Crystallized- and fluid-intelligence measures are substantially
correlated. For instance, Horn reported a study in which Gf and Gc measures
were extracted from an analysis of the WAIS. The correlation between factors
was 0.61. Such findings have led believers in just one intelligence to argue
that Gf and Gc are simply different flavors of a general intelligence (IQ)
factor. This argument cannot be answered one way or the other solely by
looking at correlations between tests. However, it can be attacked by
stepping outside of factor analysis and looking at how Gf and Gc measures
respond to manipulations that might change mental competence. It turns out
that they respond differently. The most striking example is aging. Measures of Gf generally
decrease from early adulthood onward, whereas Gc measures remain constant or
even increase throughout most of the working years (Horn 1985; Horn and Noll
1994). This is not surprising. Experience counts; most of the key leadership
positions in our society are held by people over 40. On the other hand,
middle-aged and older people do take longer than younger people to understand
new problem-solving methods and to deal with unfamiliar tasks. Age is not the
only variable that can be shown to have different influences on fluid and
crystallized intelligence. Alcoholism shows similar effects. Since variables such as age, which is not itself a
..................COGNITIVE....................... operation, have different
influences on different types of tests, it follows that there cannot be just
one ability underlying test performance. This argument moves away from the
psychometric tradition, which focuses only on test scores, and towards the
..................COGNITIVE.......................-psychology
approach to intelligence. As the name suggests, it is derived from a more
general theory about what human thought is, so a word about the general
theory is in order. The ..................COGNITIVE.......................-Psychology
View ..................COGNITIVE....................... psychologists
think of thinking as the process of creating a mental representation of the
current problem, retrieving information that appears relevant and
manipulating the representation in order to obtain an answer. The problem,
its solution and some of the methods used to solve it are then stored for
later reference. The key point in this process is creating the
representation. This is assumed to require a temporary, working memory
capability, which requires attention and is often a bottleneck in thought.
When familiar problems are encountered the process of building an appropriate
representation becomes more efficient, because previously acquired
information and problem solving techniques can be used. This reduces the
demand on working memory, but does not entirely eliminate it. The
..................COGNITIVE.......................-psychology view is that
cognition is a process, whereas the psychometric view makes it a collection
of abilities. Perhaps because it is more dynamic, the
..................COGNITIVE.......................-psychology view is often
seen as more appealing than the psychometric view, but it has the
disadvantage of not lending itself to easy summarization. When ..................COGNITIVE.......................
psychologists try to characterize a person's thinking, they are not likely to
use numbers to place the person in a "mental space" defined by
factors derived from IQ testing. Instead they frequently use analogies to
computing systems. To solve problems a computing system must have sufficient
"number crunching" power to attack the problem at hand, programs
that are appropriate for solving the problems the system faces, and access to
the data required to solve these problems.
..................COGNITIVE....................... psychology draws an
analogy between computing power, programs and data access, and the
..................COGNITIVE....................... functions of being able to
process ideas--any ideas--quickly and accurately, knowing how to solve
certain classes of problems, and having access to the
..................KNOWLEDGE....................... needed to solve particular
problems. In psychological terms, human number-crunching is a physiological
capacity, whereas knowing how to solve problems and knowing key facts are
both products of learning. Each of these aspects of thought are legitimate
parts of intelligence. The physiological capacities are clearly part of Gf,
knowing key facts is part of Gc, and having acquired certain problem-solving
strategies is a bit of both Gc and Gf. A person's capabilities are determined
by the interaction between power,
..................KNOWLEDGE....................... of how to use that power
and access to required data. The
..................COGNITIVE.......................-psychology account
complements the psychometric distinction between fluid and crystallized
intelligence. Both accounts stress how a novice's performance depends on the
ability to develop new problem representations (Cattell and Horn's fluid
intelligence) and how with experience one shifts from problem representation
to pattern recognition, by applying past solutions to present problems. Since
developing a representation is more demanding of working memory and attention
than pattern recognition is, learning to do an intellectual task will
generally be harder than doing it. The theory also implies that people who do
well on tests of fluid intelligence should have a large working-memory
capacity, and indeed, they do (Carpenter, Just and Shell 1990). When cognition is viewed this way it is not surprising that IQ
tests, and especially fluid-intelligence tests, are associated with academic
performance. By definition students are novices. So are apprentices in
workplace settings. Data from the military (Wigdor and Green 1991) have shown
that performance on the Armed Forces Qualification Test (AFQT), which is used
to screen military recruits, has a strong relation with performance on the
job in the first few months. After two years the relation is reduced, but not
negligible. Similarly, the Department of Labor's General Aptitude Test
Battery (GATB) has been shown to be less valid for older than for younger
workers. This is consistent with laboratory studies and theoretical analyses
in ..................COGNITIVE....................... psychology, all of
which show that the experience reduces but does not eliminate the relation
between general intelligence and performance (Ackerman 1987). Nonlinearities in Intelligence Most of our everyday measurements are linear measurements. A
linear measurement is one in which a constant interval means the same thing
at any point on the scale. For instance, adding one inch to a six-foot board
produces the same change in length that adding one inch to a five-foot board
does. We are so familiar with linear measurements that we often assume that
the properties of linear measurements apply to any characteristic that is
described by numbers. That is not so, and the erroneous assumption can be
particularly confusing when we deal with intelligence. In psychometric theories intelligence is calculated by
determining a person's standard score on an IQ test. The standard score is
the deviation of a person's absolute score of a test from the mean test score
of a reference population, divided by the standard deviation (a measurement
of the variability of scores in the reference population): zi = ( xi - µ ) ______ s where xi is the ith person's score in absolute units (usually
the number of correct answers on a test) and µ and s are, respectively, the
population mean and standard deviation. If this equation were applied
strictly, a person of exactly average intelligence would have a score of
zero, and people with below-average intelligence would have negative scores.
Since the ideas of zero and negative intelligence do not seem reasonable, it
is conventional to report IQ scores by rescaling standard scores, using the
equation IQ = 15z + 100 This gives the person of average intelligence a score of 100.
This equation is simply a scaling convention; the real definition is
contained in the first equation, which makes the standard deviation the unit
of scoring. Herrnstein and Murray refer to the standard deviation as
"like an inch," but it is not. The standard deviation is determined
not by the absolute values of the scores in a population, but rather by the
extent to which one score is likely to be different from another. In
addition, the zero point of the IQ scale (IQ = 100) is determined by the
population mean, not by a definition of "average intelligence" in
terms of intellectual performance. Therefore the IQ score of an individual is
a relative score, compared to the mean and variability in the reference
population, rather than an absolute measure of mental competence. If we
measured height the way that we measured IQ, a six-foot, six-inch man would
have a standard score of somewhat greater than 2, in the North American male
population. The same person would have a standard score of about 0 if the
reference population were professional basketball players. The distinction between the relative and absolute definitions of
intelligence becomes important when we consider the relation between IQ,
defined by standard scores, and various dependent measures, such as school
achievement and workplace performance. Suppose a psychometrician records the
job performance and intelligence-test scores of a group of workers. The
relationship would be expressed by this equation, where B is the regression
coefficient, or the rate at which job performance changes as IQ changes: job performance = average job performance + B * IQ B is calculated to make predictions as accurate as they can be.
The actual degree of accuracy is measured by the correlation coefficient ,
which varies from 0 (no accuracy at all) to 1 (perfect prediction).
Determining the regression and correlation coefficients from a given set of
data is straightforward. The problem comes when an extrapolation is made to
new situations, where some data points lie outside the range of IQ units
observed in the original study. An example might be extrapolating the
grade-IQ relationship observed in high-school students to grade-IQ relations
among college students. Such extrapolations implicitly assume that IQ scores
are linear measures of the intellectual traits that they are supposed to
measure. This is not true. Suppose that a person in his 20s suffered a brain
injury or infection that reduced his IQ score by 20 points. (Such things are
possible.) If he were a medical or law school student with an original IQ of
140, he would probably still complete his coursework, though perhaps with not
quite so high a class rank as before. If the person were a blue-collar worker
with an original IQ of 80 he would, at IQ 60, have a substantial risk of
homelessness, poverty and a number of other serious social problems. The issue of nonlinearity applies to the
very definition of intelligence, and in particular to the question of whether
there is one type of intelligence or several. Suppose that general
intelligence is equally important at all levels of mental competence. In this
case the results of a factor-analytic study of test scores, based on data
from people with high levels of intelligence, should be similar to the results
of a study based on data from people of lower absolute levels of
intelligence. Historically there have been suggestions that this is not so.
The general-intelligence model was first developed by Charles Spearman (1904,
1927), based on analysis of test results from English schoolchildren. In 1938
L. L. Thurstone challenged Spearman's conclusion because he found very little
evidence for general intelligence in a sample of University of Chicago
undergraduates. It was observed at the time that the discrepancy might have
arisen because Spearman and Thurstone had taken data from people of widely
different intellectual levels, which would be evidence that intelligence
changes qualitatively as the level of mental competence changes. However, the
results were not definitive because Spearman and Thurstone had used different
tests. An important study by Douglas Detterman and Mark Daniel (1989)
showed that the relations between subtests do change as the level of scores
changes. Among other things, Detterman and Daniel examined correlations
between subtests of the WAIS and found higher correlations between subtest
scores for people with below-average IQ than for people with above-average
IQ. David Waller and Derek Chung and I found the same thing when we analyzed the
ASVAB scores that Herrnstein and Murray used in The Bell
..................CURVE....................... to determine the relation
between IQ and various indicators of social adjustment. It appears that
general intelligence may not be an accurate statement, but general lack of
intelligence is! The conclusion that the relation between different indices of
mental competence depends on the general level of competence is not
consistent with psychometric approaches, but it is consistent with the
..................COGNITIVE.......................-psychology approach.
Recall that the ..................COGNITIVE.......................-psychology
approach assumes that mental competence is produced by a cascade of
progressively more refined abilities, moving from information processing to
problem-solving techniques to
..................KNOWLEDGE....................... possession. It follows
that problems at the information-processing level will be general, whereas
potentials established at higher levels will be specific. In fact, Detterman
and Daniel did find that the relation between information-processing measures
and intelligence-test performance is higher at low levels of intelligence.
Similar observations have been made by scientists who have studied very high-level
performance, in fields ranging from physics to literature. A certain amount
of intelligence seems to be needed to gain entry to an intellectually
demanding field, but beyond that point success is determined by the effort
put into the job, social support, and just sheer experience. (See Ericsson,
Krampe and Tesch-Romer (1993) on expertise, Simonton (1984) on creativity,
and Gardner (1993) for some interesting biographical data.) In economic terms it appears that the IQ score measures
something with decreasing marginal value. It is important to have enough of
it, but having lots and lots does not buy you that much. My regrets to Mensa,
but that is the way things are. Nonlinearity becomes important when we ask a
key question raised by Herrnstein and Murray: What is the relation between
intelligence and workplace performance? How Important
Is Intelligence? No one would worry about who has intelligence, or why, if it did
not matter. Indeed, one of the claims made by the opponents of testing in the
1960s and 1970s was that intelligence tests just measured academic
performance, and that even there they did not do a good job. One of
Herrnstein and Murray's major contributions has been to expose this bit of
Mokita. Intelligence, as measured by the tests, really does matter in both
school and workplace, although it may matter in somewhat different ways than
The Bell ..................CURVE....................... suggests. To argue that IQ is a determinant of economic outcomes,
Herrnstein and Murray relied on two sources of evidence. One was the recent
literature, and especially John Hunter's (1986) summary of the relation
between IQ scores and workplace performance. The other was their own analysis
of data from the National Longitudinal Survey of the Labor Market Experience
of Youth (NLSY). The NLSY is a Department of Labor survey that has followed
over 12,000 participants since 1979. The respondents are now in their late
20s and early 30s. Early in the survey many participants took the Department
of Defense's ASVAB test. Herrnstein and Murray used the AFQT score, which is
derived from the ASVAB subtest scores, as a measure of IQ. They then related
IQ to subsequent life events, such as being employed or being below the
official poverty line. Hunter reviewed studies of the relationship between job
performance and scores on the General Aptitude Test Battery (GATB), a
Department of Labor test which was widely used until the late 1980s, when the
testing program became embroiled in a controversy over its fairness to minorities.
The GATB was withdrawn as a political rather than a scientific decision.
After a detailed statistical analysis, Hunter concluded that the
"true" relation between intelligence and job performance in the
population is about 0.5. This conclusion depended heavily upon extrapolating
relationships beyond the data, which assumes linearity. A National Science
Committee reviewing the GATB argued that Hunter should have used the observed
correlations, which were almost all in the 0.2 to 0.3 range. The truth probably
lies between these estimates, providing that the extrapolation is to
comparable jobs (Hunt 1995). And that is an important qualification. The GATB was designed to screen applicants for entry-level jobs
in blue-collar and lower-level white-collar occupations. In terms of averages
(something that is well established), we are talking about occupations where
the mean IQ is in the 90-110 range, which covers about half of the
population. But recall that as intelligence goes up ..................COGNITIVE.......................
abilities become more differentiated. Also, as experience goes up the
IQ-performance connection gets weaker. These factors would lead to a
reduction in IQ-performance relations within higher-level job
classifications, and when dealing with experienced and older individuals. (In
fact, the GATB is known to be less accurate in predicting the performance of
older workers.) The qualification within a job class is also important. There
are quite high correlations between the socioeconomic status of a job and the
mean IQ of the jobholders. Truck drivers average slightly under 100, while
high-paid professionals, such as doctors and lawyers, have averages of 125 or
above. It is sometimes asserted that this is because general intelligence is needed
to obtain the educational certification required to qualify for a job, but is
less important to on-the-job performance. There is evidence for this.
Military and civilian studies have found that IQ tests are better predictors
of performance when people are in training programs than when they are on the
job itself. After people are on the job, correlations are higher between IQ
and tests of job ..................KNOWLEDGE....................... than
between IQ and on-the-job observations of performance. However, none of the
correlations vanish. IQ does not predict all aspects of job performance. In an
extensive study of enlisted personnel (Campbell, McHenry and Wise 1990), the
Army found that it was useful to distinguish between what might be called ability
aspects of performance, which includes such things as
..................KNOWLEDGE....................... of one's job requirements
and the ability to operate machinery required in the job, and motivational
aspects, which include cooperating with colleagues, showing initiative and
leadership. The ASVAB did a good job of predicting the ability aspects but
had almost no relation to the motivational aspects. This is not surprising,
but it does make any focus on a unitary index of job competence seem simplistic. In summary, it appears that IQ is an important factor in getting
into a job or profession, but is less important (although not negligible)
once you have learned to do the job. Further improvement is then achieved by
acquiring experience, rather than improving upon an abstract
..................KNOWLEDGE....................... of what the job requires. If we can predict good things, however imperfectly, for someone
with a high IQ score, what can we predict for a person with a low score?
People with criminal records, people who are below the official poverty line,
and people who are receiving aid for dependent children tend to have low IQ
scores. Based on their analysis of the NLSY data base, Herrnstein and Murray
argued that IQ causes these problems, because AFQT scores are often the best
single predictor of a person's social troubles. People who are below the poverty line are likely to
simultaneously have low IQs (on the average) and poorer than average health,
and to come from parental families of low socioeconomic status (SES). What is
causing what? The question is hard to answer, partly because of the
difficulty of the statistical analysis and partly because most social
problems have multiple causes. Young adults on welfare may be there because
of a combination of low intelligence, lack of education and limited familial
support. In preparing their book, Herrnstein and Murray used a technique
called logistical regression to attack the statistical problems. They first defined
a binary social variable, such as having an income under the official
definition of poverty, and then looked at the relation between the
probability that a person will be on the bad side of this variable as a
combined function of various predictor scores, such as IQ (defined by the
AFQT), SES, and education. Because of mathematical problems, it is not
possible to look at the probability of, say, poverty status, directly.
Instead they calculated a regression equation. In this equation p is the
probability of being in poverty. A logarithmic expression based on p is
related to IQ, SES, education (ED) and so forth by the regression coefficient
for each (the B terms). ln (p/(1-p)) = A + BIQ(IQ) +
BSES(SES) + BED (ED) + ... If all variables are expressed as standard-score units, you can
determine the relative importance of each variable as a predictor by
comparing the regression coefficients. For instance, in the case of poverty
status the regression coefficient for IQ is -0.84 and the regression coefficient
for SES is -0.33. This tells us that the risk of poverty goes up as IQ and
parental SES go down, and that, since the absolute value of the IQ regression
coefficient is greater than the absolute value of the SES regression
coefficient, the risk of poverty is more sensitive to changes in personal IQ
than to changes in parental SES. Results like this are ubiquitous in the NLSY data. IQ is the
best predictor of being below the official poverty line, dropping out of high
school and receiving aid for dependent children. IQ and SES are about equal
in predicting risks of long-term unemployment and of divorce. Since the
publication of The Bell ..................CURVE......................., and
possibly inspired by it, there have been a number of privately circulated
alternative analyses of the NLSY data. All the ones that I have seen show
that, although you might change the exact numbers reported by Herrnstein and
Murray a bit, intelligence is a substantial predictor of indicators of social
problems. But just how substantial, and how should a prediction based on
intelligence be related to a prediction based on other factors? This is a
hard question to answer, because of the complicating factors of nonlinearity
and collinearity. Recall that nonlinearity means that a relation is not the
same at all levels of the predictor (IQ). Understanding nonlinearity is
always difficult. The problem is compounded because, in this case, the
regression coefficients are not for the risk of a social problem; they are
for the logistic function of that risk. This function is not intuitive to
most people. Collinearity refers to the fact that the predictor
variables--IQ, SES, education and a number of other possible predictors--are
themselves highly correlated. In the NLSY data, for instance, the correlation
between IQ and SES is 0.55, which is about as high as the correlation between
adult height and weight. The graph below shows how these effects combine in the NLSY.
This figure is a three-dimensional view of the relation between the
probability of being in poverty status, represented by color; IQ (the
horizontal axis); and SES (the vertical axis). The figure shows both the
nonlinearities and the collinearity of these data. For anyone of
above-average intelligence or high parental SES, the probability of being in
poverty status is very low indeed. This is indicated by the large black area
in the figure. Furthermore, in this distribution people with moderate or
better SES and very low intelligence, or moderate to better intelligence and
low SES, are not likely to exist. (Note that the figure is not a square.) The
red "hot spot" might be thought of as a danger zone in which
relatively high probabilities of poverty status are associated with the
combination of the bottom 15 percent of the intelligence and parental SES
distributions. This does suggest a troubling, cyclical relation between these
variables. But once a person's scores are in the moderate SES or moderate
..................COGNITIVE.......................
ability ranges the relation between poverty, IQ and parental
SES virtually vanishes. Waller, Chung and I have developed a number of similar analyses
for other "at risk" variables in the NLSY data set, such as health
problems and prolonged unemployment. No single picture emerges. What is
clear, though, is the need to consider nonlinearity and collinearity in each
case. Even after this is done, intelligence test scores in the bottom 15
percent (roughly an IQ of 85 or below) almost always indicate that a person
has a substantial risk of encountering problems in our society. It is
important to remember that this is a statistical statement, whereas at the
individual level nonstatistical interactions are involved. There are
undoubtedly many cases in which a person with low parental SES inherits
genetic limitations in IQ, and IQ score is indicative, on average, of the
extent to which a person can benefit from education. There are other cases in
which limited family support or limited educational opportunity may restrict
a person's intellectual potential, even when a person is highly motivated to
succeed. Statistics cannot tell us to what extent any of these variables is
operating in an individual case. All statistics can tell us is how many such
cases to expect in the population. We once again see that the data are more easily explained by the
..................COGNITIVE.......................-psychology view of
intelligence as an interacting process than from the psychometric emphasis on
linear relationships. From a ..................COGNITIVE.......................-psychology
perspective, low IQ might cause social problems, because of the failure of
some general component of cognition, but once beyond a given level of ability
people would be able to cope with the general society adequately.
(Anthropologists will hardly be surprised to find that most people are able
to operate in their own cultures! ) Social problems could arise, though, if
the threshold for doing well in society were set so high that a substantial
number of people could not meet it. This topic will appear again when we look
at the interaction between scientific facts and public policies. Can ..................COGNITIVE....................... Abilities
Be Improved? Because expressed intelligence must be drawn out from innate
ability, through cultural experiences, it is natural to ask whether certain
cultural experiences, including education, can improve intelligence. Some
social programs have had this as an explicit goal. It is also natural to ask
whether societies can improve intelligence by altering the physical
environment--for instance, through programs to improve nutrition or the
family environment. Finally, whether or not intelligence, as measured by
tests, is subject to improvement, there remains the question of whether
..................COGNITIVE....................... competence can be
manipulated. These questions have been looked at in three ways: in
statistical and historical comparisons of cultures, from within our own
culture's experience and from the viewpoint of statistical and theoretical
biology. They are at the core of the debate reignited by Herrnstein and
Murray, who argue that competence in today's workplace is determined by IQ,
that IQ is determined by inheritance and that since IQ is resistant to change,
social programs that rely on changing or disregarding IQ are misguided and
even counterproductive. If we take a cross-cultural perspective, there is evidence that
broad characteristics of a society can influence reasoning, probably by
placing a value on the practice of certain intellectual skills. Literacy is
associated with an appreciation for abstract reasoning, which is of
considerable importance in a technologically oriented society. Nonliterate,
traditional cultures seem to place more weight on reasoning based on memory
and personal experience. These observations, though, are of limited
importance for the study of variations in intelligence within our own
society, where minimal literacy is virtually universal. There is some indication that intelligence levels have changed
over time within Western cultures. Flynn (1987) observed that the absolute
scores on widely used tests of abstract reasoning (Gf) have increased in
North America and Europe since World War II. Interestingly, scores on tests
that are designed to evaluate cultural
..................KNOWLEDGE....................... and problem-solving
techniques (e.g., the SAT) declined over the same period. Although the
reasons for these changes are not known, the fact that they have moved in the
opposite direction is further evidence for distinguishing between
intelligence as an abstract problem-solving ability from intelligence as an
ability to attack culturally relevant problems. When we move from comparisons across cultures and across time to
our own society, we find surprisingly little evidence for influences of
cultural experiences on intelligence--once again, as measured by
intelligence-test scores--in spite of many efforts to find such effects. Two
well-documented findings capture the gist of the results. Studies of adopted
children have repeatedly shown that the IQ of the biological parent is a
better predictor of the child's IQ than is the IQ of the adopting parent,
even when adoption is virtually at birth. Consistent with this observation, the
quality of home or school environments appears to have relatively little
relation to permanent changes in test scores, once one has taken account of
the correlation between genetic and social variables. Put a slightly
different way, genetic predictions based on parental or sibling IQ can
account for IQ variability in children, after social factors have been taken
account of, but social factors are not related to children's IQ after genetic
variability has been accounted for (Scarr, in press). Within the framework of the psychometric definition, in fact,
the evidence is quite clear that intelligence is substantially inherited.
Behavior-genetics studies have shown repeatedly that IQ scores behave as if
between 40 and 80 percent of the variation in intelligence, across
individuals, can be accounted for by genetic variation. The exact value does
not matter. Identical (monozygotic) twins who are adopted at birth and raised
apart will resemble each other in IQ more than fraternal (dizygotic) twins
raised together. Genetic heritability of IQ is a major determinant of
whatever is behind the IQ scores. Genetic heritability has become entangled with racial and ethnic
issues each time the national intelligence debate has flared up. Gaps in
intelligence-test scores among groups exist; Herrnstein and Murray, like
Jensen before them, posit a genetic explanation. Many social activists have
responded by denying the tests' validity in minority groups. The facts in
this debate are pretty clear, but the explanation for the facts is not. Numerous studies have found that in the United States the
average IQ score in samples of blacks and Latinos is about one
standard-deviation unit below the average score for whites and Asians. This
means that the median black score is exceeded by 87 percent of whites. There
is, at best, marginal evidence showing that the tests do not predict minority
academic performance as well as they predict majority performance. With a few
exceptions (primarily involving language tests in Latinos) test items that
appear to have the least cultural bias show some of the largest ethnic-group
differences. Herrnstein and Murray asserted that the tests are equally valid
for minorities and majorities; although too strong, this statement is closer
to the truth than the claim that the tests are totally invalid. This does not
mean that the differences in IQ scores between ethnic groups are genetic in
origin. In our society ethnic status and social variables that might
correlate with intelligence are highly confounded. Therefore the currently
available data do not discriminate between genetic and nongenetic
explanations. We do not know whether ethnic-group differences are innate or
not. Given the complexities of the situation, not the least of which is
defining what ethnic group a person belongs to, we should perhaps let the
issue go at that. IQ and ..................COGNITIVE....................... Skills The view is different as soon as one steps outside
psychometrics. The sociologist Christopher Jencks (1992) has observed that
genetic explanations that stop with a heritability coefficient are
unsatisfactory because they do not specify how intelligent behavior is
produced. No one inherits an intelligence-test score in the sense that one
inherits eye color. What must be inherited is a physiological capacity for
paying attention, learning and reasoning that allows us to extract from our
experiences the ..................KNOWLEDGE....................... and
problem-solving techniques required to solve test problems. We have very
little idea about what these physiological mechanisms might be, especially
insofar as they are related to variation in abilities within the normal range
of intelligence. (There is a considerable
..................KNOWLEDGE....................... of physiological problems
associated with specific types of mental retardation.) Whichever model they adopt, psychologists have been frustrated
in the search for ways to enhance
..................COGNITIVE....................... function. Research has
shown how we might lower a person's intelligence by physical intervention,
but not how to improve it. There are drugs that produce brief improvements in
specific ..................COGNITIVE....................... functions, such
as memory or attention, but the intelligence pill is nowhere in sight. And
although nutrition might be thought to be a significant effect, there is at
best marginal evidence for nutritional effects within the range of nutrition
encountered in the developed world. Even if we do not know how to improve intelligence, as indicated
by the test scores, the economic issue is what skills people possess, not
what their IQ scores are. We may not be able to destroy the linkage between
IQ scores and the relative possession of ..................COGNITIVE.......................
skills (and it is not clear why we would want to), but improved education and
training can raise the average achievement of all students. A study by one of my colleagues (Levidow 1994) showed this in a
controlled way. High-school students were given a test of fluid intelligence.
They then took a year-long problem-solving-oriented course in elementary
physics. The IQ test did indeed predict how much physics the students
learned. At the end of the year they took an equivalent IQ test. Their IQ
scores had not changed a whit. Furthermore, the IQ test did predict the
relative standings of the students on the final examination. However, all
students had learned a great deal of physics, as evidenced by comparisons to
national standards. IQ may not have been changed, but
..................COGNITIVE....................... competence, in the sense
of the problems the student could solve, was increased. Levidow's study involved a carefully monitored educational
program. Could similar increases in skill be obtained just by putting more
effort into education? In 1994 the New York City school system, at the
insistence of their new chancellor, required that virtually all 10th-grade
students take science courses that previously had been taken by only half the
students, usually the more able ones. Enrollment jumped from 20,000 to 48,000
students. Failure rates went up, from 13 percent to 25 percent. Pessimists
can point to this as a consequence of trying to teach hard topics to
less-intelligent students. There is probably some truth to this. But more
than twice as many students successfully completed science courses in 1994
than in 1993. I have just cited examples of programs that achieved success by
one measure, which happens not to be IQ scores. Herrnstein and Murray cited
different examples to buttress their conclusion that programs intended to
enrich children's intellectual experiences, such as Head Start, have failed.
This has serious policy implications, because enrichment programs are generally
targeted toward children who, as a statistical group, have low IQ and are
considered at risk for school failure. Saying that the programs have failed
is a bit strong, because the programs certainly should not be judged solely
by their effect on children's IQ scores, and perhaps not even solely upon
children's school records. But by these measures it is clear that enrichment
programs have not been nearly as successful as it was hoped that they would
be when they were initiated in the 1960s and early 1970s. What measures are appropriate to judging such programs? In our
society the labor market supplies the yardstick. Herrnstein and Murray
maintained that changes in our society are increasing the value of
intellectually demanding occupations, relative to the value placed on less
intellectually demanding ones. For example, they would argue that in modern
times the values to society of computer-system designers and bank-portfolio
managers have increased relative to the values of bookkeepers and tellers.
They are not the only ones to have made this observation. Secretary of Labor
Robert Reich (1991) has described the ascendancy of the "symbol
analyst," the person whose expertise is in dealing with abstract models
of the world rather than dealing with it directly. The evidence for this
trend is overwhelming, and all indications are that it will be accelerated by
technological changes that are clearly on the horizon (Hunt 1995). The trend has implications for economic investment in education.
During the 1960s and 1970s, and to a considerable extent today, special funds
were made available to deal with the "at risk" student, where there
was a greater expectation of educational failure. Much less was spent on
funding for gifted students. Herrnstein and Murray argue that this is a poor
investment policy, on the grounds that education produces a greater added
value for society when applied to the top student than when applied to the
bottom one. They also argue that because IQ is the driving force in workplace
success, and because little can be done to change it, little can be done to
change the situation at the bottom. Given the evidence for increasing economic value for highly
educated, skilled workers, this is not unreasonable. A good case can be made
for investing more in the development of high-level skill than we do now. The
United States charges tuition to university students who, in other industrial
countries, would receive stipends as part of an effort to improve national
human resources. Two qualifications have to be added. One is that because of
the nonlinearities between intelligence and performance, as documented above,
it is not clear that the gains from the cultivation of high-level skills
would be as great as The Bell ..................CURVE.......................
suggests. The other is that because SES is positively correlated with
intelligence emphasizing the development of upper-level intellectual skills
does tend to make the fortunate more fortunate. The economic advantages of
the investment have to be weighed against our society's general
disinclination to support the privileged. When it comes to programs to improve cognition generally, there
is little room for argument.We need to increase competence at all levels
because the increasing technological nature of our society has both increased
the opportunities available to the capable and increased the penalties for
not being able to keep up. Consumer credit is a good example; new banking
technologies have provided the average citizen with an opportunity for
leveraged investment that were previously open only to the wealthy. (This is
what a credit card is!) Managing the opportunity requires a good bit of
sophistication, so consumer debt is a problem. The
..................COGNITIVE....................... skills needed to be a
fully functional member of our society are clearly on the rise. Once again,
intelligence is more closely linked to acquiring these skills than to
exercising them once they are acquired. Therefore investments that improve
the efficiency of training and education will have larger and larger payoffs
as the technological sophistication required to function in society
increases. Intellectual Resources in the
Workforce Facts about intelligence are relevant to policy in another area:
the question of how society should use those resources that it already has.
Affirmative-action programs are now on the political chopping block, and the
question raised by Herrnstein and Murray--Do they discriminate against the
capable, and thereby squander the nation's intellectual resources?--is
squarely in front of us. From a narrow perspective, if the payoff for performance is
highest at the top end of intellectual demands, we should be zealous about
ensuring that the most demanding, generally best paid, jobs do in fact go to
the most competent. To the extent that IQ scores indicate who these people
are, we should pay a premium for intelligence. This policy, which Herrnstein
and Murray (and others) advocate, has an unfortunate side effect. At the
present time assignment of jobs solely on the basis of performance
predictors, such as skills tests, would result in marked underrepresentation
of minorities in high-level job classes. This, in itself, would create a
costly division in society, because the ethnic groups involved would
understandably refuse to accept this outcome as just. The only way out of this situation is to make major investments
in training and education in the affected communities, so that the
distribution of workforce skills becomes more equitable across ethnic groups.
There is also a good deal of evidence that successful investment must include
participation and support by the minority communities themselves. Simply
admitting more minority-group members to present programs does not work. In
fact, there is evidence that some such efforts have amounted to certification
that minority group members have passed through an educational program
without a concomitant emphasis on performance. A recent survey of workplace
skills showed that blacks with graduate-school experience have, on the
average, writing and computational skills equivalent to whites who have only
a community-college education (Kirsch et al. 1993). The issue is the changing
of skill levels, not certification levels! The Bell ..................CURVE....................... leaves
the impression that nothing can be done because of immutable IQ differences.
This position goes beyond the evidence. In fact, Herrnstein and Murray admit
that some educational improvement programs that they regard as far too
expensive to be feasible nationwide have been effective. The decision about
whether a program is "too expensive" or not is a matter of
political rather than scientific judgment. As this essay has shown, our
..................KNOWLEDGE....................... of intelligence has been
extracted from complex statistical relationships. Queen Victoria's Prime
Minister, Benjamin Disraeli, said, "There are lies, damned lies, and
statistics." What social policies are dictated by selected facts about
intelligence depends on who is doing the selecting. Besides, while social
policies are certainly constrained by scientific findings, it is seldom the
case that findings in the social sciences will dictate just one policy. Variations in intelligence have always been with us. How
important they are depends on the technological level and social organization
of society. The "village idiot" was a stock figure in medieval and
early industrial stories. In pre-industrial days, though, an able-bodied
person, living in a tightly knit society where economic, extended family and
social roles merged, may have been able to be a contributing member of
society. In fact, in such societies most of the brighter members of society
may not have been able to divorce themselves from the problems of dealing
with such individuals, so that it was to their advantage to see that everyone
could cope. This probably became less true as agrarian societies were
replaced by industrial ones. Today we live in a society where economic roles
dominate other roles, where the extended family is reduced to an exchange of
Christmas cards with cousins (and even ex-spouses) and where the movers and
shakers of society can, indeed, afford to remove themselves from the moved
and shaken. There are fascinating questions here for those interested in the
intersections between sociology, economics, anthropology and
..................COGNITIVE....................... psychology. We do not have
the answers yet. We may need them soon, for policy makers who rely on Mokita
are flying blind. GMSI CSSD ------------------------------------------------------------------------ White Paper 95-001 Need an Expert System? ……………..KEEP READING
BELOW !!! March 3, 1995 Prepared by John Wimbrough Sandra Seppala Global Management Systems, Inc. 6707 Democracy Blvd., Suite 200 Bethesda, Maryland 20817 301-493-GMSI (4674) Does your help desk really help? Do your calls for technical support become a litany of
frustration? Is your LAN operating at its capacity or does it bring business
to its knees too often? Have you invested in and rewarded your employees with
the technological tools to do their job but not provided the technical
support they need? For all too many companies, the answer to most of these
questions reflect serious inattention to the realities of the technological
age. Computers and computer networks are operated by people. To maximize
efficiency, their technology tools must be operational all the time. When
their computers and software applications programs don't work, they need help
and they need it fast. Today's computers, networks, and applications programs are more
complex than ever. The people supporting these systems must be highly trained
and have the tools to provide the immediate support response expected. Investment
in a central support center, st affed with highly qualified technical
specialists using the software applications now available for complex systems
support, is the only way to reap the benefits of your investment in
technological tools. The move to an expert-based problem-resolution system, while
seeming expensive at startup, is the wisest investment an organization can
make to guarantee the successful future of its business. This paper looks at
the issues facing a central support center , or help desk, its role,
function, cost, and technological support tools. Is your support center taking a beating? The explosion of LANs, WANs, and other complex technological
tools supporting today's corporations have created a support nightmare.
Client/server operations, telecommuting, advanced networking tools,
increasing workstation complexity, advanced applic ations software with
multimedia, CD-ROM, World Wide Web capability, and high-resolution graphics
programs all contribute to the fast-paced, distributed environments you find
in most companies today. These, plus large-scale releases of new technology
tools , have put incredible pressure on the support professional to become
..................KNOWLEDGE.......................able about a much wider range
of products and more technical than ever before. The high-pressure demands of today's businesses have bred users
who demand quick turnaround times for computer problems and support 24 hours
a day. This has further complicated the support function and added to the
frustration of support professionals. The central support center functions as
the support staff for everything, yet its staff seldom has the training,
tools, or time to provide the kind of support vital to the day-to-day
operations of the organization. In addition, software, hardware, and networking vendors can no
longer afford to offer free support for the life of their products. Yet, the
end users still expect this support. When the vendor can't provide it, the
company must. Training alone is not the answer. It just cant keep up with the
multiple upgrades and enhancements released continuously for every program a
person uses. The support issues of today can't be resolved using yesterday's
technology. It isn't enough to merely record and track the problem. The
support professional needs an abundance of user and equipment information as
well as assistance with problem resolution . Most help desk software typically creates a record of the
problem, tracks the problem until it is resolved, and captures the data to
help solve similar problems in the future. Recent changes in help-desk software have resulted in expanded
basic capabilities to include improved problem management, problem escalation
and routing, asset management, and interfaces to other key technologies. But
even these improvements will not significantly increase your ability to
quickly and accurately resolve your customers complex problems. The continuing emergence of expert-based problem-resolution
systems will prove to be the support specialists savior. Just how critical is
an expert system to the success of your help desk? Without an expert system
it will be impossible to leverage the tot al power of your system experts and
help-desk specialists. Expert systems to the rescue Expert systems are the answer to easing the developing support
nightmare. Expert systems combine extensive call tracking and handling
capabilities with a variety of problem-resolution aids to provide the support
analyst with a powerful resource to help resolve a callers problem. A word of warning though, beware of the many impostors on the
market today. A large number of the so-called expert systems are really only
glorified text search and retrieval systems. A true expert system contains
three essential elements: A set of rules or general statements based on the collective
experience of the help desk analysts. A set of specific facts that clearly define the current problem. A logical engine that can apply the set of rules to the problem
definition and produce a list of probable causes and solutions. Expert systems use one or more of the following technologies: Decision Trees are used to guide the support specialist through
a collection of structured
..................KNOWLEDGE....................... bases. The information is
typically arranged in an action, question, and response format. The
support analyst steps through the decision tree depending on specific
results. Decision trees function well when solving problems for products
or services that are well defined. A support specialist doesn't have to be
well versed or experienced in the actual problem to use decision trees. In
fact, decision trees will allow a new or junior analyst to become immediately
productive. Decision trees require extensive, up-front development and
on-going maintenance to ensure system accuracy. Case-Based Reasoning(CBR) allows for more abstract queries. CBR
is meant to handle a larger number of potential problem scenarios than
decision trees. All solutions are considered as cases and catalogued. The
current problem's parameters are transferred to the CBR engine which compares
it to all previous cases. Each possible answer is then displayed to the
support analyst who must decide which is appropriate. Some of the more
sophisticated systems, like Software Artistry's Expert Advisor, provide
solutions in a problem/resolution format with the number of times each has
been used. The CBR engine can be an integral part of the help desk system
(like the Expert Advisor CBR engine) or through an interface to third-party
CBR engines like Inference Corporations CasePoint (which DP Umbrella and MGV
Help Desk use). CBR is meant to be used when the
..................KNOWLEDGE....................... base is not collected or
arranged in a structured manner. It is meant for the experienced support
analyst who can evaluate the list of possible answers. CBR databases are
typically easier to maintain and require little initial development even
though most systems do allow ..................KNOWLEDGE.......................
to be inserted to establish specific cases. Neural Network technology is a newly emerging technology. This
method is a self-learning process that works by making associations between
the problem description and the final solution which is stored in the
..................KNOWLEDGE....................... base. New problem
descriptions are compared to the existing database to identify a match.
Neural networks are best suited for dynamic environments. Neural networks do not require any initial data insertion during
system development. Proper recording of problem descriptions and resolutions
is critical, to ensure that correct associations are created. Other support tools The more progressive and proactive help desk products provide
enhanced interface and support tools that assist the support analyst during
all phases of problem resolution. Each of these tools address specific issues
and are designed to provide the analyst with crucial information not normally
available. Additional diagnostic aids Vendors are also providing additional diagnostic aids to help
support analysts quickly resolve problems. These aids include Software
Artistry's automated error detection, common problems, and Hot News
functions, as well as Vycors Whiteboard. Multimedia and hypermedia Multimedia and hypermedia provide sound and visual aids to help
the analyst during problem resolution. Multimedia simply uses video image or
sound to convey information. Hypermedia links related concepts, including
images and sound. A typical h ypermedia screen highlights words or images
which take the user to related objects, such as text explanations or visual
images. Self-help modules Demand for 24-hour technical support and intolerance for long
stints on hold have driven the development of self-help modules.Self-help
modules are distributed to the enduser to answer everyday questions about
non-fatal problems such as Windows configuration issues, printer errors, or
applications programs like Microsoft Word or WordPerfect. They can provide
diagnostics, bug fixes, and technical notes for popular programs and commonly
used hardware. Self-help modules are most useful to users who don't mind
working with technology, mobile workers, and those working outside the help
desk's availability. However, most help-desk experts believe self-help modules have a
limited appeal. They aren't likely to work if the problem is a complicated
hardware-based issue unless the end user also knows how to use specialized
diagnostic software. Self-help modules provide a means of reducing calls to the help
desk and encouraging the end user to solve standard, everyday computer
problems. There are several
..................KNOWLEDGE.......................-base, self-help products
available from vendors like Microsoft and Lotus as well a s from third
parties like ServiceWare,
..................KNOWLEDGE.......................Brokers, and Computer
Library. Development of an expert system is going to require a huge
investment in time and money. Total system development costs include expert
system software purchase, additional required software (SQL database),
required hardware upgrades, and implementation costs. High-quality expert systems cost anywhere from $50,000 to
several hundred thousand depending on the number of support staff accessing
them. The typical cost for a system designed for ten support analysts is
$25,000 to $75,000. Additional software and hard ware upgrades can add
another $10,000 to $50,000. These costs, however, often are the least
expensive part of the effort. The greatest expense comes from the actual system activation. A
thorough, comprehensive, and successful system design and implementation must
be done by a skilled systems integrator. This process involves identifying
the basic system parameters, collecting customer profiles, performing data
conversion and insertion, identifying the types of expert systems or other
decision aids required, call and problem flow development, escalation or
notification rules, problem tracking process, identifying and performing
required customizations, and developing management and operational reports. Typical implementation costs for a ten-user system can be
between $50,000 and $250,000 depending on the complexity of your
requirements. These costs are usually comparable whether you use internal
resources or contract with professional customer support systems integrators,
due to learning ..................CURVE....................... factors. Your immediate reaction may be total astonishment. These costs
appear to be astronomical, and why should you spend $85,000 to $375,000 just
to provide computer support? Lets look at what it costs to operate a help desk and what you
get for your investment. Costs directly associated with a centralized help desk can easily
exceed $750,000 annually to support 5,000 networked users. And these are just
the direct, easy-to-track costs such as training, staffing, overhead, and
equipment. Add on hidden costs including lost productivity, reduced sales,
and hidden support costs from the hey Joe support network and you can double
your annual support costs. A properly designed help desk system with an effective expert
system will reduce both your direct and hidden costs to provide support to
your organizations. The two primary areas of improvement are the speed with
which a call is handled and the accuracy o f the provided solution. Most expert systems are able to deliver a return on investment
in nine months or less.
Experience and Learning ..................CURVE.......................s
*
Jeremy Hallworth The learning
..................CURVE....................... is an exponential
..................CURVE....................... that shows the effects of learning on output per hour. Although the rate of learning is not the same in all applications, the shape of the learning ..................CURVE....................... is often
regular and predictable. It is a
function that shows how labor hours per unit decline as units of output increase. The learning
..................CURVE....................... ratio can be expressed as a
percentage. An 80 percent ..................CURVE......................., for
example, means that each time cumulative output doubles, the most recent unit of output requires only 80 percent of the labor input of the reference unit. The performance time drops off rather dramatically at first and it continues to fall at a slower rate until a performance plateau is, in effect, reached. This could be
seen as a sharp drop off in the
..................CURVE....................... at first and then slowly leveling out. Learning ..................CURVE.......................s at a
higher rate are reflected by a more rapid descent of the
..................CURVE........................ The learning
..................CURVE....................... can be expressed by the
exponential ..................CURVE.......................
Y = p xq where Y=cumulative average time per unit X=cumulative
number of units produced p=time
required to produce the first unit q=the index
of learning The value of q is
given by
q=ln(%learning)/ln2 If new technology is
introduced a new learning ..................CURVE....................... may start, with the ..................CURVE.......................
being steep again followed by levelling off as described above. An experience
..................CURVE....................... describes a broader notion of
learning ..................CURVE....................... that includes
many aspects like marketing, distribution and customer service. An
experience ..................CURVE....................... shows how the full
cost for a unit of production is reduced as units of output increase. People handling
repetitive tasks often become more efficient as they get used to the operations and managers find better
methods of operations which improve worker outputs. As an organization gains experience in manufacturing a product, the resource inputs required per unit of output diminish over the life of the
product. As the cumulative output of the model grows, the labor inputs continue to decline. The Universal
..................CURVE....................... 1.Literally thousands of studies have shown that organizational
learning occurs in every industry. Organizations and industries, like
intelligent organisms and species, learn to become more efficient as they
gain experience in solving problems. 2.The first careful observations of organizational learning were
made in 1922 by Theodore P. Wright. He discovered that the assembly labor
declined 20 percent with each doubling of production experience. 3.The learning ..................CURVE.......................
languished in obscurity until 1966, when the Boston Consulting Group (BCG)
found that, after adjusting for inflation, the unit costs of integrated
circuits were dropping 25% with each doubling of experience. 4.The data revealed that all of the client's cost components
declined with the accumulation of production experience. To distinguish this
across-the-board cost erosion from the notion that learning only applied to
labor, BCG rechristened the learning
..................CURVE....................... the "experience
..................CURVE........................" 5.Despite the studies proving its universality, the learning
..................CURVE....................... has been shunned by most
economists. Neither learning nor experience appears in the index of the
leading history of economic thought. 6.Perhaps, if the learning
..................CURVE....................... lent factual support to the
core concepts of Western equilibrium economics, a way would have been found
to unify fact and theory. But the entire edifice of classical economics rests
on the assumption that technology does not change. 7.By ignoring the learning
..................CURVE......................., orthodox economics negates
the very thing that is unique about human economics - the capacity to respond
to experience with intelligence and creativity. 8.Compelling evidence of the learning
..................CURVE.......................'s universality has been
available for nearly 20 years, but neither the Left or the Right has
recognized the learning ..................CURVE....................... for
what it really is, proof the "law of diminishing returns" is
wrong. 9.A firm's efficiency is constrained only by its technology, and
its technology is limited only by its members' ability to work together as an
intelligent, creative organization. 10.Wherever one looks, the same basic pattern of economic
progress reappears. Throughout history, the syncopated rhythm of economic
progress reflects a succession of linked learning
..................CURVE.......................s. The Effect of Industrial Structure on Learning by Doing in Nuclear Power Plant Operation ------------------------------------------------------------------------ Volume: Volume 24, No. 3 Issue: Autumn 1993 Pages: pp. 418-438 Authors: Richard K. Lester and Mark J. McCabe Title: The Effect of Industrial Structure on Learning by Doing
in Nuclear Power Plant Operation Abstract: Learning from experience in the nuclear industry has
had a significant impact on the operating performance of light water reactor
(LWR) power plants. Performance comparisons between the United States and
France indicate that the relationship between experience and performance has
been strongly influenced by industrial structure. In the United States, a
sizable operating performance penalty has been paid both as a result of the
diffusion of several types of LWR technology and because of the relative scarcity
of multiunit sites caused by the fragmented structure of the electric utility
industry. In France, by contrast, performance has benefited from the very
high degree of plant design standardization and the prevalence of multiunit
siting. These results suggest both short-term and long-term opportunities for
improvement in the performance of the American nuclear industry. ------------------------------------------------------------------------ •Search Abstracts •Order Back Issues •Order Individual Articles
•RAND Journal of Economics Learning and the Behavior of Potential Entrants ------------------------------------------------------------------------ Volume: Volume 15, No. 2 Issue: Summer 1984 Pages: pp. 281-289 Authors: Gautam Bhattacharya Title: Learning and the Behavior of
Potential Entrants Abstract: The possibility of cost reduction through learning by
gathering experience is important in many industries where organizational
efficiency in production and management is an important determinant of costs.
In these industries, the difference in unit costs of production between
experienced firms and potential entrants retards entry. This article
investigates the behavior of a potential entrant in such an industry and the
nature of dynamic equilibrium resulting from the interaction of the entrant
and the current producer. Learning Effects and the Commercialization of New Energy
Technologies: The Case of Nuclear Power ------------------------------------------------------------------------ Volume: Volume 13, No. 2 Issue: Autumn 1982 Pages: pp. 297-310 Authors: Martin B. Zimmerman Title: Learning Effects and the Commercialization of New Energy
Technologies: The Case of Nuclear Power Abstract: Recently, attention has been focused on government
policy toward commercialization of new energy technologies. Arguments are
offered that in the early days of commercialization significant learning
externalities that justify subsidy are present. Using nuclear power as a case
study, this article estimates the learning effects actually present. The
effect of experience on construction cost and on the accuracy of cost
estimation is examined. External learning is separated from internalized
learning about both construction cost and cost estimation. Finally, an
estimate of the value of both kinds of learning externality is provided. The
results suggest learning externalities were present, but had little effect on
the rate of commercialization. A Note on Optimal Fixed-Price Bidding with Uncertain Production Cost ------------------------------------------------------------------------ Volume: Volume 6, No. 2 Issue: Autumn 1975 Pages: pp. 695-697 Authors: Keith C. Brown Title: A Note on Optimal Fixed-Price Bidding with Uncertain
Production Cost Abstract: Firms often contract to deliver commodities at prices
established before production costs are known. If the amount sold is a
function of the quoted price, then the expected benefit profit per unit sold
is not, in general, the difference between the unit cost estimate and the
price quotation, but rather some smaller amount. Even though they may not
understand why they are doing so, firms may learn by experience to add an
amount to price quotations necessary to compensate for this effect. An
understanding of this effect can lead to more optimal pricing procedures. The Advantages of Imprecise Information ------------------------------------------------------------------------ Volume: Volume 29, No. 2 Issue: Summer 1988 Pages: pp. 266-275 Authors: Esther Gal-Or Title: The Advantages of Imprecise Information Abstract: A firm in a duopolistic market in which there is
incomplete information about cost may benefit from having less precise prior
information than its competitor. Experience in production provides firms with
internally generated private signals about cost. As a result, the marginal
return to production includes the value of information as well as the
marginal revenue of production. Hence, the firm with less information about
cost has the greater incentive to produce. Imprecise prior information thus
provides a mechanism that enables the firm to commit to expand production
relative to its rival. Projective Visualization: Learning to
Simulate from Experience Abstract There are many domains in which the ability to predict future
states of the world faster than real-time is desirable. Many of these domains
are characterized by their dynamic and continuous nature. Experience in such
domains is typically low-level and often noisy. One approach to this problem
is to frame the problem as a learning task, i.e., how can an agent in an
environment learn to predict the effects of her actions through observation.
While such predictions may not be completely accurate since they are based on
incomplete experience, it is possible that they may be good enough to allow
the agent to perform effectively. This is the approach taken by projective
visualization, a technique for learning to project the effects of one's
actions into the future based on prior experience. Projective visualization uses a large set of inductively
generated decision trees, one for each feature of the case representation, to
project a case into the future. The projected case can then serve as a basis
for further projection, in a technique called projective simulation. This
work describes PVClus, the algorithm used to build case projectors, evaluates
the effectiveness of projective visualization, and discusses the application
of projective visualization to controlling the actions of an autonomous agent
and to simulation in an industrial process-control setting. Further, it is
proposed that the architecture for projective visualization is the basis for
a ..................COGNITIVE....................... model of human imagery
with ties to the mental manipulation of objects, mental practice, perception,
and navigation. It is shown that the error rate for projective simulation is
linear for small projection windows, and forms a kneed-over
..................CURVE....................... for longer projection windows.
Error rate is also shown to be inversely proportional to the size of the
training set. Finally, it is demonstrated that projective visualization can
be used to improve the performance of an autonomous agent. Thesis in Compressed Postscript The thesis has been broken into a set of self-contained
postscript files. While the thesis is copyrighted, permission is granted to
download and print your own copy. If you like what you read, you might
consider buying a copy (I could use the royalties). The thesis will be
published through: UMI Dissertation Services 300 North Zeeb Road POB 1346 Ann Arbor, MI 48106-1346 Phone: 313-761-4700, 1-800-521-0600 The thesis is broken up as follows: •Title.ps.Z: 77K (230K uncompressed). This section includes the
title page, ac..................KNOWLEDGE.......................ments,
abstract, table of contents, list of figures, list of tables, and list of
algorithms. •Chap1.ps.Z: 655K (14.5M uncompressed). This chapter contains the
introduction and serves as a survey of the main points in the rest of the
thesis. •Chap2.ps.Z: 451K (9.9M uncompressed). This chapter describes the
architecture for projective visualization from a case-based reasoning
perspective. Preliminary evaluations of projective visualization are
provided. •Chap3a.ps.Z: 1.6M (51.8M uncompressed). This section of the
chapter presents terminology used throughout the chapter, the base algorithm
for inducing projectors (PVClus), and some extensions to the base algorithm.
•Chap3b.ps.Z: 621K (17.6M uncompressed). This section of the chapter presents
additional extensions to the base algorithm, techniques for implementing
PVClus efficiently, and an analysis of the worst case and average case time
complexity of PVClus. •Chap4.ps.Z: 374K (9.5M uncompressed). This chapter
describes using projective visualization for controlling the actions of an
autonomous agent. •Chap5.ps.Z: 1.6M (83.6M uncompressed). This chapter
describes using projective visualization for simulation in an industrial setting.
•Chap6.ps.Z: 612K (11.3M uncompressed). This chapter presents a
..................COGNITIVE....................... model for human imagery
based on projective visualization. •Biblio.ps.Z: 60K (136K uncompressed). The
bibliography. Comments welcome at goodman@cs.brandeis.edu. Up to Main Page. Core competencies Proposed Core Competencies WEB
SITES The General Education Core Project. Proposed Core Competencies.
Humanities. To understand and apply the methods of the humanities, and to
appreciate the... http://www.kirtland.cc.mi.us/honors/human.htm - size 964 bytes - 24
Mar 96 Proposed Core Competencies The General Education Core Project. Proposed Core Competencies.
Computer Literacy. To have keyboarding, mouse skills, and basic computer
literacy.... http://www.kirtland.cc.mi.us/honors/complit.htm - size 3K - 10 Mar 96 Proposed Core Competencies The General Education Core Project. Proposed Core Competencies.
Creative Thinking. To think creatively. Rationale: Creative thought (whether
in the terms.. http://www.kirtland.cc.mi.us/honors/creathnk.htm - size 981 bytes - 9 Mar
96 Trimark - Core Competencies CORE COMPETENCIES. Architectural. Automation Systems. Building
Systems. Civil/Structural. Construction Management. Constructed Cost
Estimating.... http://www.trimrk.com/Compet_nf.html - size 2K - 26 Feb 97 Proposed Core Competencies g. e. c. p. The General Education Core Project General Education
Core Competencies Approved First Draft. The following first draft of the
approved general. http://www.kirtland.cc.mi.us/honors/competen.htm - size 6K - 9 Nov 96 Core Competencies Hamilton Strategic Management Group, Inc. "Your Strategic
Issues Company" CORE COMPETENCIES / CAPABILITIES. Still Under
Construction........ Home Page.... http://www.hsmg.com/corecmp4.htm - size 1K - 29 Sep 96 Antioch University, Seattle -- GMP Core Competencies The Graduate Management Program. Core Competencies. The
following list of competencies may be exhausting, but it is not meant to be
exhaustive! It is... http://www.seattleantioch.edu/GMP/Corecomp.html - size 5K - 4 Sep 96 Prahalad, C.K. THE ROLE OF CORE COMPETENCIES IN THE CORPORATION. Prahalad, C.K. 'The role of core competence of the corporation.'
Research-Technology Management November-December 1993 p. 40-47. Summary by :
Karim... http://iir1.uwaterloo.ca/MOTW96/readings96/Prahalad93.html - size 6K - 7 Feb 96 Stonebridge Technologies, Inc. Core Competencies Stonebridge Technologies, Inc. Core Competencies. [UNIX Server
and Client Workstation] [Data Management] [Networking and Connectivity]
[Distributed... http://www.sbti.com/corecomp/corecomp.htm - size 2K - 30 Jul 96 The Graduate Management
Program Core Competencies The following list of competencies may be exhausting, but it is
not meant to be exhaustive! It is simply our current attempt to identify the
competencies you will need to be a successful manager in the 21st century.
This is the backbone of our two-year curriculum and provides goals you can
use to measure your own development. •Person •Organization •World Person Personal Mastery •Increase your commitment to self
..................KNOWLEDGE........................ Understand your strengths
and weaknesses, values, personality traits, and the way in which your
presentation of self, including your unexpressed assumptions and feelings,
impacts your relationships with others. •Identify and articulate your
direction, personal mission and management philosophy. Assess the fit between
your values and current actions. •Develop your thinking skills, including the
ability to explore topics from multiple perspectives, tolerate ambiguity, ask
questions, understand context and
ac..................KNOWLEDGE....................... a personal point of
view. Reflective Practice •Be capable of accurately evaluating your own performance,
noticing your successes as well as your shortcomings. Seek out data that
enhances your self- understanding and your capacity to act effectively. •Become
aware of personal prejudices, biases, and "blind spots" that affect
your decision making. Demonstrate the ability to work with cultural, style
and value differences. •Identify and evaluate your current
"theories-in-use" and be capable of consciously experimenting with
the application of new theories in your work. Communication Skills •Be able to present clear, informative, and convincing
information to others in a variety of written and oral presentation formats.
•Utilize your ..................KNOWLEDGE....................... of yourself
in order to communicate honestly with others. Be able to give and receive
feedback productively. •Learn to resolve conflicts appropriately while
working to avoid creating lasting resentments that can impede organizational
efficiency. Organization Business Practice •Possess a general manager's "functional literacy" in
the disciplines of marketing, finance and operations. Understand the core
concepts, basic vocabulary and relationship of each discipline to the
functioning of the whole. •Understand the challenges of business strategy for
entrepreneurial ventures and larger firms. •Be an effective project manager. Organizational Dynamics •Be familiar with the nature of key factors influencing
organizations, including age, history, purpose, mission, culture, design,
power and location. •Understand organizations as systems from several
theoretical perspectives (e.g. political, sociotechnical, ecological,
evolutionary, etc.). •Understand the aids and obstacles to organizational
learning. Be able to design educational experiences and create a climate that
fosters learning. Leadership and Team Effectiveness •Understand the dynamics of groups and organizations.
Demonstrate personal effectiveness in working with others as leader, peer and
subordinate. •Learn to use power wisely and skillfully. •Develop the
leadership skills and abilities necessary to have a positive impact on
people, processes, and organizations. •Be able to initiate change and know
how to cope with unforseen circumstances. World Global Economy •Understand basic economic concepts and their historical
development. •Be aware of the fundamental issues of the emerging global
economy. •Develop your own viewpoint on the appropriate relationship between
economic development, human communities, and the physical environment. Business and Society •Develop a framework for evaluating the interaction of
political, economic, social, cultural, technical and environmental factors
that affect business decisions. •Be aware of the impact of business decisions
on the world outside the firm. •Examine and clarify personal ethics and
values. Practice living in alignment with these basic precepts. Spirit, Culture and Community •Consider the ways in which major spiritual and cultural
traditions provide or influence individual, organizational and world views.
•Appreciate cultural differences and be able to work effectively in a
multicultural environment. •Develop compassion for yourself and others.
Remain open to new possibilities for building community. ------------------------------------------------------------------------ Maintained by: Bert W. Hopkins bhopkins@mist.seattleantioch.edu URL: http://www.seattleantioch.edu/GMP/Corecomp.html 'The role of core competence of
the corporation.' Research-Technology Management November-December 1993 p. 40-47 Summary by : Karim El-Boustani. Introduction In the 1980s major changes took place in our industrial
environment: Western companies, which used to be world leaders, aren't in a
leadership position anymore. Although, these companies focused on increasing
performance considering quality, cost, time cycle, productivity, etc., their
Japanese counterparts were more successful. This leads us to investigate the
logic for growth in our new globalized economy. The article presents a
conceptual framework to achieve an understanding of this logic. A New scorecard: Corporate management, in the 1990s, should focus on growth not
on downsizing and restructuring. The new scorecard for managers should be
value creation. It will allow western companies to re-gain their leadership
on the market. Value creation has two components: performance gap and
opportunity gap. In order to succeed, a concern for both should exist. The
paper focuses on "opportunity gap through revitalization and
growth". Management of opportunity gap should be proactive to become
successful. A new framework for value creation: The management of opportunity gap has four interrelated
components: Aspiration level of the organization, capacity to leverage
corporate resources, competing for the future - outcomes, and organizational
capabilities. The aspiration level or strategic intent is a creation a winner
spirit within the organization. It focuses directly on the organizational
culture and creates a mismatch between the available resources and the
aspirations. This approach will be a component in encouraging innovations. Once a mismatch generated, resources should be leveraged to
accomplish the new organizational aspirations. To do so, management starts
with a "strategic architecture", which is a communication of a wide
range of information consistent with the strategic intent. "It provides
a framework for focused resource allocation over a long period, allows
managers to maintain consistency in their efforts, and provide a logic for
managing linkages across business units in large company". It provides a
framework to scan the environment in order to detect strategic alliance
opportunities and help managers to proactively work on the innovation
process. A second component in resources leveraging is the identification
of core competencies. A strategic architecture allows managers to identify
what core competencies are available in-house and what is needed. Core
competencies are an important component in the resources leveraging process.
Nevertheless, they should not be confused with core products and core
capabilities. Core competencies is the "creative bundling of multiple
technologies, customer ..................KNOWLEDGE....................... and
intuition, and managing them as a harmonious whole". A core competency can be characterized using three factors:
" it is a significant source of competitive differentiation, it
transcends a single business, and it is hard for competitors to
imitate". It is critical to understand that core competency includes
both explicit and tacit ..................KNOWLEDGE........................
Technical capabilities, per se, cannot help understanding this concept. Core
competency is present at all levels of the organization and embedded in it. Another factors necessary to understand competence are the
"governance process and the collective learning". Governance process
represents the quality of communication between functions and business units
within an organization. It is clear that investments in technology should be
accompanied with governance and creation of learning environments at all
levels in the company; otherwise failure is inevitable. Finally, core products are a key concept in understanding the
capacity to leverage corporate resources. They are "often the physical
embodiment of one or more core competencies". A market that is
developing for core products. In order to succeed, it is important to
recognize difference, in terms of competition, between core products and end
products or services. Nowadays, competition has three levels: "competition for
end products and services, competition for dominance in core products that
create the capacity to lead in the development of new functionalities, and
competition for competence - the capacity to create business". We need
to learn to compete on the three levels. A new approach is needed in order to become competitive and be a
major player in the innovation process. this new mindset is characterized by:
"Challenging existing price-performance assumptions, understanding the
meaning of customer-led - Leading customers is what competing for the future
is about, and escaping the tyranny of the served market orientation among
managers" (too much emphasis on current business). Markets should be
created not defended. ------------------------------------------------------------------------ Conclusion "We need to start with a strategic intent, create a
strategic architecture, understand core competencies and products. Growth is
the agenda - not restructuring. dramatic growth will not take place if we
focus on technology; it will take place if we focus on the organization, with
technology as a part of it" Core Competency: Global Attack The ability of the Air Force to attack
rapidly anywhere on the globe at any time is unique. The military utility of
air power, particularly its speed, range, and flexibility prompted creation
of the Air Force as a separate Service following World War II. With the advent of the Cold War, Air Force long-range bombers
and later intercontinental ballistic missiles began their vital roles in the
nation's first priority of deterring nuclear war. Although nuclear weapons no
longer play as central a role in America's national security strategy as they
did during the Cold War, we recognize the dangers posed by the efforts of
rogue states and others to acquire them. The Air Force will sustain its
efforts in the nuclear area and strengthen its response to the growing risk
of proliferation. To this end, the Air Force will maintain the bomber and
land-based ballistic missile legs of the Triad while remaining prepared to
undertake further reductions as circumstances require. The Air Force will
also sustain its commitment to support the nuclear requirements of the
theater CINCs. Moreover, the Air Force remains absolutely determined to
maintain its record of excellence as the custodian of nuclear weapons by
ensuring the safe and secure operation of those weapons. Air Force short- and long-range attack capabilities continue to
support the deterrence of conventional warfare by providing versatile,
responsive combat power able to intervene decisively when necessary. The
ability of the Air Force to engage globally, using both lethal and non-lethal
means, is vital to today's national security strategy of Engagement and
Enlargement. At present, almost a quarter of Air Force personnel are deployed
overseas at any one time. The Air Force will maintain that level of
commitment and will employ air and space power aggressively to meet the
nation's needs for presence and power projection. Over time, however,
technological change, threats to forward bases, asymmetric strategies by
adversaries who seek to deny entry to U.S. power projection forces, and
growing budgetary pressures will likely change the way the Air Force carries
out its presence and power projection missions. The Air Force has developed and demonstrated the concept of an
Air Expeditionary Force (AEF) rapidly deployable from the United States. This
expeditionary force can be tailored to meet the needs of the Joint Force
Commander, both for lethal and non-lethal applications, and can launch and be
ready to fight in less than three days. The Air Force will develop new ways
of doing mobility, force deployment, protection, and sustainability in
support of the expeditionary concept. Air Force power projection and presence capabilities today are a
complementary mix of long-range and theater aircraft, based in the United
States and forward-based. The Air Force has relied heavily in the past on the
elements of that mix that were permanently forward-based overseas. Currently,
the Air Force is increasing the role of expeditionary forces to maintain its
global engagement capability. In the future, capabilities based in the
continental United States will likely become the primary means for crisis
response and power projection as long-range air and space-based assets increasingly
fill the requirements of the Global Attack core competency. Problem Today managers in many industries are working hard to match the
competitive advantages of their new global rivals. •Lowering labor costs •Instituting just in time production
•Adopting human resources practices •Forming strategic alliances. Important as these initiatives are, few of them go beyond mere
imitation. Cause Concepts such as: •Strategic fit (between resources and opportunities) •Generic
strategies (low cost vs. differentiation vs. focus) •Strategic hierarchy
(goals, strategies,and tactics). Remaking Strategy Issue A: •Competing in a hostile environment with limited resources.
•Focus of Western Mode of Strategy ... •Trimming ambitions to match available resources. •Focus of Japanese Mode of Strategy ... •Leveraging resources to match seemingly unattainable goals. Issue B: •Relative competitive advantage determines relative
profitability. •Focus of Western Mode of Strategy ... •Searching for advantages that are inherent sustainable. •Focus of Japanese Mode of Strategy ... •Accelerating organizational learning to outpace competitors. Issue C: •Competition is difficult against larger competitors. •Focus of
Western Mode of Strategy ... •Searching for niches. •Focus of Japanese Mode of Strategy ... •Producing a quest for new rules that can devalue the
incumbent's advantages. Issue D: •Disaggregate the organization allowing top management to
differentiate among the investment needs of various planning units. •Focus of
Western Mode of Strategy ... •Allocating resources to product market units in which
relatedness is defined by common products, channels and customers. •Focus of Japanese Mode of Strategy ... •Investing in core competences as well as in product market
units. Issue E: •Need for consistency in action across organizational levels.
•Focus of Western Mode of Strategy ... •Conforming to financial objectives. Focus of Japanese Mode of Strategy ... •Loyalty to a particular strategic intent. Traditional competitor analysis ---> Snapshot of the
competitor is focused on existing resources (Human, Technical & Financial) Strategic Intent Companies that have risen to global leadership over the past 20
years invariably began with ambitions that were out of all proportions to
their resources and capabilities. But they created an obsession with winning
at all levels of the organization and then sustained that obsession over the
10 to 20 year quest for global leadership. This obsession is the
"STRATEGIC INTENT": •Envisions a desired leadership position and establishes the
criterion the organization will use to chart its progress •Komatsu --> "Encircle Caterpillar" ••Canon -->
"Beat Xerox" ••Honda --> "Become a second Ford" •Captures the essence of winning •Apollo program --> "Landing a man on the moon ahead of
the Soviets" ••Coca Cola --> "To put a coke within arm's reach
of every consumer in the world" •Stable over time Gives consistency to short-term action while leaving room for
reinterpretation as new oportunities emerge. •Set a target that deserves personal effort and commitment Strategic intent gives employees the only goal that is worthy of
commitment: to unseat the best or remain the best, worldwide. Strategic
Planning vs. Strategic Intent The strategic planning process act as a "feasibility
sieve". Strategies are accepted or rejected on the basis of whether
managers can be precise about the "how" and well as the
"what" of their plans. Companies thet are afraid to commit to goals that lie outside
the range of planning are unlikely to become global leaders. Only with a carefully articulated and adhered to strategic
intent will a succession of year-on-year plans sum up to global leadership. Means vs. Ends The planning format, reward criteria, definition of served
market, and belief in accepted industry practice all work together to tightly
constrain the range of available means in traditional companies. On the other
hand, strategic intent is clear about ends but it is flexible as to means.
Achieving strategic intent requires creativity with respect to means. Management Practices In order to engauge the entire organization, top management
must: •Create a sense of urgency or quasi crisis. By amplifying weak signals in the environment that point up the
need to improve, instead of allowing inaction to precipitate a real crisis. •Develop a competitor focus at every level through widespread
use of competitive intelligence. Every employee should be able to benchmark his or her efforts
against best-in-class competitors so that the challenge becomes personal. •Give the organization
time to digest one challenge before launching another. Avoids to create the "wait and see if they are serious this
time" attitude that destroys the credibility of corporate challenges. •Establish clear milestones and review mechanisms In order to track progress and ensure that internal recognition
and rewards reinforce desired behavior. •Create a sense of reciprocal responsibility Reciprocal responsibility means shared gain and shared pain. Competitive Advantage Keeping score of existing advantages is not the same as building
new advantages. The essence of strategy lies in creating tomorrow's
competitive advantages faster than competitors mimic the ones you possess
today. An organization’s capacity to improve existing skills and learn new
ones is the most defensible competitive advantage of all. ------------------------------------------------------------------------ Approaches to Competitive Innovation Four approaches to competitive innovation are evident in the
global expansion of Japanese companies. •Building layers of advantage The wider a company's portfolio of advantages, the less risk it
faces in competitive battles. New global competitors have built such
portfolios by steadily expanding their arsenals of competitive weapons. They
have moved inexorably from less defensible advantages such as low wage costs
to more defensible advantages like global brands. These manufacturers thought of the various sources of
competitive advantages as mutually desirable layers, not mutually exclusive
choices. What some call competitive suicide - pursuing both cost and
differentiation - is exactly what many competitors strive for. •Searching for loose bricks This approach exploits the benefits of surprise, which is just
as useful in business battles as it is in war. It begins with a careful
analysis of the competitor's conventional wisdom: •How does the company defines its "served market"?
•What activities are most profitable? •Which geographic markets are too
troublesome to enter? The objective is not to find a corner of the industry (or niche)
where larger competitors seldom tread but to build a base of attack just
outside the market territory that industry leaders currently occupy. •Changing the terms of engagement This means refusing to accept the front runner’s definition of
industry and segment boundaries. ------------------------------------------------------------------------ Barriers to entry vs.
Barriers to imitation. Barriers to imitation are high, but barriers to entry can be
reduced by changing the rules of the game. •Competing through collaboration Through licensing, outsourcing agreements, and joint ventures,
it is sometimes possible to win without fighting. In fighting larger
global rivals by proxy, Japanese companies have adopted a maxim as old as
human conflict itself: My enemy’s enemy is my friend. Collaboration can also be used to calibrate competitor’s strengths
and weaknesses ------------------------------------------------------------------------ What Is Wrong With Traditional Strategy? The essence of Western strategic thought can not be reduced to: •Eight rules for excellence •Seven S`s •Five competitive forces
•Four products life-cycle stages •Three generic strategies •and innumerable
two-by-two matrices..... Moreover, They have toxic side effects: •They reduce the number of strategic options management is
willing to consider. •They create a preference for selling businesses rather
than defending them. •They yield predictable strategies that rivals easily
decode. Besides, most of the tools of strategic analysis are focused
domestically. Few force managers to consider global opportunities and threats.
Moreover, Internal accounting data may not reflect the
competitive value of retaining control over core competence. Companies can also be overcommited to organizational recipes,
such as SBU and the decentralization an SBU structure implies. •Not creating economies of scope. •The use of
"particular" managerial performance Finally, in many companies participation is nothing more than a
buzzword. Discussion •Can you name one global brand developed by a US company in the
last ten years? •Is the lack of a strategic intent the real cause of the low
competitiveness problem? Kogut, B. and U. Zander '..................KNOWLEDGE....................... of the firm,
combinative capabilities, and the replication of technology.' Organization Science, 1992. 3(3): p. 383-397. Introduction Objective: establish an organizational foundation to a theory of
the firm. Thesis: ..................KNOWLEDGE....................... is
embedded in the organizing principles by which people cooperate within organizations. Theoretical challenge: to understand what firms tacitly 'know
how to do' as a set of capabilities that enhance chances for growth and
survival. Analysis: How a firm's growth by technology transfer,
paradoxically, increases the potential for imitation. Description of an organization: a social community whose actions
are structured by organizing principles not reducible to individuals. Categorization of organizational
..................KNOWLEDGE.......................: information and know-how. Competitive implications: related to growth of
..................KNOWLEDGE........................ Information and Know-How •Incomplete characterization of organizational
..................KNOWLEDGE........................ •'Information' is ..................KNOWLEDGE.......................
that can be transmitted without loss of integrity. •'Know-how" is skill or expertise which is characterized by
'smooth' and 'efficient' performance. •The 'know-how' of an organization is evident in its dynamics. The Inertness of
..................KNOWLEDGE....................... •Differing capabilities of transferring and imitating
..................KNOWLEDGE....................... can result in different
levels of performance by competing firms. •Codifiability and complexity are two dimensions of this joint
problem. •Codifiability is the ability of a firm to structure
..................KNOWLEDGE....................... as a set of identifiable
rules and relationships that can be easily communicated. •Complexity can be defined as the number of operations to solve
a task, or the number of parameters required to define a system. Transformation of Personal To
Social ..................KNOWLEDGE....................... •There are distinctions between individual, group, and
organizational ..................KNOWLEDGE........................ •Difficulties in passing on individual skills. •Development of a unique language or code. •Problems with function-based coding schemes. •Benefits of higher-order principles. The Paradox of Replication •Problems with growth of the firm through training •Nesting of an organization's
..................KNOWLEDGE....................... is possible because the
ability to use a technology can be separated from the expertise to generate
it. •Implications for technology transfer. Combinative Capabilities •Capability for creating new organizational
..................KNOWLEDGE........................ •Growth of ..................KNOWLEDGE....................... is
experientially based. •The problem of inertness of organizational
..................KNOWLEDGE....................... is not reducible to
individuals. •Problems in codifying
..................KNOWLEDGE........................ Selection Environment •Competitive conditions for imitation and replication. •Selection on product types acts to develop and retard a firm's
capabilities. The Make Decision and Firm Capabilities •Strength of organizational theory of firm
..................KNOWLEDGE....................... over contracting
perspective. •Firm's maintain in-house capabilities that lead to
recombinations of economic value. •The make or buy decision depends on doing, learning and
platforms of opportunity. Conclusion Theory of organizational ..................KNOWLEDGE.......................
focuses on organizing principles by which social relations are recreated and
coordinated. Quotation "But whereas the accumulation of small group interactions
facilitate the creation of shared coding schemes within functions, a
fundamental problem arises in the shifting of technologies from research
groups to manufacturing and marketing. At this point, the identification of a
professional orientation conflicts with the need to integrate within the
organization." (p. 389) 'The role of core competence of the corporation.' Introduction In the 1980s major changes took place in our industrial
environment: Western companies, which used to be world leaders, aren't in a
leadership position anymore. Although, these companies focused on increasing
performance considering quality, cost, time cycle, productivity, etc., their
Japanese counterparts were more successful. This leads us to investigate the
logic for growth in our new globalized economy. The article presents a conceptual
framework to achieve an understanding of this logic. A New scorecard: Corporate management, in the 1990s, should focus on growth not
on downsizing and restructuring. The new scorecard for managers should be
value creation. It will allow western companies to re-gain their leadership
on the market. Value creation has two components: performance gap and
opportunity gap. In order to succeed, a concern for both should exist. The
paper focuses on "opportunity gap through revitalization and growth".
Management of opportunity gap should be proactive to become successful. ------------------------------------------------------------------------ A new framework for value creation: The management of opportunity gap has four interrelated
components: Aspiration level of the organization, capacity to leverage
corporate resources, competing for the future - outcomes, and organizational
capabilities. The aspiration level or strategic intent is a creation a winner
spirit within the organization. It focuses directly on the organizational
culture and creates a mismatch between the available resources and the
aspirations. This approach will be a component in encouraging innovations. Once a mismatch generated, resources should be leveraged to
accomplish the new organizational aspirations. To do so, management starts
with a "strategic architecture", which is a communication of a wide
range of information consistent with the strategic intent. "It provides
a framework for focused resource allocation over a long period, allows
managers to maintain consistency in their efforts, and provide a logic for
managing linkages across business units in large company". It provides a
framework to scan the environment in order to detect strategic alliance
opportunities and help managers to proactilvely work on the innovation
process. A second component in resources leveraging is the identification
of core competencies. A strategic architecture allows managers to identify
what core competencies are available in-house and what is needed. Core
competencies are an important component in the resources leveraging process.
Nevertheless, they should not be confused with core products and core
capabilities. Core competencies is the "creative bundling of multiple
technologies, customer ..................KNOWLEDGE....................... and
intuition, and managing them as a harmonious whole". A core competency can be characterized using three factors:
" it is a significant source of competitive differentiation, it
transcends a single business, and it is hard for competitors to
imitate". It is critical to understand that core competency includes
both explicit and tacit ..................KNOWLEDGE........................
Technical capabilities, per se, cannot help understanding this concept. Core
competency is present at all levels of the organization and embedded in it. Another factors necessary to understand competence are the
"governance process and the collective learning". Governance
process represents the quality of communication between functions and
business units within an organization. It is clear that investments in
technology should be accompanied with governance and creation of learning
environments at all levels in the company; otherwise failure is inevitable. Finally, core products are a key concept in understanding the
capacity to leverage corporate resources. They are "often the physical
embodiment of one or more core competencies". A market that is
developing for core products. In order to succeed, it is important to recognize
difference, in terms of competition, between core products and end products
or services. Nowadays, competition has three levels: "competition for
end products and services, competition for dominance in core products that
create the capacity to lead in the development of new functionalities, and
competition for competence - the capacity to create business". We need
to learn to compete on the three levels. A new approach is needed in order to become competitive and be a
major player in the innovation process. this new mindset is characterized by:
"Challenging existing price-performance assumptions, understanding the
meaning of customer-led - Leading customers is what competing for the future
is about, and escaping the tyranny of the served market orientation among managers"
(too much emphasis on current business). Markets should be created not
defended. ------------------------------------------------------------------------ Conclusion "We need to start with a strategic intent, create a
strategic architecture, understand core competencies and products. Growth is
the agenda - not restructuring. dramatic growth will not take place if we
focus on technology; it will take place if we focus on the organization, with
technology as a part of it" ..................KNOWLEDGE....................... creation. Managing ..................KNOWLEDGE.......................
Creation in the Corporation It is argued that intellectual capital is becoming a firm's most
valuable asset and source of competitive advantage. But most firms are still searching for effective approaches to
managing their ..................KNOWLEDGE....................... creation.
Now we are beginning to see the emergence of new executive roles, for
example, the Chief Learning Officer. Presentation Focus •Why is intellectual property a firm's most valuable asset ?
•How does AC increase innovative ability at the organizational level ? Conclusions: •intellectual ability is the lowest common denominator (not
technology, financial resources, market placement, etc. - these are only
transient characteristics) that defines a firm's ability to handle the
evolution of its competitive environment and uncertainty in general •firms
are sensitive to their learning environments - the type of AC development to
be encouraged depends on the nature of the firm and its environment (e.g.,
the relatedness between internal and external
..................KNOWLEDGE......................., the rate of
..................KNOWLEDGE....................... advancement) •organizational
AC is the outcome of the interactions between: 1.the effectiveness of the gatekeepers and their structure 2.the
AC of the individual 3.the ease of communication among individuals (i.e.,
common language) 4.the diversity of the individuals backgrounds (to allow for
novel linkages to form) •a firm that begins to target a field which is not related to
its current activities must actively encourage AC development (since it is
unlikely that AC will be developed as a by-product of a current activity) •to
properly place a value on AC, one needs to possess some measure of it
beforehand; without sufficient intellectual capacity, a firm will not be able
to ascertain its true competitive footing •AC can form a component of a
negative or positive feedback loop, depending on whether it is encouraged or
neglected (see Peter Senge, "The Fifth Discipline") How does this Paper relate to our Discussion ? •the objective of this paper was not to demonstrate why
intellectual activity is important to a firm (this is conveyed as by-product
of the papers focus) •this paper was intended to address 2 of the 3 general
determinants of innovative activity (market demand, technological opportunity
and appropriability conditions) which economists study •the authors attempt
to demonstrate the impact of AC on the latter two determinants •if one
believes that the ability to innovate is essential to a healthy firm, then (a
priori) the need for intellectual ability at the firm level has also been
demonstrated Definition of AC •the ability of a firm to recognize the value of new, external
information, assimilate it and apply it to commercial ends •a key determinant of a firm's innovative potential •at the firm
level, AC can be generated as a byproduct of activities such as R&D,
manufacturing, technical training, etc. Introductory Comments •outside information is often an important aspect of innovation
(more so than information developed internally by the originating unit)
•research has shown that most innovations are created by 'borrowing' instead
of inventing (i.e., a product innovation for one firm is the process
innovation for the next, but only if this other firm is aware of that
innovation's applicability to its needs) •other units internal to the firm
(e.g., marketing) are also important originating centers for innovation AC at the Individual Level Cohen and Levinthal base their concept of AC upon research which
has studied how the individual deals with
..................KNOWLEDGE........................ •...accumulated prior
..................KNOWLEDGE....................... increases both the ability
to put new ..................KNOWLEDGE....................... into
memory,...and the ability to recall and use it •memory development is
self-reinforcing - the more it is done, the easier it gets. Why ? 1.memory is developed by associative learning (i.e., events are
stored in memory by establishing links with previously recorded material)
2.the breadth of categories into which this prior information is organized,
the differentiation of those categories and the linkages across them affect
the effectiveness with which new information is used and with which new
information can be acquired •successfully learning a task may make the job of learning a
subsequent related task much easier - in other words, the more you know, the
easier it gets •the authors do not find it necessary to differentiate between
learning capabilities and problem solving skills; the same process governs
both (note: problem solving is defined as the generation new
..................KNOWLEDGE.......................) •intensity of effort is
also a crucial factor; the more deeply that material is processed, the better
later retrieval and the processing of that item will be •Examples of these
concepts: •learning a new language is more than just vocabulary and
grammar memorization, it also requires
..................KNOWLEDGE....................... of the culture, history,
current events and is conducted most effectively 'on-site' •learning by doing
is the preferred learning strategy for most of us as this furnishes the need
to learn •For this presentation, I had AC in the form of: •prior ..................KNOWLEDGE....................... of
WordPerfect (i.e., a markup language: <BOLD> Sid <bold>), which
allowed for rapid learning of HTML concepts •prior
..................KNOWLEDGE....................... of Microsoft Word, which
allowed me to use the Internet Assistant with little difficulty •prior
presentation experience, which allowed me to develop an appropriate structure
for this application (hopefully) •being graded on this presentation, which
established the prerequisite 'intensity' required to combine these separate
bodies of ..................KNOWLEDGE....................... into meaningful
associations Summary: •learning is cumulative •learning performance increases when the
item to be acquired is related to something which is already known •under
conditions of uncertainty, diversity of
..................KNOWLEDGE....................... increases the likelihood
that novel associations and linkages are created ------------------------------------------------------------------------ AC at the Organizational Level •an organization's AC depends partially on the AC of its
individual members, hence all of the above points remain relevant •however,
organizational AC is not just the sum of the individual's abilities, it also
affected by: •the communication structures of the firm •that
character/distribution of expertise within the firm Organizational AC is strongly influenced by the effectiveness
with which information is transferred from one unit to another which has need
of that information (note: information is not merely data, it must also be
decision-relevant and timely) AC at the organizational level is influenced by 4 aspects. 1.the transfer of external information, handled by specialized
agents: •Gatekeeper - the individual who monitors the external
environment (at either the firm level or a departmental level) for important
information and also translates it into a form that can be understood by
internal staff if that information is complex/far removed •centralized
gatekeeping is appropriate when the environment is fairly stable; greater
numbers of receptors are required as the environment changes more rapidly and
more information and sources of information has to be dealt with 2.individuals, who must possess the necessary expertise to
understand the ramifications of what is being transmitted to them (i.e., how
can this ..................KNOWLEDGE....................... be used to
satisfy a firm's needs) 3.the diversity of backgrounds within a group, to
increase the potential for novel linkages to develop •thus a firm should encourage efforts such as close supplier
(and customer) relationships, diversity of individuals, limits to division of
labor specialization, product groupings instead of process groupings,
rotation of employees between diverse departments (horizontal rather than
vertical progression), etc. 4.the efficiency of information transfer, which requires a
common 'language' or body of
..................KNOWLEDGE....................... •a trade-off issue exists between 3 and 4: shared language
increases the ability to communicate internally but reduces the ability to
monitor external signals (internal vs. external AC) •a firm may not simply boost AC by purchasing external
..................KNOWLEDGE....................... (i.e., takeovers), there
would seem to be limits to the incremental growth rates of AC and hence on a
firm's ability to raise its innovative potential Implications for the Firm •AC is characterized as path-dependent and domain-specific •AC
in the form of prior ..................KNOWLEDGE....................... is
important because of: •Cumulativeness: lowers the cost of learning subsequent new
information (or vice-versa) •Expectation Formation: allows for the astute
recognition of the merit of a new technology and conditions the subsequent
investment in AC •these aspects become of greater importance as uncertainty in a
environment increases •a firm which neglects its intellectual capital may
become locked-out from a technological domain (unable or unwilling to close a
technological gap with a competitor) because: •assimilating the necessary ..................KNOWLEDGE.......................
is prohibitively expensive •the firm may not be aware of the potential of a
technology until it is to late •AC conditions the organizational atmosphere (specifically its
aspiration level in terms of what is possible, not merely what is sufficient)
leading to proactive behaviour >From last week's discussion of Transilience Maps, can we
argue that the firms who are predominately involved in Architectural
Innovation possess a higher degree of AC than firms which are known more for
Regular Innovations (because this Architectural innovation requires both
novel technological and market linkages) ? ------------------------------------------------------------------------ R&D and AC •because a firm's technical sphere of interest is often
reflected by its R&D efforts, a firm's AC should not only be strengthened
by R&D activities, but should also serve as a rough estimate the firm's
current level of AC •a firm's R&D efforts leads to not only a direct
increase of the firm's ..................KNOWLEDGE.......................,
but it indirectly (due to greater AC) allows the firm to benefit more from
their competitor's spillovers •conducting R&D could therefore can be
justified for 'its own sake', regardless of what marketable products it
achieves •firms active in industries with a diverse technological foundation
need to conduct more R&D (and hence build AC) than a comparative firm in
focused field (i.e., this would allow us to contrast IBM vs. Nike)
•co-operative research ventures: more resources are needed than top
management would initially think/allocate to actually benefit from these
deals - because of the need to also diffuse the new information internally ------------------------------------------------------------------------ The Firm's Incentive to Learn •Two factors condition the firm's incentive to develop AC •The quantity of
..................KNOWLEDGE....................... to be assimilated •the more there is, the greater the incentive to develop AC •The difficulty of learning •the marginal effect of developing AC is greater (i.e., more
attractive) as the difficulty of learning increases ------------------------------------------------------------------------ Lockout Demonstration A simple model is presented here to demonstrate the transient
characteristics of the lockout phenomenon, as would be predicted by the
concept of AC. Basic concepts of my model •K(x) - a firm's composite
..................KNOWLEDGE....................... stock during period x
(i.e., R&D skills, manufacturing know-how, marketing savvy) •a - the
factor that represents the firm's 'intensity' in pursuing
..................KNOWLEDGE....................... •for our model, a = r •i.e., it is proposed that the intensity of ..................KNOWLEDGE.......................
pursuit can be effectively represented by the amount of resources that top
management invests in R&D per period •a firm therefore increases its
intensity by simply increasing investment •the functional form of the model which relates these terms is: •K(x) = K(x-1) ln (a) •a firm's present
..................KNOWLEDGE....................... stock is therefore a
function of its ..................KNOWLEDGE....................... base in
the previous period multiplied by the natural log of its investment in new
technology and research •this model is simple, yet incorporates several vital real-world
aspects •it is possible to become 'dumber' (i.e., if the firm does not
invest at least 2.69 units, its ..................KNOWLEDGE.......................
stock will actually decrease) - surviving from one year to the next does not
imply that the firm has grown smarter •this model captures aspects such as
your technology becoming obsolete, skilled individuals exiting the firm,
missed research opportunities, etc. •increasing the size of the investment
does not bring about a corresponding increase in ability (e.g., increasing
the amount invested by 100% results in only a 69% increase in
..................KNOWLEDGE.......................: as ln(2) = 0.69)
•therefore, the law of diminishing returns is in effect and thus naturally
limits the amount by which your firm can improve from one period to the next,
hence it is better to invest a steady amount year after year than to try and
play catch-up •the amount invested must build upon your ability of the
previous year - another natural limitation The model in action •two firms in competition illustrate how the AC concept can lead
to lockout due to a firm's investment strategy •Firm A decides to take the
slow and steady approach, investing a constant 5 units in R&D pursuits
each year regardless of its competitive position •the CEO of Firm B decides
that he/she is happy with the firms current technology base (in period 0) and
that almost no R&D must be conducted to remain competitive Firm AFirm BPeriod
xKa(x)ra(x)Kb(x)rb(x)0151311.6151.099322.5951.21334.1751.33346.7151.463510.8051.6010617.4053.6810728.0058.4910845.01519.5410972.44544.9913.3410116.6116.6 •in period 1, Firm B is 'only slightly' behind (we assume that
if Ka is 300% larger than Kb, then Firm B has become technologically
obsolete) •in period 4, the CEO of Firm B is fired. The successor recognizes
the mistake and initiates an emergency revitalization program •even so, it
takes almost an equal amount of time of high intensity effort to regain
equality •over the simulation run, Firm A invested 50 units, Firm B invested
68 units •please note: •we allowed Firm B to invest huge sums of money to catch up -
but this may not be possible in real-life •Firm B is assumed not to fail due
to technological inferiority •without sufficient AC, it is likely that Firm B
may actually never know it has become obsolete, until it is too late In reality, Firm B may not catch up to Firm A again, ever. To
see that this is true, imagine that after obsolescence has occurred (Period
4), the governing equation for Firm B changes to log instead of ln. Firm B
would now have to invest 10 units just so that its
..................KNOWLEDGE....................... stock does not decrease.
To keep up with Firm A, it would have to invest 40.68 units. This may be
prohibitively expensive. This page demonstrates my gradual absolesence in action .
Because I have failed to invest the resources necessary to keep the latest
versions of Netscape on my home computer, my table formats look 'messy'. If I
don't take action soon, I will have to work so much harder later on to catch
up. ------------------------------------------------------------------------ Discussion Questions •Validity of the AC Theory - can the concepts of
..................COGNITIVE....................... structures at the
individual's level be transferred to the organizational level? •Currently,
the popular press advises managers to focus on 'core competencies'. Could
there be a negative effect associated with this advice, as a firm loses its
ability to see the future potential of current non-core activities? Does a
firm such as Nike (which concentrates on design and marketing) stand to loose
in the long-run, since it doesn't practice (for example) its skills in
manufacturing? •What are the primary implications of this paper for
management? How crucial is it for them to foster AC and which alternatives
(other than R&D) could be employed most proficiently? •What is the
problem which results because of AC's intangible nature? •What has been the
effect of re-engineering/right-sizing on a firm's AC? 'Managing the company's technological
assets.' Research Management, 1980. (September): p. 20-24. A growing number of companies are recognizing that technology is
a strategic asset which needs to be managed accordingly. This paper focuses on the ways in which technological
decision-making is being approached by top management. Business and Technology Strategy Links Five categories of links between business and technical strategy
development have been formulated as a result of the examination of the
experiences of a number of companies in various fields. The categories are: 1.Leap of Faith 2.Lack of Faith 3.Technology Driven 4.Customer Driven 5.Strategic Management 1. Leap of Faith Top management calls or allows for certain amounts of money to
be spent on R&D without attempting to understand the nature of the
specific R&D investment. There are obvious problems with this type of strategy. In bad
times, this blind faith is far too easily lost. Also, there is a lack of dialogue between business and technical
managers in this situation. 2. Lack of Faith Money allocated to R&D is closely controlled by business
management and in some cases business managers are found involving themselves
in the day-to-day management of R&D projects. Although this situation may facilitate close ties between
business goals and the deployment of technical assets, very often it leads to
a focus on the short term, leaving little technical resources available for
longer term projects. 3. Technology Driven This situation is usually found in companies dominated by
scientists or engineers. Technical breakthroughs determine the company's path of
development. Business functions respond to the company's next technical
breakthrough. Although the business plan will tend to be less well-developed
and sophisticated and less attention is paid to conventional market factors
and changes in the environment, this situation facilitates getting the
maximum utilization of technical resources and tends to spur technical
advances. 4. Customer Driven The main strategy is to be responsive to market needs -
technical assets are employed for customer application and technical service.
This type of link leads to a short range focus, as the attitude
is one of "milking the technology cow" instead of the development
of new technological assets. 5. Strategic Management This type of linkage entails the development of a business
strategy which reflects the important technical assets and opportunities of
the organization. This occurs through top management asking a series of questions
in order to determine the optimum allocation of technological resources. The Strategic Balance The strategic balance refers to the interaction between the
technological assets of the organization and the determination of the
business strategy based upon its business goals. A growing number of organizations view their technical assets as
key factors influencing, and being influenced by the business strategy. Identifying the Technology Know-How In order to achieve strategic balance, the organization must
first determine what its strategic technological assets are, by identifying
its technical know-how and what it is good at doing with that know-how. It is suggested that technology strategy workshops with
representation from R&D, marketing, manufacturing and general management
is a useful approach to identify technology know-how. After the identification of the unique technical capabilities of
each product line, the organization must mesh the identification of the
technologies with the specific manpower capabilities of the people in the
division. Functional Competency In order to fully identify an organization's strategic technical
assets, the functional competencies (or strengths) of the technology staff
must be determined. The functional competencies of the organization will have implications
for the formulation of the technical and business strategy. The functional competencies of an organization are not fixed. Functional competencies will change naturally throughout the
maturation process, but can also be affected by the deliberate actions of
management. The design of reward systems, hiring and selection processes,
the personnel's perception of their jobs, internal turnover, and training and
development programs can change the functional competencies of the
organization. Concluding quote: "For success in the marketplace, a company's technical
assets and functional competencies must be fitted into the business
strategy." 'The ..................KNOWLEDGE.......................-Creating
Company.' Harvard Business Review,1991, (Nov.-Dec.): p.96-104 The main principle behind the continuous and successful
innovation of many Japanese firms is simply the ability to create and manage
..................KNOWLEDGE........................ This defines a
..................KNOWLEDGE.......................-Creating company - the
ability to generate new ..................KNOWLEDGE.......................
and to then embody that ..................KNOWLEDGE.......................
into new successful innovations. The principle is simple, yet many Western managers fail to grasp
the concept of ..................KNOWLEDGE....................... as a source
of lasting competitive advantage. They prefer to measure any new
..................KNOWLEDGE....................... in terms of hard,
quantifiable measures (ROI, costs, efficiency). This reflects their image of organizations as static information
processing machines. The ..................KNOWLEDGE.......................-Creating
company considers itself more of a living organism with a collective sense of
identity and fundamental purpose. It looks at not only quantifiable, but
qualitative metrics: Does the new idea embody the company's vision, is it an
expression of top management's aspirations and strategic goals; does it have
the potential to build the company's organization
..................KNOWLEDGE....................... network. Creating new ..................KNOWLEDGE.......................
in an organization can be managed as a process. It first begins with the
individual and how they learn and share new
..................KNOWLEDGE........................ There are two types of
..................KNOWLEDGE.......................: explicit and tacit. Explicit ..................KNOWLEDGE....................... is
formal and systematic and thus, easy to communicate and share. Tacit
..................KNOWLEDGE....................... consists of mental models,
beliefs and perspectives that can not be easily articulated and shared. It is the movement between these two forms of ..................KNOWLEDGE.......................
that forms the process of creating new
..................KNOWLEDGE........................ Four types of
interactions can occur: From tacit to tacit (Socialization), from explicit to
explicit (Combination), from tacit to explicit (Articulation), and from
explicit to tacit (Internalization). The last two types of interaction are the most critical steps in
creating new ..................KNOWLEDGE....................... as they
require the active involvement of the individual and his personal commitment.
In order for an individual to articulate new tacit
..................KNOWLEDGE....................... to explicit
..................KNOWLEDGE....................... to share with others, a
process is required. The manner in which many successfully Japanese firms
convert tacit ..................KNOWLEDGE....................... into
explicit ..................KNOWLEDGE....................... is first by
linking contradictory things and ideas through metaphor, then by resolving
these contradictions through analogy and finally, by crystallizing the
created concepts and embodying them in a model which makes the
..................KNOWLEDGE....................... available to the rest of
the company. For example, Honda used the slogan "Theory of Automobile
evolution" to combine two ideas not normally thought of together: the
automobile, a machine and the theory of evolution, refering to living
organisms. This spurned another metaphor "Man-maximum, Machine-minimum".
This evolved into an analogy between man and machine and put the
intuitive ideas into more logical terms. Honda came up with the concept of a
spherical car design that provided the most room for the passenger while
taking up the least amount of space on the road, and minimizing the space
taken up by the engine. Finally, a model was created in the form of the Honda
city, urban car. This process of creating
..................KNOWLEDGE....................... through metaphors,
analogies, and models has direct implications on the design of an
organization. The fundamental principle of organization design at the
Japanese companies studied was redundancy. This is the conscious overlapping of company information,
business activities, and managerial responsibilities. Redundancy can be a
successful tool to generate
..................KNOWLEDGE....................... which in turn drives
innovation and competitive advantage. Properly managing redundancy can provide a variety of
perspectives in which individuals can create and share new
..................KNOWLEDGE....................... through frequent dialogue
and communication. There are three ways an organization can realize the advantages
of redundancy: through internal competition, strategic rotation of functions,
and free access to organizational information. The roles in the
..................KNOWLEDGE.......................-creating company are also
affected. The front-line employees are the initial receivers and interpreters
of new information. Senior managers create a vision which is open-ended enough for
the front-line employees to interpretate their new experiences, each in a
unique way. Teams provide a shared context where individuals can discuss
their own perspectives and form new ones. The middle managers synthesize the tacit
..................KNOWLEDGE....................... of both front-line
employees and senior executives, make it explicit, and incorporate it into
new technologies and predictors. In conclusion, many Japanese firms have been successful
innovators due to their ability to manage
..................KNOWLEDGE....................... and the process of
generating new ..................KNOWLEDGE........................ Many other companies can learn from those examples of the
importance of viewing ..................KNOWLEDGE....................... as a
lasting source of competitive advantage and organizing their companies around
this fundamental principle of innovation. 1 Brainpower. and 2. Intellectual
capital. Fortune, 1991 &1994. June & October: p. 44-60
&68-74.<Picture> Summary by: Alison Choy Purpose: In both articles, the author discusses the idea of Brainpower,
or Intellectual Capital as one of business' most intangible and valuable
assets. He considers how businesses can account for intellectual capital as
well as capitalize upon it. Definition of Intellectual Capital: '..................KNOWLEDGE....................... that exists
in an organization that can be used to create differential advantage.' [Hugh
Macdonald, ICL] 'The sum of everything everybody in your company knows that
gives you a competitive edge in the marketplace.' [T.A. Stewart] Summary: Most businesses today cannot give you a precise definition of
what constitutes intellectual capital, but what they can agree on is that it
is one of the most difficult to identify and even harder to effectively
deploy. Some tangible evidence of intellectual capital may include patents or
copyrights, but for the most part, it is intangible. Managing ..................KNOWLEDGE....................... as
an asset What businesses are struggling most with is the question of how
to manage ..................KNOWLEDGE....................... as an asset. The author suggests two steps to the process: •Finding and identifying intellectual assets •Matching the
company's intellectual needs with its strategic plan. Gordon Petrash, Director of Intellectual Asset Management at Dow
Chemical has a six step plan: 1.Define the role of
..................KNOWLEDGE....................... in your business 2.Assess
competitors' strategies and
..................KNOWLEDGE....................... assets 3.Classify your
portfolio 4.Evaluate your assets 5.Invest in furthering intellectual assets
6.Assemble your new ..................KNOWLEDGE.......................
portfolio and repeat the process ad infinitum. Packaging intellectual capital After identifying the intellectual assets, the company needs to
package them in order to be able to distribute and retain the
..................KNOWLEDGE........................ Stewart suggest two ways:
•Automation •Expert systems•Fuzzy logic •Storytelling •Work groups Another problem business faces is 'losing the recipe'.
..................KNOWLEDGE....................... that was utilized in the
past is lost of forgotten and then re-discovered in the future only to be
lost again. This comes at great expense to the company for R&D. To
resolve this, automation of
..................KNOWLEDGE....................... is the answer by storing
..................KNOWLEDGE....................... in data bases. ------------------------------------------------------------------------ Measuring the value of intellectual capital To understand the value of intellectual capital, Leif Edvinsson
of Skandia has three principles: 1.The value of intellectual assets exceeds by many times the
value of assets that appear on the balance sheet 2.Intellectual capital is a
raw material from which financial results are made 3.Managers must
distinguish between two kinds of intellectual capital •Human capital •Structural capital Hubert Saint-Onge of Canadian Imperial Bank of Commerce measures
intellectual capital as a sum of three elements: 1.Individual skill needed to meet customers' needs (human
capital) 2.Organizational capabilities demanded by the market (structural
capital) 3.Strength of its franchise (customer capital) In some instances managers want to evaluate their ROI. Although
there is no precise measure, one surrogate measure suggested is Tobin's q. Tobin's q reflects the value the market places on something not
found on the balance sheet, part of which includes intellectual capital. Company's Market Value (CMV) •Replacement Value of its Physical Assets •CMV = Stock Price x
Shares outstanding Note: Tobin's q is only a relative measure, because at any given
time it may also reflect takeover rumors, a company's market clout, etc. Some caveats about intellectual capital: Up-front costs tend to be relatively large in order to acquire
it It must be refreshed and replenished constantly, less it disappears In
order to circumvent some of these drawbacks, companies have grabbed for
network externalities and joined forces with other businesses to integrate
intellectual capital. This means that a network's value grows faster than the
number of participants involved in it. The question for all businesses in the future is: how much will
intellectual capital grow? Emory University Information Technology Division 3 Areas of Core Competency: Which One Is
for You? The best way to deliver what customers value most is to focus on
one of three strategies, say consultants Micheal Treacy and Fred Wiersema.
They argue that striving for stellar performance in more than one of the
three areas can create internal conflict that ultimately damages the image
and relationship that companies have with their customers. Companies need to
focus their strategic decisions toward one of the three areas, while
including aspects of the other two needed for success. As part of ITD's redesign effort, the Steering Committee made a
decision that ITD will focus customer intimacy. To quote from the Design
Team's Charter: Our overriding competitive advantage will be building customer
intimacy with those we serve. All endeavors and decisions will be based on
the ultimate impact on our customers ability to meet their organizational
goals and objectives. We will only develop new technologies and services
based on the customer's current or agreed upon future needs and not solely
based upon the availability of technologies in the marketplace or our desire
to create them. While we will endeavor to standardize our architectures to
assure integration of information across the total Emory University system,
we will conduct our business in such a way that takes into account the unique
and varied requirements of a very diverse customer base. We will conduct our
business and leverage our resources to deliver the greatest value for the
lowest cost, but will not necessarily be the lowest cost provider. The chart below describes what companies look like that focus on
operational excellence, product leadership, or customer intimacy. Focus on Operational Excellence means...Focus on Product
Leadership means...Focus on Customer Intimacy means... End-to-end supply and
basic service processes that are optimized to minimize cost and hassle. A
focus on the core processes of invention, product development, and market
exploitation. Obsession with the core processes of solution development
(i.e., helping the customer understand exactly what's needed), results
management (i.e., ensuring that solutions get implemented properly), and
relationship management. Standarized and simplified operations that are
tightly controlled and centrally planned, leaving few decisions to the
discretion of the rank-and-file employees. Management systems that focus on integrated, reliable,
high-speed transactions and compliance to norms. A culture that abhors waste and rewards efficiency. A business structure that is loosely knit, ad hoc, and
ever-changing to adjust to the entrepreneurial initiatives and redirection
that characterize working in unexplored territory. Management systems that are results-driven, that measure and
reward new product success, and don't punish the experimentation needed to
get there. A culture that encourages individual imagination and
accomplishment, as well as out-of-the-box thinking, and a mindset driven by
the desire to create the future. A business structure that delegates decision-making to employees
who are close to the customer, and that gives them authority to act and
follow up on their decisions. Management systems that are geared toward creating results for
their carefully selected and nurtured clients. A culture that embraces specific rather than general solutions,
that thrives on deep and lasting client relationships. What they look like
from the outside • Lowest price. • Limited product variety. • Products without the lastest
features. • Basic service convenience and reliability. • Rigidity of service approach. • Little direct contact. • Superb service error recovery. • Lots of advertising. • Breakthrough product capabilities. • High price, but worth it. • Product features with major benefits. • Limited help in selecting and applying the product. • Big-bang product launches and events. • Lots of basic service snags. • Superb understanding of
customer's business. • Products without the latest features. • Expertise in areas of customer need. • Tailored basic service. • Some service glitches. • Never the product innovator, but a quick follower. • Sales reps that make things happen. • More expensive, but worth it. Adapted with permission from The Discipline of Market Leaders,
by Micheal Treacy and Fred Wiersema, Addison-Wesley Publishing Co. Reading,
PA 1995. |
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