Evaluating a Company’s Resources, Capabilities, and Competitiv.docx

Evaluating a Company’s Resources, Capabilities, and
Competitiveness
PowerPoint Presentation by Charlie Cook
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CHAPTER
4
1
LEARNING OBJECTIVES
LO1 Learn how to assess how well a company’s strategy is
working.
LO2 Understand why a company’s resources and capabilities
are central to its strategic approach and how to evaluate their
potential for giving the company a competitive edge over rivals.
LO3 Grasp how a company’s value chain activities can affect
the company’s cost structure and customer value proposition.
LO4 Learn how to evaluate a company’s competitive strength
relative to key rivals.
LO5 Understand how a comprehensive evaluation of a
company’s external and internal situations can assist managers
in making critical decisions about their next strategic moves.
4–2

2
Question 1
How well is the firm’s strategy working?
Question 2What are the firm’s competitively important
resources and capabilities?
Question 3Are the firm’s cost structure and customer value
proposition competitive?
Question 4Is the firm competitively stronger or weaker than key
rivals?
Question 5What strategic issues and problems merit front-
burner managerial attention?
Evaluating a Firm’s Internal Situation
4–3

3
Question 1: How Well Is the Company’s Strategy Working?
The two best indicators of how well a firm’s strategy is working
are:
Whether the firm is recording gains in financial strength and
profitability.
Whether the firm’s competitive strength and market standing is
improving.
4–4
Other Strategy Performance Indicators
Trends in the firm’s sales and earnings growth.
Trends in the firm’s stock price.
The firm’s overall financial strength.
The firm’s customer retention rate.
The rate at which new customers are acquired.
Changes in the firm’s image and reputation with customers.
Evidence of improvement in internal processes such as defect
rate, order fulfillment, delivery times, days of inventory, and
employee productivity.
4–5

Question 2: What Are the Company’s Competitively Important
Resources and Capabilities?
A company’s strategy and business model:
Must be well matched to its collection of resources and
capabilities.
Requires a tight fit with a company’s internal situation.
Is strengthened when exploiting resources that are competitively
valuable, rare, hard to copy, and not easily trumped to rivals’
equivalent substitute resources
4–6
A resource is a competitive asset that is owned or controlled by
a firm; a capability is the capacity of a firm to competently
perform some internal activity. Capabilities are developed and
enabled through the deployment of a firm’s resources.
CORE CONCEPT
4–7
Resource and Capability Analysis
Analyzing the resources and capabilities of a company is a two-
step process:
Identify the company’s most competitively important resources
and capabilities.
Apply the four tests of competitive power to ascertain which

resources and capabilities can support a sustainable competitive
advantage over rival firms.
4–8
Resource and capability analysis is a powerful tool for sizing up
a company’s competitive assets and determining if the assets
can support a sustainable competitive advantage over market
rivals.
Core Concept
4–9
Identifying Competitively Important Resources and Capabilities
Common types of valuable resources and competitive
capabilities include:
Skills or specialized expertise in a competitively important
capability
Up-to-date physical assets
Unique human assets or intellectual capital
Superior organizational assets
Inimitable intangible assets
Exclusive competitive alliances or cooperative ventures
4–10

TABLE 4.1 Common Types of Tangible and Intangible
Resources (1 of 2)
4–11Tangible ResourcesPhysical resourcesState-of-the-art
manufacturing plants and equipment, efficient distribution
facilities, attractive real estate locations, or ownership of
valuable natural resource depositsFinancial resourcesCash and
cash equivalents, marketable securities, and other financial
assets such as a company’s credit rating and borrowing
capacityTechnological assetsPatents, copyrights, superior
production technology, and technologies that enable
activitiesOrganizational resourcesInformation and
communication systems (servers, workstations, etc.), proven
quality control systems, and strong network of distributors or
retail dealers
TABLE 4.1 Common Types of Tangible and Intangible
Resources (2 of 2)
4–12Intangible ResourcesHuman assets and intellectual
capitalAn experienced and capable workforce, talented
employees in key areas, collective learning embedded in the
organization, or proven managerial know-howBrand, image, and
reputational assetsBrand names, trademarks, product or
company image, buyer loyalty, and reputation for quality,

superior serviceRelationshipsAlliances or joint ventures that
provide access to technologies, specialized know-how, or
geographic markets, and trust established with various
partnersCompany cultureThe norms of behavior, business
principles, and ingrained beliefs within the company
Is the resource or capability
competitively valuable?
VRIN Competitive Power TestsIs the resource or capability
rare—
is it something rivals lack?
Is the resource or capability
inimitable or hard to copy?
Is the resource or capability non-substitutable or is it vulnerable
to substitution from different types of resources and
capabilities?
Determining the Competitive Power of a Company’s Resources
and Capabilities
4–13

A core competence is a proficiently performed internal activity
that is central to a company’s strategy and competitiveness.
A core competence that is performed with a very high level of
proficiency is referred to as
a distinctive competence.
CORE CONCEPT
4–14
Companies that lack a stand-alone resource that is competitively
powerful may nonetheless develop a competitive advantage
through resource bundles that enable the superior performance
of important cross-functional capabilities.
Rather than try to match resources possessed by a rival firm, a
firm may develop entirely different resources that substitute for
the strengths of the rival.
CORE CONCEPT
4–15
The Importance of Dynamic Capabilities in Sustaining
Competitive Advantage
Management’s organization-building challenge has two

elements:
Attending to ongoing strengthening and recalibration of existing
capabilities and resources.
Casting a watchful eye for opportunities to develop totally new
capabilities for delivering better customer value and/or
outcompeting rivals.
4–16
A dynamic capability is the ability to modify, deepen, or
reconfigure the company’s existing resources and capabilities in
response to its changing environment or market opportunities.
CORE CONCEPT
4–17
Is the Company Able to Seize Market Opportunities and Nullify
External Threats?
SWOT represents the first letter in:
Strengths Weaknesses Opportunities Threats
A well-conceived strategy is:
Matched to the firm’s resource strengths and weaknesses
Aimed at capturing the firm’s best market opportunities and
defending against external threats to its well-being
4–18

SWOT analysis is a simple but powerful tool for sizing up a
firm’s internal strengths and competitive deficiencies, its
market opportunities, and the external threats to its future well-
being.
CORE CONCEPT
4–19
The Value of a SWOT Analysis
The value of a SWOT analysis is in:
Drawing conclusions from the SWOT listings about the firm’s
overall situation.
Translating these conclusions into strategic actions to better
match the firm’s strategy to its strengths and market
opportunities, correcting problematic weaknesses, and
defending against worrisome external threats.
4–20
Identifying a Company’s Internal Strengths

A firm’s strengths determine whether its competitive power in
the marketplace will be impressively strong or disappointingly
weak.
A firm that is well endowed with strengths stemming from
potent resources and core competencies normally has
considerable competitive power.
4–21
TABLE 4.2 Factors to Consider When Identifying a
Company’s Strengths, Weaknesses, Opportunities, and Threats
(1 of 4)
4–22Potential Internal Strengths and Competitive Capabilities
Core competencies in ____ .
A strong financial condition; ample financial resources to grow
the business.
Strong brand name image/company reputation.
Economies of scale and/or learning and experience curve
advantages over rivals.
Proprietary technology/superior technological skills/important
patents.
Cost advantages over rivals.
Product innovation capabilities.
Proven capabilities in improving production processes.
Good supply chain management capabilities.
Good customer service capabilities.
Better product quality relative to rivals.
Wide geographic coverage and/or strong global distribution
capability.
Alliances/joint ventures with other firms that provide access to
valuable technology, competencies, and/or attractive geographic

markets.
(2 of 4)
4–23Potential Internal Weaknesses and Competitive
Deficiencies
No clear strategic direction.
No well-developed or proven core competencies.
A weak balance sheet; burdened with too much debt.
Higher overall unit costs relative to key competitors.
A product/service with features and attributes inferior to those
of rivals.
Too narrow a product line relative to rivals.
Weak brand image or reputation.
Weaker dealer network than key rivals.
Behind on product quality, R&D, and/or technological know-
how.
Lack of management depth.
Short on financial resources to grow the business and pursue
promising initiatives.

(3 of 4)
4–24Potential Market Opportunities
Serving additional customer groups or market segments.
Expanding into new geographic markets.
Expanding the firm’s product line to meet a broader range of
customer needs.
Utilizing existing company skills or technological know-how to
enter new product lines or new businesses.
Falling trade barriers in attractive foreign markets.
Acquiring rival firms or companies with attractive technological
expertise or capabilities.
(4 of 4)
4–25Potential External Threats to a Company’s Future
Prospects
Increasing intensity of competition among industry rivals—may
squeeze profit margins.
Slowdowns in market growth.
Likely entry of potent new competitors.
Growing bargaining power of customers or suppliers.
A shift in buyer needs and tastes away from the industry’s
product.

Adverse demographic changes that threaten to curtail demand
for the industry’s product.
Vulnerability to unfavorable industry driving forces.
Restrictive trade policies on the part of foreign governments.
Costly new regulatory requirements.
Question 3: Are the Company’s Cost Structure and Customer
Value Proposition Competitive?
Why are cost structure and value important?
A company must be both cost effective in delivering value and
in achieving a superior mix of differentiating features to
maintain the competitive edge of its customer value proposition
over those of its rivals, especially in industries where price
competition is a dominant feature.
Useful analytical tools:
Value chain analysis
Benchmarking
4–26
A company’s value chain identifies the primary activities that
create customer value and related support activities.
CORE CONCEPT

4–27
FIGURE 4.1 A Representative Company Value Chain (1 of 2)
4–28
FIGURE 4.1
28
FIGURE 4.1 A Representative Company Value Chain (2 of 2)
4–29
FIGURE 4.1

29
Benchmarking: A Tool for Assessing Whether a Company’s
Value Chain Activities Are Competitive
Benchmarking entails comparing how different firms perform
various value chain maintenance and then making cross-
company comparisons of the costs and effectiveness of these
activities:
How materials are purchased
How inventories are managed
How products are assembled
How customer orders are filled and shipped
How maintenance is performed
4–30
Benchmarking is a potent tool for learning which companies are
best at performing particular activities and then using their
techniques (or “best practices”) to improve the cost and
effectiveness of a company’s own internal activities.
Core Concept
4–31
FIGURE 4.2 Representative Value Chain for an Entire Industry
4–32

FIGURE 4.2
32
The Value Chain System for an Entire Industry
The value chains of forward channel partners are relevant
because
The costs and margins of the activities of distributors and retail
dealers are part of the price the consumer ultimately pays and
can dramatically affect the company’s customer value
proposition.
Accurately assessing the competitiveness of a firm’s cost
structure and value proposition helps its managers understand
an industry’s entire value chain system, not just the firm’s own
internal value chain.
4–33
Strategic Options for Remedying a Cost or Value Disadvantage
There are three main areas of a firm’s overall value chain where
cost differences with rivals can occur:
A firm’s own internal activities

Value chain activities performed by suppliers
Value chain activities performed by forward channel allies
4–34
Improving Internally Performed Value Chain Activities
Implement the use of best practices throughout the firm
Eliminate cost-producing activities by revamping value chain
Relocate high-cost internal activities to lower-cost areas
Outsource internal activities to vendors or contractors to
perform them more cheaply than in-house.
Invest in productivity-enhancing, cost-saving technology
Find ways around activities or items where costs are high
Redesign products and/or components to economize on
manufacturing or assembly costs
Reduce costs in supplier or forward portions of value chain
system to make up for higher internal costs
4–35
Improving Supplier-Related Value Chain Activities
Remedying Supplier-Related Cost Disadvantages
Pressure suppliers for lower prices
Switch to lower-priced substitutes
Collaborate closely with suppliers to identify mutual cost-
saving opportunities

Integrate backward into business of high-cost suppliers
Enhancing the Customer Value Proposition
Selecting and retain best-quality performing suppliers
Provide quality-based incentives to suppliers
Integrate suppliers into the product design process
4–36
Improving Value Chain Activities of Forward Channel Allies
Combat forward channel cost disadvantages by:
Pressuring dealer-distributors and other forward channel allies
to reduce their costs and markups
Working with forward channel allies to identify win-win
opportunities to reduce costs
Changing to a more economical distribution strategy or
integrate forward into company-owned retail outlets
Improve the customer value proposition by
Engaging in cooperative advertising and promotions
Providing training programs for dealers, distributors, or
retailers to improve the purchasing experience or customer
service
Creating and enforcing operating standards for resellers or
franchisees to ensure consistent store operations
4–37

How Value Chain Activities Relate to Resources and
Capabilities
A company’s value-creating activities are enabled by its
specific resources and capabilities.
Resources and capabilities that are both valuable and rare
provide a company with the necessary preconditions for
competitive advantage.
When these assets are deployed in the form of a value-creating
activity, that potential is realized.
4–38
Question 4: What Is the Company’s Competitive Strength
Relative to Key Rivals?
Determining a firm’s overall competitive position requires
answering two questions:
How does the company rank relative to competitors on each of
the important factors that determine market success?
Does the company have a net competitive advantage or
disadvantage versus its major competitors?
4–39

Step 1List the industry’s key success factors and other measures
of competitive strength or weakness (6 to 10 measures).Step
2Assign a weight to each measure of competitive strength based
on its importance in shaping competitive success. (The sum of
the weights for each measure must add up to 1.0.)Step
3Calculate strength ratings by scoring each competitor on each
strength measure (use a scale where 1 is weak and 10 is strong)
and multiplying the assigned rating by the assigned weight.Step
4Sum the weighted strength ratings on each factor to get an
overall measure of competitive strength for each company being
rated.Step 5Use the overall strength ratings to draw conclusions
about the size and extent of the firm’s net competitive
advantage or disadvantage and to take specific note of areas of
strength and weakness.
Steps in a Competitive Strength Assessment
4–40
TABLE 4.3 Illustration of a Competitive Strength Assessment
4–41
website, in whole or part. Key Success Factor/Strength

MeasureABC CO.RIVAL 1RIVAL 2RIVAL 3RIVAL
4Importance WeightStrength RatingWeighted
ScoreStrength RatingWeighted
ScoreQuality/product
performance0.1080.8050.50101.0010.1060.60Reputation/image0
.1080.8070.70101.0010.1060.60Manufacturing
capability0.1020.20101.0040.4050.5010.10Technological
skills0.05100.5010.0570.3530.1580.40Dealer network/
distribution capability0.0590.4540.20100.5050.2510.05New-
product innovation
capability0.0590.4540.20100.5050.2510.05Financial
resources0.1050.50101.0070.7030.3010.10Relative cost
position0.3051.50103.0030.9510.3041.20Customer service
capabilities0.1550.7571.05101.5010.1540.60Sum of importance
weights1.00Weighted overall strength
rating5.957.706.852.103.70
Interpreting the Competitive Strength Assessments
Show how a firm compares against its rivals, factor by factor or
capability by capability.
Indicate whether a firm is at net competitive advantage or
disadvantage against each rival.
Provide guidelines for designing wise offensive and defensive
strategies.
Point to competitive weaknesses of the firm that will require
defensive moves to correct.
4–42

Question 5: What Strategic Issues and Problems Must Be
Addressed by Management?
The final and most important analytical step is to zero in on
exactly what strategic issues company managers need to
address.
Pinpointing the precise things that management needs to worry
about sets the agenda for deciding what actions to take next to
improve the company’s performance and business outlook.
Compiling a “worry list” of problems and issues creates an
agenda for managerial strategy making.
4–43
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changed. The new coaches were observing call center reps as
they were answering calls, and would ask the
call center reps to assess the call based on the competency
model before providing additional feedback and
suggestions for how to handle situations better and more
efficiently. There was an intentional teaming

process put into place. This consisted of managers and coaches
participating in workshops, large-group
facilitations, one-on-one coaching, and even small-group
coaching.
The six-month result was that customer satisfaction levels rose
from 83 percent to 90 percent. There was
a 33 percent improvement indicated by the employee
engagement survey, issued multiple times throughout
the year.
The HPI practitioner cited many factors that led to the overall
success of this project. First, the call
center director played an active leadership role in the effort.
Second, the skill set of the project team was
diverse and was selected specifically to address each of the
multiple root causes of the problems identified.
And finally, the solution addressed the three different levels of
the organization—the organization, the
workgroup, and the individual—as this HPT practitioner
believes all sustainable solutions should.
Department of Transportation Construction Safety
Improvements
One of the state Departments of Transportation (DOT) was
experiencing more than its share of lawsuits (in
their eyes) due to people being injured on road construction
sites, safety and injuries on the job, or just
long delays in getting a job accomplished. There are many
safety precautions that road crews are to employ
to ensure the safety of the workers and motorists who have to
travel through a construction zone. The DOT
employs approximately 750 construction inspectors whose job it
is to make sure that each job site is
complying with all safety measures, using a high quality of

construction, and meeting all environmental
concerns at a building site. The request to the HPI practitioner
was to make sure that all large DOT projects
were completed on time, within budget, and met all state and
federal guidelines.
The primary decision makers for the project were the state DOT
commissioner and the chief of learning
and development. The key stakeholders were the 750
construction site inspectors, their managers, and
some district managers.
The project team consisted of three external HPI practitioners
who also had project management skills
and three members of the DOT learning and development
department, who were skilled in the specific HPI
processes and tools used by the external HPI practitioners. This
team had to be innovative, as they only had
three weeks within which to do their analysis. They employed a
set of HPI tools called Performance DNA
to guide them in their front-end analysis.
The team quickly conducted 25 interviews using the
Performance DNA tools. What they learned was
that construction inspectors need to be working onsite to do
their jobs effectively, yet they were spending
much of their time in the office doing paperwork and entering
data into the computer, along with other
process and training needs. The technology that was in place
was not working effectively for all
construction inspectors. The agency did not have high-speed
Internet access in some locations, and the
construction inspectors (in some cases) had limited computer
skills, coupled with cumbersome and
somewhat technical software to contend with. There were
computer crashes and excessive time invested

reading manuals to use the technology. The failing technology
was costing the organization a lot of money
in wasted employee time. The team also learned that many of
the construction inspectors were not trained
in blueprint reading and other skills needed to do their job
effectively. Those that were able to read
blueprints got their training at local community colleges, even
though there was a course offered by the
organization. Inspector supervisors were reluctant to inform the
inspectors about the availability of the
training because they wanted to inspectors to be in the field, not
attending training, and because the
additional cost to send inspectors to the training site was
prohibitive to their district budget.
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The project team proposed the following solutions: (1) add
administrative staff to do the paperwork and
free up inspectors to get back into the field where most of their
productive work takes place; (2) encourage
the construction inspectors to attend the blueprint reading
training already available, and work with
management to ensure that people could attend these classes;
(3) improve technologies by getting the
inspectors cell phones (where they were needed), high-speed
Internet access, etc. The team also proposed
another 15 or so changes.
While this project is relatively recent, already the organization

is experiencing less anxiety among its
construction inspectors, and they suspect it will also result in a
reduced rate of turnover. The overall goal
for reducing lawsuits and getting construction projects
completed on time and within budget has not been
measured at this time.
ORGD 63CS Week 2 Mini Lecture Notes
Chapter 4 Lecture Note
Evaluating a Company’s Resources, Capabilities, and
Competitiveness
Chapter Summary
Chapter Four discusses the techniques of evaluating a
company’s internal situation, including its collection of
valuable resources and capabilities, its relative cost position,
and its competitive strength versus its rivals. The analytical
spotlight will be trained on five questions: (1) How well is the
company’s present strategy working? (2) What are the
company’s competitively important resources and capabilities?
(3) Is the company’s cost structure and customer value
proposition competitive? (4) Is the company competitively
stronger or weaker than key rivals? (5) What strategic issues
and problems merit front-burner managerial attention? The
answers to these five questions complete management’s
understanding of “Where are we now?” and position the
company for a good strategy situation fit required of the “Three
Tests of a Winning Strategy.”
Lecture Outline
I. Question 1: How Well is the Company’s Present Strategy

Working?
1.
The two best empirical indicators are:
a.
Whether the company is recording gains in financial strength
and profitability.
b.
Whether the company’s competitive strength and market
standing are improving.
2.
Other indicators of how well a company’s strategy is working
include:
· Trends in the company’s sales and earnings growth.
· Trends in the company’s stock price.
· The company’s overall financial strength.
· The company’s customer retention rate.
· The rate at which new customers are acquired.
· Changes in the company’s image and reputation with
customers.
· Evidence of improvement in internal processes such as defect
rate, order fulfillment, delivery times, days of inventory, and
employee productivity.
3.
The stronger a company’s current overall performance, the less
likely the need for radical changes in strategy. The weaker a

company’s financial performance and market standing, the more
its current strategy must be questioned. Weak performance is
almost always a sign of weak strategy, weak execution, or both.
II.
Question 2: What are the Company’s Competitively Important
Resources and Capabilities?
1. A company’s competitive approach requires a tight fit with a
company’s internal situation and is strengthened when it
exploits resources that are competitively valuable, rare, hard to
copy, and not easily trumped by rivals’ equivalent substitute
resources. Many companies pursue resource-based strategies
that attempt to exploit company resources in a manner that
offers value to customers in ways rivals are unable to match.
A. Identifying Competitively Important Resources and
Capabilities
1. A company’s resources are competitive assets that are owned
or controlled by the company and can either be tangible
resources such as plants and distribution or intangible assets
such as a well-known brand or a results-oriented organizational
culture.
CORE CONCEPT
A resource is a competitive asset that is owned or controlled by
a company; a capability is the capacity of a company to
competently perform some internal activity. Capabilities are
developed and enabled through the deployment of a company’s
resources.
2. Table 4.1, Common Types of Tangible and Intangible
Resources, gives examples of both types of resources. These
include:

Tangible
a.
Physical resources
b.
Financial resources
c.
Technological resources
d.
Organizational resources
Intangible
a.
Human assets and intellectual capital
b.
Brand image and reputational assets
c.
Relationships
d.
Company culture
B. Determining the Competitive Power of a Company Resources
and Capabilities.
1. What is most telling about company’s aggregate of resources
is how powerful they are in the marketplace.
CORE CONCEPT

The VRIN tests for sustainable competitive advantage ask if a
resource or capability is valuable, rare, inimitable, and non-
substitutable.
2. The tests are often referred to as the VRIN tests for
sustainable competitive advantage an acronym for valuable,
rare, inimitable, and non-substitutable.
a.
Is the resource really competitively valuable?
b.
Is the resource strength rare – is it something rivals lack?
c.
Is the resource inimitable or hard to copy?
d.
Is the resource non-substitutable?
3. Can the resource strength be trumped by substitute resource
strengths and competitive capabilities?
CORE CONCEPT
A core competence is a proficiently performed internal activity
that is central to a company’s strategy and competitiveness. A
core competence that is performed with a very high level of
proficiency is referred to as a distinctive competence.
4. Understanding the nature of competitively important
resources allows managers to identify resources or capabilities
that that should be further developed to play an important role
in the company’s future strategies.
CORE CONCEPT

Companies that lack a stand-alone resource that is competitively
powerful may nonetheless develop a competitive advantage
through resource bundles that enable the superior performance
of important cross-functional capabilities.
C. The Importance of Dynamic Capabilities in Sustaining
Competitive Advantage
1. Resources and capabilities must be continually strengthened
and nurtured to sustain their competitive power.
2. A dynamic capability is the ability to modify, deepen, or
reconfigure the company’s existing resources and capabilities in
response to its changing environment or market opportunities.
CORE CONCEPT
A dynamic capability is developed when a company has become
proficient in modifying, upgrading, or deepening the company’s
resources and capabilities to sustain its competitiveness and
prepare it to seize future market opportunities and nullify
external threats to its well-being.
D. Are Company Resources and Capabilities Sufficient to Allow
It to Seize Market Opportunities and Nullify External Threats?
1.Appraising a company’s resource strengths and weaknesses
and its external opportunities and threats, commonly known as
SWOT analysis, provides a good overview of whether its overall
situation is fundamentally healthy or unhealthy.
CORE CONCEPT

SWOT analysis is a simple but powerful tool for sizing up a
company’s resource capabilities and deficiencies, its market
opportunities, and the external threats to its future well-being.
2.
A first-rate SWOT analysis provides the basis for crafting a
strategy that capitalizes on the company’s strengths, aims
squarely at capturing the company’s best opportunities, and
defends against the threats to its well-being.
3. Table 4.2, Factors to Consider When Identifying a
Company’s Strengths, Weaknesses, Opportunities, and Threats,
provides a detailed list of potential strengths and competitive
assets, potential weaknesses and competitive deficiencies,
potential market opportunities, and potential external threats to
a company’s future profitability.
4.
The Value of a SWOT Analysis - A SWOT analysis involves
more than making four lists. The most important parts of SWOT
analysis are:
a.
Drawing conclusions from the SWOT listings about the
company’s overall situation.
b.
Translating these conclusions into strategic actions to better
match the company’s strategy to its strengths and market
opportunities, correcting problematic weaknesses, and
defending against worrisome external threats.
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Safety and Health (NIOSH) research on forklifts. The team
identified root causes, which included a lack of
operating skill and knowledge by forklift operators, some minor
warehouse engineering items that needed
to be changed, and some safety policy gaps.
The following interventions were proposed and carried out:
Instruction and testing of operator skill and knowledge
Specific management policies
Supervisory practices
Engineering standards, which covered things like painting
safety lines on the ground for
pedestrians who traveled in and around forklift operations
Maintenance practices for brake repair, etc.
As you can see, the supervisors, engineers, and maintenance
workers became stakeholders of the
projects, too.
To determine the project’s success, a list of about 50 safe
behaviors were identified and measured. Seven
to eight years later, studies showed that serious injuries were
greater for those who were not trained in the
system. The long-term outcome of this project was the
development of a forklift safety system
(www.LIFTOR.com) that has been marketed and sold to other
companies for the past 20 years.
When asked what led to the project’s success, the HPI

practitioner cited the initial lack of budget
constraints and the personal interest that extended all the way to
the top of the company. But most of all, it
was the detailed and systematic analysis of the forklift
operators’ performance that continues to focus
improvements to this day.
Call Center Makeover
Most everyone recognizes the challenges of managing a call
center. Spending all day talking with people
who are mostly unhappy and frustrated could make anyone,
well, unhappy and frustrated. It’s not
surprising that most call center operations have a high level of
employee turnover.
An HPI practitioner was approached and asked to conduct two
one-day meetings to create a new Service
Excellence Strategy for the call center. When the HPI
consultant asked why they needed a Service
Excellence Strategy, she quickly discovered some underlying
problems. The environment was hostile.
Employees were slamming down phones and screaming in the
aisles. There were frequent shouting
matches between employees and managers. The only feedback
provided to call-center employees was
negative and untimely. They didn’t have modern call center
tools and technology. The managers didn’t
receive much training on how to manage. The major decision
makers for the project were the call center
director and the next-level managers.
The key stakeholders were the call center employees, the
customer service rep auditors, the technical
support staff, and all other employees within the company who
had technical questions.

The project team consisted of the entire call center management
team, a project manager, an
interpersonal communications coach, an organizational
communications person, a metrics and survey
method consultant, a life skills coach, and an HPI practitioner.
While the call center management wanted the quick fix of
training, the HPI consultant was able to
convince all levels of management that a complete make-over
was needed. A complete analysis was
authorized. The team studied the call center auditors, whose
role was to listen in on the calls, and report
what they observed. The team observed that the auditors would
basically focus narrowly on call standards,
criticize the calls, and write people up. The call center
employees would receive the negative feedback
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from their managers weeks later. The process was ineffective at
driving excellent customer service or a
productive work environment.
The team also looked at the metrics that were used to measure
performance. The measure of “average
speed of answer” was found to be more of a measure of staffing
than of individual performance. The
measure was encouraging customer service reps to get off the

phone quickly, sometimes without resolving
the customer issue. There were no guidelines for what made a
good customer service rep. Managers were
not well equipped with call center management skills or people
coaching skills. The call center tools that
were being utilized were antiquated.
The team proposed the following solutions: (1) install new tools
for call monitoring and incident
reporting; (2) develop a competency model for call center reps;
(3) create a department communication
strategy with goals and metrics for the department and for
individuals; (4) change the role of auditor from
policing to coaching for improvement (and change the name of
the role from auditor to coach!); (5) build
relationships between management and call center reps and their
customers.
All of the proposed solutions were implemented. In many cases,
new people needed to be hired into the
role of coach, since the job requirements had significantly
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Meter Reader Retention
Meter readers are the people who go house to house, and
business to business, to read the meters that
monitor gas and electricity usage for billing purposes. While
technologies are beginning to change the job,

today, it still requires a human being to make the rounds. Some
meter readers walk in excess of eight miles
per day. And that’s year round. It doesn’t matter if it’s 98
degrees, or –10 degrees; the job needs to get
done. It should come as no surprise then, that retention proves
challenging in this entry-level job.
This particular company had quite a bit of experience and
confidence in its HPI practitioners. Meter
reader leadership went beyond requesting a particular solution.
The request was more business oriented—
reduce turnover.
The decision makers for the project included the manager of the
department, the director in charge of the
meter readers, the supervisors in charge of meter readers, and
the human resource manager. The key
stakeholders were the leaders in the meter reader department,
the HR recruiters who had to continually
recruit meter readers, and the candidates who were interviewing
for the position of meter reader.
The project team included one of the supervisors in charge of
the meter readers, the director of the
department, the HR consultant for the meter reading department,
the recruiter for meter readers, the HPI
consultant, and an HR graduate assistant.
The team used an internal process (or model) called SIRIUS.
SIRIUS stands for scope, investigate,
reason, innovate, undertake, and sustain.
The results of the process were as follows. The Scope of the
project was to reduce turnover. During the
Investigate stage, the team collected all of the information that
they could relating to the turnover problem.

They determined the current turnover rate, the times of the year
that were better and worse for turnover, the
reasons that employees gave for leaving the job, and the
thoughts of supervisors about why people leave
the job. The team took a look at the current recruiting process.
They also looked at the wages and other
incentives.
What the team found was that approximately 50 percent of the
people being hired into the entry-level
position were employee referrals, while the others had no
connection with the company. The job is entry-
level and extremely physical, but one that can lead to positions
requiring basic utility knowledge that are
critical jobs in a great company to work for. But the team found
that the employees who were referring
candidates didn’t always have the information necessary to
inform the candidates about the requirements
of the position well. The team also found some bottlenecks in
the recruiting process. When examining the
data, the team was able to determine that those candidates who
had had previous physical jobs in the past
or were athletes seemed to do better in the role. When
interviewing the supervisors, the team quickly
learned that interview questions being used by the supervisors
didn’t consistently yield all the information
needed to make sound hiring decisions. In addition, very little if
any time was being given to explaining
the Power Rating System (PPRS). The Power Rating System is
the quarterly incentive awards program that
provides additional income for meter readers based on their
performance. New meter reader trainees
indicated that they weren’t clear about how much incentive
money they could actually earn via the
incentive program when they were candidates. The team also
discovered that more meter readers leave the

company during July/August and January/February for obvious
weather-related reasons. The team was also
able to document a starting wage issue among the new
employees. Finally, the team discovered that there
appeared to be some communication issues between the meter
readers, who were mostly young Generation
X and Y employees, and their supervisors, who were mostly
baby boomers.
As the team entered the Innovate stage, they began to
brainstorm ways to overcome the issues
uncovered in the Investigate stage. They looked into what other
companies did and tried to think “out of
the box” for creative solutions for the problems encountered.
The team then proposed several solutions or
interventions, and those that were approved by the decision
makers were implemented during the
Undertake stage.
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The team developed a candidate referral specification sheet that
included a list of all of the attributes of
good meter readers. The sheet was provided to employees who
might want to make a referral. The team
also produced a job aid for supervisors during the interview
process. This job aid included guidelines for
discussion about the employee incentive plan and specifically
how meter readers could add as much as 12
percent to their annual salary via bonuses. They gained support

from management to examine the need for
extra people just prior to the two “high turnover” times of the
year and to hire them, if warranted. The team
hired a consultant to improve interview questions and the
overall interview process. Starting salary is being
reviewed to ensure it is competitive with market, to both attract
and retain employees. As well, the amount
of time meter readers have to work before getting a salary
increase is proposed to be shortened. Pending
approval, department leaders will be provided access to a course
offered by the learning and OD
department on the characteristics of Generations X and Y plus
mitigating strategies. In order to clarify job
expectations, a slide presentation
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featuring all of the conditions of the job, including dogs, bad
weather, etc., as well as positive aspects of
the position, is now shown to all prospective candidates. An
online assessment tool will likely be added to
the recruitment and interview process. It only takes 10 minutes
to complete, and will quickly eliminate
those candidates who don’t possess the right attributes to
succeed on the job. The team proposed that, if the
candidates pass this assessment, they should take a behavioral
psychological battery to determine if their
personal traits include reliability, follow-up, ability to follow
directions, etc. These assessments are meant

to help managers make better decisions about who they put into
the job in the first place. The project
provided for tracking turnover data on a rolling 12-month cycle,
rather than quarterly or annually. This
change is really part of the Sustain stage of the project. It will
help management monitor the turnover
situation to make sure that the changes made will lead to overall
improvement in the turnover rate.
Although not all of the solutions have been fully implemented
at the time of this writing, progress has
been made. The goal of the project was to reduce turnover to a
rolling 12-month rate of 15 percent or less.
The current rate is 31 percent, but the rate has been as high as
74 percent during the last 12 months. The
HPI practitioner cautions that this noteworthy improvement
could be partly explained by the Hawthorn
effect and other factors not related to the project. But clearly,
these recommendations and recent
improvements in the turnover rate have things headed in the
right direction.
Medicare Reimbursement Coding Errors
Hospitals have to file paperwork in order to obtain
reimbursement from Medicare. It’s up to the physicians
to place the appropriate codes onto the forms so that the proper
reimbursement is requested. Improper
coding has both legal and financial implications. If you are
audited by the government and they find errors,
then you are subjected to a major audit. This is a huge
investment of time and should be avoided.
The initial request from the compliance office was for online
training for physicians on how to properly
code office visits for Medicare reimbursement. This project

would affect over 400 physicians at the
hospital.
The project team consisted of a physician, a project manager,
and the HPI practitioner. The team had an
advisory council made up of the head administrator of the
hospital, the head of medicine, the head of
surgery, the head of neurology, the compliance officer, and the
technology officer. There was yet another
team who was charged with handling the change management
process that included the head of training
and the head of nursing.
The project began with a meeting with the senior executives of
the hospital. They didn’t like the idea of
pulling 400+ doctors off of the floor to participate in the
training. The HPI practitioner began a root cause
analysis by asking the physician on the team to look at all of the
coding errors that had occurred. The team
was able to determine that 11 root causes caused 90 percent of
the errors. They also concluded that most of
the causes required a small intervention to correct the problem.
They resolved that a short 15-minute
intervention could solve 80 percent of the coding errors.
One of the solutions proposed was to hire professional coders.
A second alternative solution was to
devise an electronic performance support system (EPSS) that a
group of auditors could use when randomly
selecting charts to determine if there were coding problems. The
tool would track error rates. It would then
pull from over 100 different feedback statements that would
deal with a particular physician error. This,
ultimately, was the solution that the client entertained.
The team added a technology designer who could create the

very sophisticated database. It needed to be
web-based and have high security. But when the design of the
system was begun, it became apparent that
not all auditors interpreted the coding rules the same way. So
the first step was to have a large meeting to
determine the hospital’s stance on each rule. Once those rule
interpretations were agreed upon, the system
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could be developed.
The final electronic tool would produce an audit report for each
physician. In the past, it would take two
to three hours to audit a physician, and all 400+ physicians
required an audit. With the new tool in place,
the hospital will be able to audit all 400? physicians in six
months. The goal is for each physician to have
the results of two audits per year. With the new tool, practically
anyone can conduct the audits. In fact, the
audit process has been offshored to a company in India.
The role of the internal auditor is now that of coach. After the
physicians attend an initial 90-minute
service meeting to explain the new system and the importance
of accurate coding, the auditors need only
spend about 15 minutes to review the audits with each physician
in the future to coach the physician on
any errors that were made. The tool also provides all sorts of
trend reports so that larger issues can be

addressed proactively.
The HPI practitioner took a risk by abandoning the initial
request for training, but it paid off. When the
project concluded, the client admitted that she had
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9
From Theory to Practice: Real-World HPI Projects
This book has shared with you the roles and competencies for
human performance improvement. It’s
shared the models and best practices in the field of HPI. While
the book provided many examples to
illustrate how these models and best practices are put to use in
the workplace, nothing illustrates better how
it all comes together than actual projects that have been
completed by experienced HPI practitioners. This
chapter will share the details of five HPI projects. It concludes
with “words of wisdom” from experienced
HPI practitioners for those of you who are new to the field.
Safe Forklift Operation
Sometimes it takes an accident to draw attention to a problem.
That’s exactly what happened at a large
cosmetics company. A forklift operator drove her forklift into a
steel support column en route to the

cafeteria. The accident resulted in a crushed leg. It should come
as no surprise that the manager in charge
had great concerns about the growing number of safety
incidents with forklifts and came to the HPI
practitioner requesting training for all forklift operators.
The operations manager gave the HPI practitioner some freedom
to look into the root causes of the
incidents. His position: “Solve my problem so that it stays
solved. Fix it so that it stays fixed.”
The major stakeholders for the project initially were the
operations manager and the forklift operators.
The project team consisted of three forklift operators, the senior
manager, and the HPI consultant. The
project team was not constrained by time or budget.
The first step was to conduct the performance analysis. The
team also reviewed accident reports, training
literature, and the National Institute for Occupational

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