Exploiting an End-to-End Process for Innovation Ecosystem Analysis

(1)

Maria Juponaho

EXPLOITING AN END-TO-END PROCESS FOR INNOVATION ECOSYSTEM ANALY- SIS

Master’s thesis Faculty of Industrial Engineering and Natural Sciences Examiners:

Professor Saku Mäkinen

and Dr. Johanna Kirjavainen

April 2021

(2)

Maria Juponaho: Exploiting an end-to-end process for innovation ecosystem analysis Master of Science Thesis

Tampere University

Master’s Degree Program in Industrial Engineering and Management April 2021

There has been extensive research about the factors that create companies their competitive advantage. Resource-based view and dynamic capabilities are the leading research branches of defining the internal creators of companies’ sustainable success in their market environments.

Moreover, the literature claims that companies’ sustainable competitive advantage is established through the companies’ rare and imperfectly substitutable resources and capabilities, and dynamic capabilities. Business process management and end-to-end process understanding has gotten progressively popular amongst the companies. Better process understanding has been claimed to increase the companies’ understanding of the interdependencies between their different stakeholders, subprocesses, systems and external environment. Additionally, the process literature stresses that with a more process-oriented approach the companies can both improve and develop their processes more efficiently, and thus gain a competitive edge in the markets.

As the market environments are getting more complex, the potential of one company to possess all the needed resources and capabilities to succeed decreases. The ecosystem theory stresses that business ecosystems are becoming the leading structures for pursuing the overall performance success. In other words, the companies’ success is becoming more and more dependent on their ecosystem partners’ resources and capabilities. As these dependencies to other stakeholders increase, so do the potential risks related to them. The innovation ecosystem literature argues that it is worthwhile for the companies to investigate the dependency-related risks and their effects to the companies’ overall performance. Hence, the companies can create a better ecosystem strategy as they are better able to take the identified dependency-related risks into account. Additionally, the literature provides a prepared structure for executing an innovation ecosystem analysis. In this thesis it was investigated whether an end-to-end modelled process could provide sufficient information about the companies’ innovation ecosystem risks both internally and externally. Additionally, it was investigated whether the end-to-end process model could work as an only source of information for the innovation ecosystem analysis.

This thesis was conducted as a case study. First the company’s end-to-end process was modelled by using semi-structured interviews. The finished end-to-end process was then used as an information source to analyze the dependency risks related to the company’s innovation ecosystem. To support the risk analysis structure, a framework from the ecosystem literature was used.

The analysis served evidence that an end-to-end process could provide information of the company’s dependency risks related to the internal and external processes. Especially the internal interdependencies to other subprocesses, systems and stakeholders were revealed well. As for the external dependency risks, the end-to-end process provided sufficient information about the dependencies related straight into the end-to-end process. However, the information could not be declared sufficient to represent the entire external environment and its dependency risks. As a result, it was stated that an end-to-end process should be used as an information source when conducting an innovation ecosystem analysis. However, it should not be used as an only information source. Additionally, to further verify the achieved results, other information sources and risk analysis frameworks should be tested, and the achieved results with different methods should be compared.

Keywords: End-to-end process, Competitive advantage, Innovation ecosystem risks

The originality of this thesis has been checked using the Turnitin OriginalityCheck service.

(3)

Maria Juponaho: Innovaatioekosysteemin analyysi elinkaariprosessista Diplomityö

Tampereen yliopisto

Tuotantotalouden diplomi-insinöörin tutkinto-ohjelma Huhtikuu 2021

Yritysstrateginen kirjallisuus on keskittynyt merkittävästi yritysten kilpailuedun ja sen tekijöiden tutkimiseen. Sisäisten kilpailuetujen tunnistamisessa resurssiperusteinen näkemys sekä dynaamiset kyvykkyydet ovat nousseet johtaviksi tutkimussuunniksi. Lisäksi yritysten kestävän kilpailuedun pääasiallisina luojina nähdään yritysten harvinaiset ja epätäydellisesti korvattavat resurs- sit ja kyvykkyydet, sekä dynaamiset kyvykkyydet. Liiketoimintaprosessien hallinta ja elinkaariprosessien suosio on kasvanut etenkin suurten yritysten keskuudessa. Parempi prosessiymmärrys on lisännyt yritysten ymmärrystä niihin liittyvistä keskinäisistä riippuvuuksista muihin prosesseihin, sidosryhmiin, systeemeihin sekä ulkoiseen ympäristöön. Lisäksi prosessikirjallisuus on osoit- tanut prosessiorientoituneisuuden vaikuttavan suotuisasti yritysten kykyyn kehittää ja parantaa prosessejaan tehokkaammin. Vahvemman keskittymisen prosesseihin on havaittu vaikuttavan suotuisasti myös yritysten kilpailukykyyn.

Markkinaympäristön kompleksisuuden kasvaessa, yritysten menestyminen yksinomaan omien resurssiensa ja kyvykkyyksiensä varassa vaikeutuu. Ekosysteemiteorian mukaan yritysten menestys tulee olemaan tulevaisuudessa entistä riippuvaisempi liiketoimintaekosysteemeistä.

Toisin sanoen, yritykset eivät pärjää markkinalla vain omien resurssien ja kyvykkyyksiensä avulla, vaan niiden menestys tulee riippuvaisemmaksi niiden innovaatioekosysteemeissä olevien sidos- ryhmien resursseista ja kyvykkyyksistä. Näiden riippuvuuksien kasvaessa, myös niihin liittyvät riskit kasvavat. Täten voidaan argumentoida, että yrityksille olisi hyödyllistä selvittää innovaatioekosysteemeihin liittyvät riippuvuudet, sekä riippuvuuksien vaikutukset yrityksen menestymiseen.

Innovaatioekosysteemeihin liittyvä kirjallisuus painottaa, että yritysten tulisi analysoida tarkemmin prosesseihin liittyviä riippuvuusriskejä, sekä niiden vaikutusta yrityksen suorituskykyyn. Tutki- malla riippuvuuksia ja niiden aiheuttajia yritykset pystyvät luomaan ekosysteemistrategian, joka ottaa jo valmiiksi huomioon ekosysteemeihin liittyvät riippuvuusriskit. Innovaatioekosysteemi- nanalyysin tekemistä auttamaan kirjallisuus tarjoaa valmiin rungon. Tässä tutkimuksessa tutkittiin elinkaariprosessista saadun informaation käytettävyyttä innovaatioekosysteemianalyysin tieto- lähteenä niin yrityksen sisäisten kuin ulkoistenkin riippuvuusriskien tunnistamisessa. Lisäksi tutkimuksessa tarkasteltiin, mikäli elinkaariprosessista saatu informaatio riittäisi yksinään kattavan innovaatioekosysteemianalyysin tekemiseen.

Tämä tutkimus toteutettiin tapaustutkimuksena. Ensin yrityksen elinkaariprosessi mallinnettiin puolistrukturoitujen haastattelujen pohjalta, jonka jälkeen valmista elinkaariprosessia käytettiin tietolähteenä innovaatioekosysteemin riippuvuusriskien tunnistamisessa. Riskianalyysin tukena käytettiin kirjallisuuden tarjoamaa innovaatioekosysteemejä varten luotua riskianalyysiviiteke- hystä. Analyysin tuloksena selvisi, että elinkaariprosessit tarjoavat riittävää tietoa riskianalyysiä varten niin yrityksen ekosysteemin sisäisiin kuin ulkoisiinkin riippuvuusriskeihin liittyen. Eritoten tutkimus osoitti elinkaariprosessien tarjoavan syvällistä informaatiota yrityksen sisäisistä riippu- vuusriskeistä. Myös ulkoisten riippuvuusriskien osalta informaatio oli kattavaa, mikäli prosessin ja ulkoisen riskin välinen suhde oli vahva ja selkeä. Toisin sanoen on mahdollista, että epäsuorasti prosessien toimivuuteen liittyviä ulkoisia riskejä jäi huomioimatta. Kaiken kaikkiaan elinkaaripro- sessin todettiin tuottavan riittävää tietoa innovaatioekosysteemin riskianalyysin tekemiseksi, mutta sitä ei haluta suositella sen ainoaksi informaatiolähteeksi. Lisäksi tulosten vahvistamiseksi, muiden informaatiolähteiden käytettävyyttä sekä erilaisia riskianalyysiviitekehyksiä olisi hyvä tut- kia. Täten eri informaatiolähteiden ja analyysimenetelmien paremmuutta, sekä niiden antamia tuloksia, voisi vertailla keskenään.

Avainsanat: elinkaariprosessi, kilpailuetu, innovaatioekosysteemin riskit

Tämän julkaisun alkuperäisyys on tarkastettu Turnitin OriginalityCheck –ohjelmalla.

(4)

If someone would have told a 10-year-old Maria that in 16 years she would graduate as an Industrial Engineering and Management engineer, Maria’s first question would have been “What even is an engineer?”. The six years in Tampere University have taught me so much about engineering, and along the way I have tried to share that knowledge to the younger generations as well. I hope that my enthusiasm towards engineering has increased the interest towards the study area in the younger age groups and encouraged them to chase their possible engineering-related dreams.

I am thankful that I was able to write my thesis about a subject which I am very interested in. Naturally, the work did not always feel as joyful as it could have, but in the end, I am glad I decided to challenge myself with this topic.

I would like to thank professor Saku Mäkinen for guiding this thesis and steering me into the right direction in moments when I could not find the right way on my own. I would like to thank the case company from the opportunity to conduct my thesis in the organization.

Additionally, I would like to thank my instructors in the case company for their valuable and wise advice along my thesis project. At last, thank you Olli, my family, and friends for supporting me during this rough period of balancing between work and an urge to graduate. Without all of you, I could have not made it here.

Espoo, 24.4.2021 Maria Juponaho

(5)

1. INTRODUCTION ... 1

1.1 Background ... 1

1.2 Description of the case company ... 2

1.3 Research questions and objectives ... 3

1.4 Methodology ... 3

1.5 Structure of the thesis ... 4

2. THEORETICAL BACKGROUND... 6

2.1 Business process management ... 6

2.1.1 Business Process-Oriented Organizations ... 7

2.1.2 Business processes ... 9

2.1.3 End-to-End processes ... 11

2.2 Business process modelling ... 11

2.2.1Preparing for business process modelling ... 12

2.2.2 SIPOC ... 13

2.2.3 Process map and process architecture ... 14

2.2.4 Process modelling techniques... 17

2.3 Resource Based View and Dynamic Capabilities ... 21

2.3.1The evolution of resource-based view framework ... 21

2.3.2Building blocks of Resource-based view ... 23

2.3.3 Dynamic capabilities ... 30

2.4 Innovation ecosystem strategy ... 32

2.4.1 Initiative risks ... 35

2.4.2Interdependence risks ... 37

2.4.3Integration risks ... 39

2.5 Synthesis ... 40

3. RESEARCH METHOD ... 43

3.1 Research design ... 43

3.2 Data collection ... 43

3.3 Data analysis ... 45

4. RESULTS ... 47

4.1 Process modelling for ecosystem risk analysis ... 47

4.2 Initiative risks ... 48

4.3 Interdependence risks ... 49

4.3.1 Internal interdependence risks ... 50

4.3.2 External interdependence risks ... 53

4.4 Integration risks ... 56

4.4.1Internal integration risks ... 57

4.4.2 External integration risks ... 60

4.5 Discussion ... 61

4.5.1 Initiative, integration, and interdependence risks ... 62

4.5.2 Summary of the results ... 64

(6)

5.2 Managerial implications ... 67

5.3 Limitations and future research ... 68

REFERENCES... 72

APPENDIX A: THE INTERVIEW STRUCTURE ... 79

(7)

1. INTRODUCTION

1.1 Background

Companies need to have competitive advantages to succeed and stand out from the competition in their market environments. To sustain the competitive advantage, companies need to understand where their competitive advantage derives from. (Di- erickx & Cool 1989a; Barney 1991; Peteraf 1993) Moreover, as the companies’ business ecosystems are getting more complex, it is becoming impossible for companies to possess all the needed resources and capabilities that guarantee the success of their processes. Rather, a successful performance of a company’s process is becoming more and more dependent on the other ecosystem partners’ resources and capabilities. As the dependency to other stakeholders grows, the risks related to those relationships increase.(Talmar et al. 2020) Thus, this thesis aims to investigate the possible dependency-related risks and their effects to the companies’ success.

Resource-based view and dynamic capabilities approach have been one of the most popular strategic management approaches to identify the different factors of companies’ sustainable success in their market environments. For years resources’, capabilities’, core capabilities’ and core competences’ effects to the companies’ competitive advantage have been researched. (Nagano 2020) The researchers have commonly agreed that the factors creating a sustainable competitive advantage are related to the companies’ resources and capabilities. Moreover, the academics have identified that for the companies to sustain their competitive advantage, they need to have resources and capabilities which are rare and imperfectly substitutable by their rivals (Dierickx & Cool 1989a; Barney 1991; Peteraf 1993). Additionally, to leverage the market environment’s constant development and changes, the researchers have pointed out the importance of dynamic capabilities (Eisenhardt & Martin 2000; Helfat

& Peteraf 2009). The dynamic capabilities have been defined to be the companies’

abilities to reconfigure, integrate and build their external and internal competences to adapt and leverage the changing market landscape to the companies’ benefit (Ei- senhardt & Martin 2000).

(8)

Business process management and process understanding have become progressively popular amongst companies (Van der Aalst 2013). The business process management research suggests that companies can gain competitive advantage by focusing into their internal processes and their improvement. (Willaert et al. 2007) Moreover, the process literature has identified processes to be excellent information sources in revealing the companies their stakeholder, subprocess and system interfaces (Chimhamhiwa et al. 2009; Maddern et al. 2014; Dumas et al. 2018). Especially E2E processes have been identified to deliver the companies valuable information about the interdependencies to their stakeholders (Maddern et al. 2014).

According to ecosystem research, to create a successful innovation ecosystem strategy, the companies need to analyse their ecosystems from the potential interdependence risk point of view (Adner 2006; Jacobides et al. 2018). Moreover, the companies need to analyse their resources and capabilities that are delivered to them by their ecosystem partners, and of which the companies’ success is dependent on (Talmar et al. 2020). All in all, there has been quite extensive research about the different creators of companies’ competitive advantages, but less about the potential risks that the dependency to other ecosystem partners causes to the companies’ success.

Thus, a clear need for further research about this topic can be recognized.

1.2 Description of the case company

The case company operates in the field of energy and environment. The company works in a variety of different markets related to sustainability and these markets are spread globally. The case company’s core objective is to offer its customers sustainable solutions for transportation, business, and consumer needs while at the same time enabling the customers to reduce climate emissions. The company’s purpose and values are heavily focused on making the world a safer and more sustainable place to live in. In its strategy, the case company aims to become the global leader in circular and renewable solutions by focusing heavily on innovation.

The company is a process-oriented organization. It has a process hierarchy structure in the entire company, and it has appointed process owners for different process areas. Due to the company’s process-oriented nature, it can be argued that it fits well to the purpose of this study.

(9)

1.3 Research questions and objectives

The purpose in this thesis is to study companies’ innovation ecosystem risks and if they can be analysed by using an E2E process model as an information source.

Moreover, the study investigates whether the E2E process can be used solely as an information source for the recognition of the companies’ innovation ecosystem risks.

The innovation ecosystem risk analysis will be conducted by using Adner’s (2006) innovation ecosystem framework. Thus, the main research question is:

RQ1: Can companies exploit an innovation ecosystem risk analysis from an end-to- end process?

As the innovation ecosystem analysis bases itself to an E2E process, it is assumed that the process will reveal the companies’ internal processes and their dependencies to innovation ecosystem partners and environment. Hence, the two sub questions related to the discovered risk findings are:

SQ1: How well are different innovation ecosystem risks identified related to companies’ internal factors?

SQ2: How well are different innovation ecosystem risks identified related to companies’ external factors?

Lastly, since in this research the E2E process is used as an only information source for the innovation ecosystem analysis, the study seeks to understand whether the information retrieved from the process model is enough to reveal the companies’

innovation ecosystem risks. Thus, the final sub question is:

SQ3: Can end-to-end process be used as an only information source when analysing company’s innovation ecosystem risks?

This thesis’ objective is to test how well different innovation ecosystem risks can be defined by using Adner’s (2006) innovation ecosystem framework. In other words, all other risk analysis methods to compare the analysed results are left out of the project’s scope.

1.4 Methodology

This thesis was conducted as a qualitative case study by using semi-structured interviews as a data collection method. The case study was conducted in one case company that operates in the renewable energy sector. Case studies are proven to work well in situations where the aim is to understand the topic within its own context (Saunders et al. 2016). As the study’s objective was to study the potential innovation

(10)

ecosystem risk analysis from the case company’s real environment, the research strategy was seen applicable for the study.

According to Mills et al. (2009), case study is used as a research strategy when it is too difficult to investigate the issues by using quantitative data. Moreover, Yin (2009) stresses that one of the most important data collection methods in case studies are interviews. Therefore, semi-structured interviews were used as the primary data collection method of this thesis. In total, 25 interviews were conducted in the case company. The interviewees were picked based on to their roles in the E2E process, and by following the recommendations of the E2E processes’ different process owners.

To verify the correctness of the data, the conclusions from the interviews were double checked with the interviewees.

1.5 Structure of the thesis

This thesis follows a scientific structure and is divided into five parts. In the first chapter an introduction to the research objective, research questions and the case company is concluded. The second chapter focuses into theory and is further divided into three different theoretical sections and a synthesis. The different sections are related to process theory, research-based view and dynamic capabilities, and innovation ecosystem strategy. Finally, the synthesis combines the theories and provokes a statement that the companies should understand better their dependencies in their business ecosystems. In other words, it is not enough for the companies to develop their resources and capabilities inside their organization, they need to understand the dependencies they have to their external partners, and how those affect to the companies’ overall success in the market environment.

The third chapter discusses the research methodology. In this chapter the research design, data collection method and data analysis procedures are introduced. All the data is collected from one company. The fourth chapter introduces the results. First the process modelling structure is introduced, after which the results of the innovation ecosystem risk analysis are gone through. The results introduce first the initiative risks, then the internal and external interdependence risks and lastly the internal and external integration risks. Finally, a discussion about the identified risks and both the applicability of the E2E process and the innovation ecosystem framework is analysed. Additionally, discussion is conducted whether the E2E process should be used as an only information source for the innovation ecosystem risk analysis, and whether Ander’s (2006) innovation ecosystem framework should be used as an only risk analysis tool to conduct the analysis.

(11)

The fifth chapter summarizes the theoretical contribution, managerial implications, possible limitations, and the potential for future research. Finally, the references are provided, and the interview structure is attached to the appendix.

(12)

2. THEORETICAL BACKGROUND

2.1 Business process management

As the competition becomes more and more fierce in the global markets, companies need to find ways to perform better than their rivals. One of the directions companies are currently focusing on is Business Process Management (BPM) (Van der Aalst 2013). According to Willaert et al. (2007) business process management enables organizations to gain competitive advantage by improving and innovating their processes through a holistic process-oriented view. In other words, organizations have acknowledged the potential of BPM to provide the companies a way to significantly increase productivity and save costs (Van der Aalst 2013).

According to Harmon (2007), a growing number of leading companies in the markets have started to realize the benefits of a corporate-wide process focus. One of the reasons for a growing interest has been the results which process oriented companies have been able to achieve by focusing on business process management (BPM) (Willaert et al. 2007; Ubaid & Dweiri 2020). Harmon (2007) also points that BPM has been mostly popular amongst the leading companies and companies going through rapid changes in their business environment. Through companies’ process-oriented approach, the company executives have realized that the companies are quicker and more effective in responding to the business environmental changes. Kasim et al.

(2018) remind that the desired benefits can only be achieved if the management commits to the reformed structures of a process-approach. Expressly, business processes need to be managed systematically, since by doing the opposite only leads to process inefficiency and lack of competitiveness.

Shankar and Van der Aalst (2009; 2013) define BPM as a discipline which combines information technology and knowledge from management sciences and applies those to business processes. Frye & Gulledge (2007) say that by focusing on business process management, the companies are better able to lower their costs and gain competitive advantage. Through business process knowledge, the organizations are better capable of improving their work performance and output. Hung (2006) defines BPM as management principles of best practices which ensure a superior performance and help the companies to sustain their competitive advantage. Accord- ing to Kasim et al. (2018), BPM aims to improve the way how companies conduct

(13)

cross-functional work and strives to ensure that companywide capabilities are available through the whole business process lifecycle. Additionally, Van der Aalst (2013) points out the scope of BPM. Comparing for example to Workflow Management (WFM), BPM focuses to process automatization and process analytics, but considers the organizational work and operations management as well. All in all, BPM can be identified as both a tool and a technique which focuses on improving the organizational processes as a whole (Hung 2006). Additionally, it aims to improve the company’s profitability and sustain its competitive advantages.

2.1.1 Business Process-Oriented Organizations

According to Dumas et al. and Jeston & Nelis (2008; 2013) all organizations, whether they are governmental, non-profit or private organizations, consist of a number of processes. These processes represent the core functions that the organizations require to deliver a service or a product to their customers. Teeuwen (2018) states that for the organizations to gain benefit of their processes; the value chain, all the various processes and the stakeholders need to be recognized. Without the full picture of the organizations’ processes, it gets very difficult for the companies to recognize the terminal linkages between different processes and the value chain. To improve the efficiency and quality of their core processes, the companies have started to steer their organizations’ structural course into a more business process-oriented direction (Wil- laert et al. 2007).

Structural wise, Ubaid & Dweiri (2020) say that process-oriented organizations follow horizontal hierarchies and focus on improving and managing processes’ outcomes.

In other words, the organization works the opposite compared to the traditional organization structures. According to Kohlbacher & Gruenwald (2011) the key difference between a vertical and process-oriented (PO) organization is in the command chain. In a vertical organization the hierarchy flows from “top to bottom” when in a PO organization the flow is horizontal (Ostroff 1999). Expressly, PO organization focuses on the flow of business processes ranging from customer to customer rather than placing emphasis to the structural problems coming from a vertical direction (Kohlbacher & Gruenwald 2011). Turning a vertical organization into a process organization does not happen swiftly, and thus the change itself can be considered to happen in phases (Ulrich, 2021). Figure 1 illustrates the different changing phases of an organization from a functional organization to a full process organization.

(14)

Figure 1. From functional into a process-oriented organization modified from (Ulrich 2021)

The figure 1 presents the transformation from a functional organization structure into a process-oriented organizational structure. It shows how through a process-oriented approach the traditional vertical functions are combined with the horizontal processes and moderately create a common process organization reaching from customer to customer.

According to Kohlbacher & Gruenwald (2011) PO organizations’ main objectives are in improving the performance, productivity, customer satisfaction and return on in- vestment. Additionally, the business process orientation uses the business processes as a platform for the organizational structure and strategic planning. In other words, the business processes are a continuously developing base into which the company links its strategy (Teeuwen 2018). According to Ostroff and Kohlbacher &

Gruenwald (1999; 2011), PO organizations consist of certain fundamental principles such as:

 Organizing the processes around core processes, not by functions or tasks

 Installing process owners and giving them responsibility for their processes in all entirety but also increasing the decision power for team members who are directly related to the process flow

 Process performance measurement: decreasing hierarchy and non- value-added work.

Firstly, Hammer & Stanton and Willaert et al. (1999; 2007) state that only when organizations start to focus and manage their processes, desired results can be acquired. In other words, organizations need to embrace a more process-oriented

(15)

structure of their organization and focus on developing it constantly forward. Sec- ondly, unlike traditional organizational structures, PO organizations require a process owner. Process owners have the authority for the process and the people working in it. The main responsibilities of a process owner are: knowing their process from an end-to-end perspective, continuously developing it (Hammer & Stanton 1999;

Kohlbacher & Gruenwald 2011) and empowering the people in the process (Ostroff 1999). Lastly, according to Ostroff and Kohlbacher & Gruenwald (1999;2011) PO organization highlights the importance of monitoring and measuring the processes rather than the functions of the organization. According to Ostroff (1999), process metrics increase the understanding of people of the current process status but also motivate people to reach the performance objectives.

All in all, PO organizations are flat, low hierarchy structures which aim is to optimize the organizational outcomes through business processes. Willaert et al. (2007) say that the process-centric approach offers greater agility for the companies and an ability to easily modify and proactively develop their processes. Additionally, process- centric approach has proven to decrease inter-functional conflicts and to increase interdepartmental integration and connections. Hammer & Stanton (1999) even say that a process-oriented organizational structure is the best structure for companies to use in a world of constant change.

2.1.2 Business processes

According to Davenport & Short (1990) business processes’ importance was first mentioned by Lewitt in the 1960, but the real importance of processes was acquired in the 90’s when Davenport and Short started to promote a new perspective for enterprise designs. The writers encouraged companies to combine information technology and business process redesign together and thus improve the ways of working more thoroughly. The message of Davenport and Short (1990) has maintained its importance in the business and organizational environment, and even evolved throughout the years. Shankar (2009) even highlights that if companies do not recognize their processes, and invest to the continual improvement of them, the competitive advantage of those companies will be lost to others.

Aguilar-Savén and Weske (2004; 2012) define business processes as combinations of a set of activities within a company that are performed in a technical and organizational environment. Business processes describe the sequence, logical order and

(16)

dependence of activities and reveal whose objective it is to produce the desired outputs. Frye & Gulledge (2007) add that business process sequences are dependent on time and can thus be defined as dynamic. Additionally, business processes are horizontal, cross-functional by nature and dynamically coordinated. The aim of business processes is fulfilling companies’ strategic goals and to link the organization’s operations to customer requirements.(Ubaid & Dweiri 2020) In other words, at their best business processes standardize and give structure to the activity flow, reflect to company’s strategy and create as much value as possible for the customer. Figure 2 illustrates the high-level structure of a business process and its basic building blocks.

Figure 2. Business process according to the definitions of Gulledge & Sommer (2002) and Dumas et al. (2013)

By their operational nature, as illustrated in figure 2, business processes are event driven. Meaning, that they start and end by an event (Gulledge & Sommer 2002;

Dumas et al. 2013). Dumas et al. (2013) define events as things that have no duration but are needed for activities to happen. Activities on the other hand always consume time. Activities can again be divided into its creating factors. In the business process methodology, they are called tasks. Processes also require several actors (human actors, software systems which act on behalf of human actors or organizations) and both physical (materials, products, and paper documents) and immaterial (electronic documents, information provided by systems and electronic records) objects. These actors and both physical and immaterial objects enable the business processes’ activities to create the business processes’ environment and enable the execution of the business process.

(17)

2.1.3 End-to-End processes

According to Dumas et al. (2018) end-to-end (E2E) processes combine the external view from the perspective of a customer, and the organization’s internal view of how the value creating aspects are created. Additionally, E2E processes attempt to scan the whole process sequence, meaning that it interfaces both with the processes’ supplier and customer. Maddern et al. (2014) add that E2E process modelling stresses the importance of subprocess interdependencies in the whole operational chain.

Chimhamhiwa et al. (2009) stress E2E perspective’s ability to present a high-level overview of a process which then decomposes into subprocesses. In other words, by modelling the whole E2E process chain, organizations can grasp the higher-level picture of their processes but additionally focus into relevant details.

Dumas et al. (2018) stress the importance of identifying the whole process sequence of a process. According to Chimhamhiwa et al. (2009) modelling the whole E2E process chain, makes the identification of terminal connections between processes easier. Furthermore, when a large group of connected processes are emerged and cat- egorized, the handovers between different processes are easier to determine (Ko- marova 2019). This identification then enables process analysis and process improvement which would not be possible if the subprocesses were analysed sepa- rately (Chimhamhiwa et al. 2009).

E2E process focus is not as new of a perspective as people might assume. E2E processes’ importance was already raised up by Davenport & Smart (1990) in the 90s. The writers stressed that, rather than focusing on individual steps of the process, the organizations should look at the whole E2E process chain. The approach sug- gested by the writers was not accepted immediately, but over time its significance in process management has been getting more and more popular. According to Mad- dern et al. (2014), E2E-process modelling and E2E process management’s popular- ity has increased in the practise of operations. This change of approach has led man- agers to steer their focus from a functional point of view into an E2E perspective.

Additionally, understanding the E2E process flow is a necessity for the companies to change their direction from a traditional organizational structure into a process-oriented approach.

2.2 Business process modelling

For companies to improve and gain competitive advantage from their processes, the processes need to be identified and understood first. There are many benefits in

(18)

business process modelling, one of them being the confidence given to people about the way things are actually done (Holt & Morris 2009). Aguilar-Savén (2004) agrees with Holt & Morris (2009) and additionally points that business process modelling empowers a mutual understanding and analysis of a business process. Becker et al.

(2000) point that business process modelling’s benefits are discovered more and more for organizational purposes such as process reorganization and activity-based costing. The same time the importance of business process models and the understandability of them is growing of importance.

Hernes & Maitlis (2010) say that one of the main aims of business process modelling is to recognize repetitive and temporal patterns that are connected to the events and activities. Becker et al. (2000) define business process modelling as an instrument for dealing with the complexity of process planning and control. Aguilar-Savén (2004) agrees with Becker et al. (2000) that process modelling works as a tool to improve the organization’s understanding about its own processes. Aguilar-Savén (2004) says that through business process modelling the set of activities which were before a set of abstractive sequences in different peoples’ minds, become more transparent and understandable for all people desiring to understand the flow of the process.

Thus, by modelling a process, the enterprise is provided a more exhaustive understanding of it. Dumas et al. (2013) still remind that organizations do not necessarily have the resources or even strategic interest to model all their processes. Usually the strategic importance, value adding properties or striking problems in the processes define which processes the companies should prioritize.

2.2.1 Preparing for business process modelling

There are certain steps which need to be taken before starting business process modelling. The to-be-modelled process needs to be recognized (Dumas et al. 2013) and the desired level of details needs to be identified. Before starting the process modelling, the modeller needs to have:

 An understanding of the scope and relevant concepts of the process

 An understanding of both available and needed information for the modelling

 An understanding of the process maturity’s effect on the to-be modelled process.

Firstly, the process modeller needs to gather understanding of the scope of the process and identify process’s key concepts and their relationships with one another (Holt & Morris 2009). In other words, the modeller needs to understand the starting

(19)

point (input) and the ending point (output) of the process (Frye & Gulledge 2007).

Additionally, Aguilar-Savén (2004) points out that the purpose of the process model needs to be understood prior the modelling, since different modelling techniques are usually more suitable for certain purposes. Secondly, Holt & Morris (2009) add that it is good to map relevant information sources where and from whom the process related data can be retrieved or asked. To avoid double work, it is good to gather all the existing data related to the processes into one common place. Thirdly, Aguilar- Savén (2004) reminds about the maturity of the process and its effect to process modelling. In case of an initial, repeatable, or somewhat documented process, the main purpose is describing and increasing the knowledge of the company’s process.

In case the process is already managed and optimized, the main purpose is rather in decision support while monitoring and controlling the process.

2.2.2 SIPOC

Aguilar-Savén (2004) says that a business process is a collection of activities which take one or more inputs and transform them into value creating outputs for the customer. A widely known and embraced process improvement diagram, SIPOC, works well with the definition since it aims to provide a quick and understandable overview of the process and its dependable components (Brown 2019). In other words, SIPOC works well in situations where different factors affecting to a process and caused by the process are desired to be understood. The name SIPOC comes from its five different elements: Supplier, Inputs, Process, Outputs and Customer (Shankar 2009), and the diagram is most commonly used in Six Sigma related projects (Marques & Requeijo 2009). Figure 3 illustrates the basic structure of a SIPOC framework.

(20)

Figure 3. SIPOC diagram and the relationships between different elements modified from (Brown 2019)

As figure 3 illustrates, SIPOC specifies the processes’ suppliers, the inputs those suppliers deliver, the process itself, the processes’ outputs and finally also the processes’ customers. Additionally, the framework is relevantly easy to read since it flows logically from left to right. Marques & Requeijo (2009) say that the idea of a SIPOC diagram is to provide a high-level understanding of the process under inves- tigation. Moreover, the tool bends to all different process scopes, and thus it offers its users an ability to study the business processes from different specification levels (Shankar 2009). Due to its clear structure, SIPOC is a great tool to increase clarity amongst different stakeholders. According to Brown (2019) SIPOC works well in situations where the relationships between suppliers, processes and customers are aimed to be understood. Overall, SIPOC’s focus lies in the analysis of five different elements of the business process and in the identification of the process activities.

2.2.3 Process map and process architecture

STRUCTURE AND DEFINITION OF A PROCESS MAP

According to Malinova & Mendling (2013) process map describes a high-level view of all the processes of an organization. In other words, one process is a piece of a process map, which thus represents the whole organizational process view and how different processes are related to each other. Process maps do not go too deep into details but instead aim to provide the organization a basic understanding of the company’s core processes, management processes and supporting processes. The

(21)

core, supportive and management process categories are defined in Porter’s Value Chain model which is one of the most used business process categorization models (Dumas et al. 2018). According to Dijkman et al. (2011) core processes can be also defined as “primary processes”. The writers state that the key difference between primary and supporting processes is that a primary process adds value directly to customer when a supportive process does not. Aguilar-Savén and Dumas et al.

(2004; 2018) agree with Dijkman (2011) and say that a core process initiates from outside an organization when a supportive process aims to create correct circum- stances for the core process to be carried out. Lastly, Dumas et al. (2018) say that management processes define the directions, practices and rules for the core and supporting processes. In other words, management processes aim to make sure that the supporting and primary processes can reach their objectives. Figure 4 illustrates the structure of a process map.

Figure 4. Process map modified from (Dumas et al. 2018)

Figure 4 visualizes the correlations between the core, management and supporting processes. The core processes’ place is in the middle to highlight their importance and value. The supporting processes face the core process vertically throughout the core process chain which aims to illustrate their importance throughout the E2E chain. The visualized process map increases the understanding of different processes’ linkages and mitigates the understanding of the organizations’ process structure. Malinova & Mendling (2013) say that despite the slight differences in the process map structures, all process maps can identify typical process categories and show the organization those processes’ role in the company. McCormack & Rauseo

(22)

(2005) continue that a process map describes the high-level, customer-centric process view which can be then decomposed into more detailed levels of processes.

The highest level being the process map itself (Dumas et al. 2018). Thus, the process map increases process standardization and serves as an entrance for process architecture (Malinova & Mendling 2013).

PROCESS ARCHITECTURE

According to Dumas et al. (2013) and Gonzales & Bustos (2019) process architecture aims to describe the company, its business processes and their interrelations. Mali- nova et al. (2013) add that process architecture is an overarching structure which enables the organizations to view their operations from a process perspective. In other words, process architecture can be thought of as a tool which offers the organizations a visualized structure about business processes and their interrelations. This then helps the companies to manage the interaction complexity between process models and thus also avoid errors during modelling and analysis (Eid Sabbagh et al.

2012). Dumas et al. (2013) also add that a process architecture can be thought of as a framework which core is in helping the organizations to define the scope and details more easily for business process modelling or redesign project.

According to Dijkman et al. (2011) process architecture serves as a framework of the organization’s processes and as a guideline in how the organization’s processes should be organized. Ponsignon (2010) and Malinova et al. (2013) add that the structure of a process architecture can be referred to a holistic system where core business processes are placed hierarchically. In other words, the more abstract levels of the business process are on higher levels and the more detailed ones in the lower levels of the architecture. Davis et al. (2010) recognize the hierarchical model as a powerful process architecture method when there are a multitude of different and complex processes in a socio-technical organizational landscape. Dumas et al.

(2018) identify three main relationships of processes in a process architecture: sequence, specialization, and decomposition. Sequence defines the horizontal and logical pathway of a process. Specialization identifies all the variances of a generic process (Eid Sabbagh et al. 2012; Dumas et al. 2018). For example, slightly different processes in different market areas. Decomposition resembles the different detail levels of a process which is why it is also referred as a hierarchical process relationship (Eid Sabbagh et al. 2012; Malinova et al. 2013). The authors’ specifications form a structural base of a hierarchical process architecture which is illustrated in Figure 5.

(23)

Figure 5. Process architecture modified from (Ostroff 1999; Lind & Seigerroth 2010;

Ponsignon 2010; Dumas et al. 2018)

Figure 5 illustrates the different levels of a process architecture. In the generic ver- sion there are 3 levels presented but the number of levels is not defined and can be decided by the modeller itself. As the Figure shows, the process map illustrates the highest, most abstract level of the process which then decomposes into level 2 and level 3 process structures. On all the levels the logical process sequences and relationships between the processes are presented.

2.2.4 Process modelling techniques

As already stated in chapter 2.2. business process modelling is getting more and more important for the organizations (Becker et al. 2000). Li & Chen (2009) agree with Becker et al. (2000) and say that process modelling plays an important role in the business management area. According to Van der Aalst and Van Dijk (2000;

2003) processes can be modelled by using different techniques. In fact, there are number of different kinds of process modelling techniques available from which the modellers can pick the most suitable one. Usually, the decision of the modelling technique is done based on the modelling technique’s suitability and expressiveness for the process being modelled (Aguilar-Savén 2004). Although process modelling visualizes and concretizes the flow of a process, Holt & Morris (2009) remind, that every time a process is modelled, some of the reality is simplified. In the following chapter some of the process modelling techniques are introduced.

PROCESS FLOW DIAGRAMS

Process flow diagrams are created to represent the relationship of different activity steps in a process. The logical order of the process is mapped with different flow diagram figures that are connected to each other with arrows. The whole process

(24)

can be then depicted by following the direction of the arrows. (Brussee 2012) Process flow diagrams display well the process from the beginning until the end and illustrate the process from a step-by-step view. According Laguna & Marklund (2019) flow diagrams are good in identifying process loops (i.e. process sequences which need to be repeated due to an error or a lack of information), decision points, parallel activities and alternative paths of a process. Lakin et al. (1996) add that communication and easy understandability are additional strong suits of flow diagrams. The writers also compliment flow diagram’s ability to highlight time, roles, and responsibilities in one presentation. Although being great at increasing the more detailed view of a process, flow diagrams also have weaknesses. For instance, the process flow diagram does not specify well the different roles of the process. Additionally, flexibility of deciding the process scope is described as one of the flow diagram’s weaknesses. Lack of process boundaries may cause confusion and difficulty in defining the relevant process steps to include to the process flow. (Lakin et al. 1996) Figure 6 illustrates a simplified view of a flow diagram and the meanings of different, most-basic geomet- rical shapes.

Figure 6. Process flow diagram modified from (Damelio 2011; Brussee 2012)

As it can be depicted from figure 6, process flow language consists of different geo- metrical shapes which define the purpose of different process steps. The starting and ending points give the process its scope and the activities and decision points show

(25)

the logical order of different ways to execute the process. The process flow language has an extensive library of different figures which have different meanings in the process.(Brussee 2012) In other words, depending on the process modelling area, these different figures can be used to specify the process in an even clearer way.

EVENT-DRIVEN PROCESS CHAIN DIAGRAM

Event-driven process chain (EPC) language is a well-known business process modelling language and it is known to support well the verification and modelling of business processes (Mendling et al. 2005; Amjad et al. 2018). EPC’s language aims to describe processes’ logical dependencies (Mendling et al. 2005) and to maintain both usefulness and easy understandability for everyone (Van der Aalst 1999). According to Van der Aalst (1999) event-driven process chain (EPC) diagram is a process modelling technique which is based on three main building blocks: functions, events, and connectors. Functions are the basic building blocks in the EPC-language. Functions, also known as process steps, are linked by events which aim to describe the before and after situations of a function. In other words, events can correspond to either post-conditions of a function or as pre-conditions of another function. Lastly, logical connectors specify the process flow and connect the event-activity flows together.

Figure 7 illustrates the general idea of an EPC-diagram.

(26)

Figure 7. Event-based process diagram modified from (Van der Aalst 1999; Amjad et al. 2018)

Figure 7 shows the basic idea of an EPC diagram. Four main building blocks illustrate the process flow and the different routes it takes from start to finish. As the Figure presents events are the to-be executed activities, functions the executed activities, and connectors resemble the starting and ending points of the process flow’s cross- roads. According to Van der Aalst (1999) the language is targeted to describe processes on the level of their business logic, not necessarily on the formal specification level. Additionally, the EPCs are created to be easily understandable and usable by business people. Although EPC-language aims to reveal the process flow, researchers have doubts about its accurateness. According to Mendling et al. (2005) the language suits only for semi-formal process documentation since the correctness is al- most impossible to verify. Van der Aalst (1999) agrees with Mendling et al. (2005) and adds that the weakness of EPC diagrams relies on their ambiguity, since it is impossible to check the model’s completeness and consistency.

(27)

2.3 Resource Based View and Dynamic Capabilities 2.3.1 The evolution of resource-based view framework

For all companies, creating and developing value to customers, and staying ahead of the competition, is key to stay in the business also in the future. Whether it is securing or conquering new market areas, avoiding economic losses, or aiming to become more profitable, companies lean on to strategic management. There are several different strategical tools and frameworks which are invented to help companies to evaluate their market areas and future potential. One of these frameworks is resource-based view (RBV) which focuses on competitive advantage creation from companies’ internal strengths and weaknesses rather than from external factors (Barney 1991). As a methodology, RBV’s core focus is on sustainable competitive advantage and how it is derived from the development of companies’ superior resources and capabilities (Peteraf 1993). Resource based view was invented in the 80’s by Wernerfelt and Barney (1984; 1986), has since been developed further by a number of researchers (Wernerfelt 1995), and is still widely used and studied in the area of strategic management (Nagano 2020).

Due to a strong interest to research and develop the RBV methodology further, the framework has suffered some terminological confusion. Thus, in this paper RBV is introduced in four structural phases that summarize the over-time-acknowledged rigidities and deployed enhancements into the framework. According to Nagano (2020), since RBV’s initiation, the framework has had four major structural phases:

 Starting point: Wernerfelt (1984) introduces resource-based view, a strategic management framework focusing on companies’ internal capabilities and resources as building blocks for competitive advantage.

 1^st structural change: Valuability, rarity, inimitability and non-substitutability of individual resources creates the real competitive advantage for companies (Barney 1991).

 2^nd structural change: Focus changed from individual resources into core compe- tencies and core capabilities. The complementarity of resources creates competitive advantage not isolated development of individual resources around the company. (Leonard-Barton 1992)

(28)

 3^rd structural change: The introduction of a dynamic capability approach. In addi- tion to the internal core capabilities and competences, companies must consider also the effect of external factors to their core capabilities and core competences.

Firstly, the starting point of the RBV was in middle 80’s when Barney and Wernerfelt (1984; 1986) started to formulate a framework which would help companies to better understand the strategic factor market and thus enable the companies to better exploit and anticipate the imperfections of strategic factors. In other words, the framework would increase the competence of companies to anticipate the future value of the markets better, and thus enable them to choose the best high return strategies.

By following the guidance of the framework, companies could change their competitive advantage into a direction of a more sustainable competitive advantage.

Secondly, according to Nagano (2020), the first evolution of the framework was already done by Barney (1986) who highlighted the four distinctive features of resources: valuable, rarity, inimitability, and non-substitutability, that would create company’s sustainable competitive advantage. Dierickx & Cool (1989b) agreed with Bar- ney (1986) but highlighted the importance of non-substitutability and inimitability as the key features of resources to create sustainable competitive advantage. None the less, Barney’s theory about the four key features of resources became one of the subcategories of resource-based view called VRIN-framework (Barney 1991).

Thirdly, the second evolution of RBV started also already in the 90’s, when the focus from individual resources around the company started to steer more to the direction of a complementarity of resources (Nagano 2020). Meaning, the ability of a company to complementarily develop and reinforce their individual resources in the best strategical way for the company. To solve the dysfunctionality of individual resources, the core focus was steered into internal resources aka companies’ core capabilities and core competences. The researchers discovered that sustainable competitive advantage from individual resources was highly dependent on the companies’ abilities to use their core competences and capabilities. (Leonard-Barton 1992; Stalk et al.

1992) Thus, core capability and its effect to capabilities and core competences became a focal point of RBV framework (Nagano 2020).

Lastly, the lack of theoretical foundation of how to manage the core capabilities of a company induced the latest evolution of RBV. According to Leonard-Barton (1992), without actively monitoring the changing and evolving market environment, the core capabilities would potentially change into core rigidities. Sirmon et al. (2007) stressed that there was a dysfunction in the RBV between the core capabilities and their usage

(29)

to create value to customers. The writers also criticized the absence of environmental factors in the framework. They stressed that value creation could only be created when strategy development would focus on matching the company’s capabilities with the environmental context and market demand. To eliminate the rigidity from the RBV framework, Teece et al. (1997) introduced the dynamic capability approach which idea was to focus both to the internal and external complementarity of capabilities and competences in a company. In other words, it was stressed in the dynamic capability approach that dynamic capabilities are companies’ internal capabilities.

Moreover, with the help of dynamic capabilities companies would be able, through operation of internal and external resources, change their core capabilities. (Nagano 2020)

2.3.2 Building blocks of Resource-based view

According to Porter (1991) company’s success is defined by its abilities to attain a competitive position in the market which leads into sustainable and superior performance. Since the market environments change, it is important to understand how a competitive market position is created and how it can be sustained also in the future (Barney 1995). The core focus of RBV framework is to aid companies to recognize the building blocks which create a competitive sustainable advantage, and moreover enable companies to build a strategy which sustains their financially favourable market position also in the future (Peteraf & Barney 2003). Additionally, the RBV framework does not only consider the status of the companies’ current competitive position but aims to reflect with the potential future competitors as well (Barney 1991). The base of RBV is defined through resources, capabilities which deliver companies either a competitive or more preferably a sustainable competitive advantage (Helfat &

Peteraf 2003). In this chapter these different building blocks of RBV are introduced in a following order:

 Competitive advantage and sustainable competitive advantage

 Resources

 Capabilities, Core Capabilities and Core Competences

First competitive and sustainable competitive advantage will be defined and introduced. After this the building blocks of competitive advantage will be gone through, starting from resources, then moving to capabilities and lastly to core capabilities and core competences.

(30)

COMPETITIVE ADVANTAGE AND SUSTAINABLE COMPETITIVE ADVANTAGE Oxford Dictionary (2021) defines competitive advantage as “a condition or circum- stance that puts a company in a favourable or superior business position.” From the Oxford Dictionary’s definition one can already interpret, that in the same market environment only one or maximum a handful of companies may possess the same competitive advantage, for it to generate an actual superior business position. This assumption is supported by Peteraf & Barney (2003) who say that firms’ competitive advantages derive from rare and firm-specific resources which are superior in use of these companies. According to Barney (1991), companies possess competitive advantages when they are implementing a value creating strategy which the current or potential competitors are incompetent to simultaneously deploy. Foss & Knudsen (2003) disagree with Barney’s (1991) definition since it does not take into account a possible scenario where the profits of the competitive advantage are appropriated by the factor market. In other words, Barney’s (1991) definition does not take into account the distribution of profit and the excess opportunity costs. Foss & Knudsen (2003) further argue that only when a company’s profits exceed its opportunity costs, and when companies earn relatively more than its competitors on a sustained basis, a true competitive advantage is achieved. This statement is supported and extended by Peteraf & Barney (2003), who say that a competitive advantage of an enterprise is only created when the enterprise can create more economic value than the mar- ginal (breakeven) competitor in the same product market. The writers define economic value as a difference between the purchasers’ perceived benefits from a good or a service, and the enterprise’s economic costs to produce the good. Figure 8 aim to illustrate the financial components of a competitive advantage.

Figure 8. The building blocks of competitive advantage modified from (Peteraf &

Barney 2003)

(31)

In figure 8 Barney & Peteraf (2003) illustrate how the generation of a competitive advantage is built financially from three separate blocks. Firstly, the economic cost (C) refers to company’s net costs to produce the good or a service. Secondly, the perceived benefits (B) refer to the value that the customer experiences from the good or a product. In other words, B defines how much value the customer experiences from the product or service, and moreover how much it is willing to pay for it. Lastly, price (P) is set by the producer. The price should be set in a way which provides value both for the customer and for the producer, creating them a “consumer surplus”

and a “producer surplus”. For the companies to possess a competitive advantage, they need to either decrease their economic costs while creating similar amount of value, or they create a greater extent of value with the equal amount of economic costs. Thus, making the companies’ creation of value more efficient.

One important notion in competitive advantage is the question of making it a sustainable one. Barney (1991) defines sustainable competitive advantage as a value strategy which the current or potential rivals are both unable to simultaneously deploy and are unable to duplicate the benefits. In other words, sustainable competitive advantage is created from companies’ resources and capabilities which the company alone can properly deploy and harness. Additionally, when a company possesses an unduplicable competitive advantage, its rivals are unable to imitate, acquire or substitute it in a way which would create equal or a greater value for them (Fahy 2002).

According to Peteraf (1993) companies are able to sustain a competitive advantage only if they have heterogeneous resources which are inimitable and un-substitutable in a sense of a longer time period (Ex post), imperfectly mobile, and scarce by their nature (Ex ante). Mere heterogeneity does not provide companies competitive advantages. Thus, the heterogeneous resources need to stay heterogeneous over a longer term thus limiting the competition around them. Inimitability and un-substitutability are features of these kinds of resources. Additionally, the resources need to be also imperfectly mobile which means that other companies are unable to acquire and gain equal or higher benefits from them. Lastly, resources need to be scarce by their nature when they are first noticed. Thus, creating a competitive advantage for the few who realize to acquire them when the “producer’s surplus” is still beneficial for the companies. Dierickx & Cool (1989) agree with Peteraf (1993), since according to them sustained competitive advantage arises from companies’ assets which are difficult to substitute or imitate and are untradeable.

All in all, Barney, Peteraf and Dierickx & Cool (1989b; 1991; 1993) are defining sustainable competitive advantage from slightly different viewpoints, but there are still

(32)

great similarities in their definitions. All writers agree that a sustained competitive advantage is created from resources and capabilities which need to be rare and imperfectly substitutable by potential competitors in a longer time period. Differences in the definitions spark on the strategy side, where Barney (1991) highlights more the importance of a value creating strategy and Peteraf (1993) and Dierickx & Cool (1989) stress more the features of the resources and capabilities themselves. It also needs to be considered that there is no such thing as an eternal sustainable competitive advantage. Through development and changes in the market environments, the nature of resources may change quite rapidly from inimitable, rare, and valuable into common or even non-valuable. Hence, to sustain a competitive advantage, manag- ers need to understand the bases of competitive advantage and the factors in the market environment which might dynamically change the nature of the competitive advantages. Additionally, effects of environmental and firm-specific factors’ effects to companies’ capabilities should be constantly investigated. Understanding the factors’

influences to the strengths and weaknesses of companies’ capabilities will increase companies’ knowledge about the durability of the competitive advantages. (Sirmon et al. 2010)

RESOURCES

Barney (1986) states that to sustain or enhance a company’s competitive position in the markets, companies need to either be better informed about the future value of their strategies, or they can put their faith into luck. Both options may generate a sustainable competitive advantage for a company, but for the latter option it usually happens by an accident. According to the RBV framework, competitive advantage is generated from internal sources, more specifically, from companies’ resources and capabilities (Barney 1995). Thus, it can be argued that it is of essence for companies firstly to recognize and understand their strategic capabilities and resources. Sec- ondly, for those resources and capabilities to produce competitive advantages, the companies also need to know how to deploy, develop, and possibly at some point even let them go (Madakok 2001). For companies to maximize their benefit from their resources and capabilities, it is of essence to define the distinction between these two terms.

According to Barney (1991), resources are companies’ strengths which the companies use to deploy and conceive their strategies to gain efficiency and effectiveness in their market environment. Amit & Schoemaker (1993) define resources as available factors which the company controls and owns. With the help of companies’ other

(33)

assets and bonding mechanisms, such as management information systems, technology and trust between the labour and management, resources are converted into final services or products. Resources can be conveniently divided into three separate categories: Human capital resources (e.g., training, judgment, experience, intelligence), physical capital resources (e.g., plant, property, equipment, access to raw materials) and organizational resources (e.g., firm’s formal reporting structure, planning, coordination of systems, informal relations within and outside of the firm and in the firm’s environment). (Barney 1991; Amit & Schoemaker 1993) Grant (1991) on the other hand finds six different categories for resources: physical capital, human, reputation, technological, organizational, and financial resources. Moreover, all Grant, Fahy and Grimm et al. (1991; 2002; 2005) determine two higher level categories for resources dividing them into two groups: tangible assets and intangible assets. Tangible assets represent the physical capital resources (e.g., plant, equipment, property, the firm’s credit, internal funds generation) which have a fixed and long-run capacity. Intangible assets represent the human capital and organizational resources (intellectual property, brand equity, patents, technical and scientific employees, and corporate reputation) which have an unlimited capacity and they can be either used in-house, sold, or rented. Although the writers’ categorizations of resources slightly differ, there are clear similarities and resemblances in them. The different categories of resources and examples what belong into these categories are presented in table 1.

Table 1. Typology and examples of different categorial resources

Category Example Source

Physical Capital Resources E.g. Plant, property, equipment, access to raw materials

(Grant; Barney; Amit &

Schoemaker; Fahy, 1991;1991; 1993; 2002)

Organizational resources E.g. Firm's formal reporting systems, planning, and coordination of systems

(Barney; Amit &

Schoemaker, 1991;1993)

Financial Resources E.g. Credit and internal funds generation (Grimm et al., 2005)

Reputational Resources E.g. brand equity, trademark and

corporate reputation (Grant; Fahy, 1991;2002)

Technological Resources E.g. patents and technical and scientific

employees (Grimm et al., 2005)

Human Capital Resources E.g. Training, judgement, intelligence and experience

(Grant; Barney; Amit &

Schoemaker, 1991;1991;

1993)