beyond strategy: configuration as a pillar of competitive advantage

Beyond Strategy: Configuration as a Pillar of Competitive Advantage

Danny Miller and John O. Whitney

O ne company can copy another 's strategy. It can reverse engineer its technology and benchmark its systems. But it cannot

copy the way strategy, technology, systems and routines are configured into a thematic, syner- getic whole. It is this complex configuration among the parts that constitutes the most vital source of competitive advantage. And the ability to find a core theme that harmonizes these pieces distinguishes the great firms and leaders from all others. Developing such a core theme demands both the insights of the artist and the calculations of the planner.

The object of good configuration is always to develop a committed, enthusiastic cadre of people who collaborate seamlessly to get and keep customers who value their services. In this endeavor, the well-configured business takes on a life of its own, solving today's challenges while carrying within it the seeds of renewal.

Today, many companies pursue new management techniques only to get burned. They downsize and lose a vital competence or resource. They outsource key activities and thereby deny themselves vital opportunities for learning. And they acquire firms that in no way complement their abilities or market profile, or introduce products that hurt their reputation. In all these cases the techniques embraced---downsizing, outsourcing, acquisitions, and so o n - - m a y well be useful. But they are misapplied whenever managers fail to adapt them to what is most important to the company and its members , to what the company absolutely must do well, and to the identity of the company in the marketplace. What follows is an attempt to get back to these basics.

This article is about organizational wholes. It explores how', and how well, the elements of

companies complement one another to produce the driving character of the enterprise. It is not a popu- lar or well-explored topic among strate- gists. Previous work has tended to look only at parts of an organization, with little concern for the central themes and relation- ships that prioritize and orchestrate the parts. Perhaps that is why we have such a long way to go to understand what it takes to get a company to implement a strategy effectively. It may also explain the gap between the laundry list of attributes said to produce superior returns and the true life-blood of a great organization: the core vision and its orchestration that gives a company character and direction, harmonizes strategy and processes, and motivates people to work toward a common objective.

Many organizations lack profound character. They have no powerful unifying focus that gives them uniqueness, spirit and direction. They need a theme and integrative apparatus that harmonizes their elements to produce configuration. Such configuration, not strategy alone, is the most powerful source of competitive advan tage - - an important point that escapes advocates of organizational adhocracy, looseness, and chaos.

What Are Configurations?

In the abstract, configurations may be defined as constellations of organizational elements that are

Beyond Strategy: Configuration as a Pillar of Competitive Advantage

pulled together by a unifying theme, such as un- equalled service or pioneering invention. The first constellation is called the core; it consists of the mission, the means (the fundamental abilities and resources required to accomplish the mission), and the market. These constitute the raison d'etre of the enterprise. The second constellation includes the systems, processes, and structures that support the core; we have identified seven elements in the support constellation that we will describe later. In a well-configured organization, there is harmony within and between the two constellations that creates the synergies required to make a company uniquely effective. In short, building configurations is about two things: (1) making choices about what a company does and how it will do it, and (2) ensuring that the things a company does reinforce each other. The essential properties of configurations are well illustrated by Marshall Industries, a firm that one of the authors has been observing for several years.

A Configuration in Action

Marshall Industries, a West Coast distributor of electronic components , exemplifies good configuration. Its product lines are not unique, nor does it have any intrinsic cost advantages. As a distributor, Marshall finds itself operating be tween several giants--i ts suppliers are Texas Instru- ments and other major electronics manufacturers, and its major customers are IBM, AT&T, and their ilk. Marshall's managers had flirted with a service differentiation strategy, talking vaguely of flexibil- ity, adaptability, and customer focus. But about four years ago, the company had an epiphany that led it almost accidentally to a productive core theme and mission and a comprehensive expression of these throughout the firm.

Let's look first at the core. Marshall made a fundamental switch from selling undifferentiated products to helping customers solve problems. Hackneyed as it may sound, this overriding mission and theme gave the company great clarity of purpose. Managers now went to their markets to learn what the customers were doing that Marshall might do better and less expensively. They began bundling products and became a value-added outsourcer for many customers. In this sense, then, Marshall had a clear mission; it focused attention, activities, and resources on the means to achieve that mission; and it certainly created outputs that the market rewarded. From 1992 to 1996, its sales more than doubled, and its profits and price per share almost tripled.

Marshall made its configuration comprehensive by ensuring, via constant communicat ion and education, that all of its managers and employees understood and embraced the mission deeply enough to make the right decisions on

the spot. Subtly and indirectly, the firm was able to push decision-making close to the point of contact----close to the work and to the customer. Employees at all levels of the firm now knew they had the power they needed to serve customers with sensitivity and speed.

Because the mission was so well understood, activities that were in no way instrumental to purposes were almost automatically discarded, and activities were added that were now needed. Marshall dramatized its core mission of solving customers ' problems in a number of ways. It was the first in its field to use the World Wide Web to provide information and help customers; and it emphasized the global nature of its business by committing itself to being available to customers 24 hours a day. To support the massive changes it was making, Marshall invested heavily in an integrated information system that put all key information for decision-making at the point of contact with customers and eliminated the need for a heavy superstructure.

Perhaps the most striking example of the comprehensiveness of the configuration was the changes Marshall made in its reward system. Although the compensat ion system was market- driven, the company eliminated short-term financial rewards for numerically expressed objectives, which tended to hurt long-term relations with customers. Its criterion for differentiating rewards is now much more robust: If Marshall does well, everyone in the company, including the recep- tionist, the shipping clerk, and the janitor, shares in the reward. The change in the reward system was both the catalyst for change and the glue that held the other pieces of the configuration together.

Because the core of Marshall's configuration is so crisply defined, so thoroughly communicated, and buttressed by the reward and recognition system, activities there have taken on a life that seems independent of the classic management imperatives. The business has a rhythm that minimizes the confusion and conflict typical of firms that are not as well configured.

Even though Marshall shifted from distributor to value-added packager, in 1996 its administrative costs as a percent of revenues and its costs as a percent of operating margins dropped pre- cipitously. The features of configuration high- lighted by the Marshall example are shown in Figure 1.

Marshall's configuration--its mission, means, and market focus--centers on customer service. But there are many other kinds of effective configurations. To take two additional examples, pioneering companies such as Intel and Biogen have product development and market dominance at their core. They adopt as their mission the development of new products and technolo-

6 Business Horizons / May-June 1999

gies that will change industry standards, so a great deal of attention and resources are devoted to the means of developing such products. And much of the market success of the firms is attrib- utable to the currency of their products, as will be shown in Figure 2.

By contrast, companies that lack a solid core focus and a corresponding well-integrated system to back it fail to attain excellence in any endeavor and scatter their resources ineffectively. At AT&T, for example, the absence of a core theme or a clear set of priorities seems to have prevented the corporation from excelling at any one business or function. AT&T has pursued too many paths, none with great conviction or distinction. So the jack- of-all-trades company is being bypassed by its more focused rivals.

Core themes, we should add, are not the stuff of bloodless plans but of powerful, ideologi- cally embedded priorities that pervade an organization, impelling its people to embrace consistent values and purposes. They also instill what we call organizational simplicity--a tendency to work toward the most critical aims, activities, and markets. Thus, in addition to determining a core focus that makes a company distinctive, effective configurations also delineate what not to d o - - which services, products, market niches, and competitors to ignore.

Ballets are inspired by music and dramatic plot, but choreographed by plans and practice routines. In a similar fashion, organizational configurations are inspired by a core theme but implemented by plans, routines, and systems. Thus, a second quality of effective configuration to be seen from the Marshall example is comprehensive support around the co re - - an administrative structure and set of practices and systems thai reinforce, implement, and complement the central theme.

At pioneer companies such as Intel and Biogen, numerous rituals, routines and administrative vehicles are used to facilitate new product development. Information systems are tailored to keep managers on the cutting edge of technology. And hiring practices, promotion criteria, and reward systems are designed to attract and moti- vate those with the greatest innovative talent. Such elaboration of a configuration embeds a theme, making it compelling and driving out clashing motifs. AT&T has lacked such support systems, so some units have talked up quality but rewarded cost control; others have advertised performance, but performed only at advertising.

Three typical configurations used by some famous companies are presented in F igu re 2 on the next two pages. They show themes of pioneering invention, effective marketing, and high quality, which imbue cores and support systems alike. There are, of course, a great variety of pos-

Figure 1 Some Indicators o f Configuration

A clear MISSIONand set of priorities and goals that are shared by many managers.

Focusing attention, activities, and resources on the primary MEANS for attaining these goals.

A viable target MARKETthat values the outputs the means create.

co . . . .

Directing attitudes: A corporate culture that engenders widespread enthusiasm for the mission, means and market.

Directing attention: Information systems that flag issues most central to the mission.

Directing influence: A structure that empowers and facilitates collaboration among those performing primary tasks.

Directing resources: Strategic plans that identify, fund, and staff the most important activities and functions.

Directing motivation: Recruitment, training, and reward practices that support primary tasks and goals.

Directing effort.. Routines that delineate and monitor key activities.

sible configurations, but the three that fo l low-- the Pioneer, the Salesman, and the Craf tsman-- are especially thematic.

BUll.PING EFFECTIVE CONFIGURATIONS: COMPOSING THE CORE

The Many Seeds o f Configuration

C onfigurations are not built like buildings, with rational, step-by-step plans. Instead, most of them arise from an admixture of

chance, insight, inspiration, and trial and error. Indeed, there are many possible starting points in forming configurations: the recognition of an unserved market need, a new invention, an important talent or technology, even a novel administrative process. But once an important idea or resource is in place and enough key people are convinced of its potent ial-- that is, once a core has attained critical mass- - i t can take on a life of its own and grow into a full-blown configuration.

Sometimes a configuration emerges because a crisis causes a theme to surface and forces the pieces of a company to adjust to one another. One author took over as Chief Operating Officer of a troubled large supermarket chain. In his determination that a marketing and service focus

Beyond Strategy: Configuration as a Pillar of Competitive Advantage 7

Business Horizons / May-June 1999

I:i ¸ /! / could address the chain's problems, he decided that stores should remain open 24 hours a day. This created immense logistical problems that would tax the ingenuity of the functional areas of distribution, store operations, purchasing, and marketing. These problems forced once warring departments to cooperate, or be exposed.

The new service mission was clear: Get the right products to the right stores at the right time. The distribution function was impelled to alter its delivery schedules to suit stores' needs better. Store operations then agreed to help the pres- sured deliverers unload trucks. They also developed an informal feedback system to inform purchasing and marketing about product move- ment. These systems of mutual support did not require additional staff, so costs fell as a percent of revenues. More importantly, the benefits of the improved cooperation among functions were transmitted to the consumer: higher volume meant fresher merchandise; better communication resulted in a better product mix, and the new can do spirit improved customer relations. The company grew and prospered as its parts began to complement each other.

Sensitive managers are able to exploit a wide variety of opportunities to assemble the critical mass of a configuration. But whatever the initial stimulus, for effective configurations to blossom managers must play an active role: for example, they might capitalize on a crisis, resource or competitive situation to articulate a cogent mission, develop the m e a n s to attain it, and connect with a viable target market .

T h e M i s s i o n o f t h e F i r m

All configurations must embody a mission: something to focus at tent ion-- to tell people what is and is not critical. "Encircle Caterpillar" was the mission that effectively focused the now powerful Japanese competitor, Komatsu. Configuration is impossible to achieve without such a strong sense of priorities or without people sharing a clear purpose. When a common purpose is ab- sent, it is difficult to fit the pieces together; and even when joined, the pieces tend to come apart.

Mission encompasses goals, values and ide- als. Hackneyed as these words may seem, it is imperative that employees understand and generally support the values and goals that direct the enterprise. A good crisis manager will tell you that a shared sense of urgency, a commitment to act, and a dedication to the enterprise that tran- scends self are imperative for a successful turn- around. Military leaders echo this, as do the bosses of top-performing enterprises. For instance, even though there is a great diversity among the people within corporations like Gen- eral Electric, AlliedSignal, Marshall Industries, and


Xerox, you will find that most of the people know, understand, and generally support the core values and goals of the company.

Means: Core Competences and Activities

Means constitute the very basis of an organization's identity, both to its employees and its customers. Means---technologies, procedures, programs, and unusual talents or r esourcesushape the tasks and interactions of everyone in the organization. They not only dictate the foci of ev- eryday working life but constitute the bases for what people pay attention to and take pride in.

Means help define work and its value to employees. They can connect employees to "something that matters" and make them feel more special.

And when they are distinctive, means create unique products and services that set a firm apart and instill client loyalty. Indeed, far from be-

ing mere servants of a mission, means often serve as the very basis for a configuration, shaping mission and market alike. Four conditions help means contribute vitally to the core of a configuration: excellence, thematic complementarity, development, and salience.

Means must be objectively powerful; whether they are technologies, skills, or processes, they must communicate excellence along a market- pleasing dimension: high quality at a Craftsman firm, bold inventions at a Pioneer firm, or alluring products at the Salesman firm. Means producing such outcomes become sources of superior competence and competitive advantage. They also are important within a firm, where they become rallying points--integrative targets that galvanize attention and prioritize activities and resources.

More important, means must reflect a central theme and complement one another, thereby harmonizing a great many aspects of strategy. The true pursuit of quality, for example, has implications for a wide range of activities beyond engineering and production. To ensure quality, R&D operations must favor painstaking refinement over risky novelty. A quality emphasis also demands judiciousness in adding new products to make sure overall reputation is not eroded. Thus, product line expansion and experimenta- tion will not be excessive. Moreover, quality goods may permit higher prices and push firms toward customers who value excellence and durability; distribution and advertising must be

targeted accordingly. The quest for quality also circumscribes outsourcing policies--restricting any such activity to uncritical components. It may even require backward integration to guarantee the excellence of key inputs. In short, thematic means must give rise to a whole interconnected set of prescribed and proscribed activities; they must reify a central focus; and they must discour- age the inconsistent and nonessential.

In his 1996 Harvard Business Review article "What Is Strategy?" Michael Porter did a superb job of articulating how the elements of strategy at a successful firm such as IKEA were configured to fit together. IKEA's policies of low product variety, few auxiliary services, low pricing, sub- contracted manufacture, and creative merchandise display all complemented one another to give the firm a distinctive product that would be very hard for rivals to duplicate.

Means must also incorporate methods for learning and improving. They must encompass not only a talent or approach, but also a way of nurturing and developing i t - -and ensuring its continued relevance in a changing world. In fact, even if means are compelling and sharply distinctive, they can remain so only by continual renewal and adaptation. By incorporating ways of learning, means must contain within them the seeds of their own revitalization. The interaction of scientists at many great technology companies ensures that one invention will lead to another.

Finally, unless means are made in some way salient and remarkable to the employees who must implement and develop them, they will fail to inspire and will lose their value. To instill pride and rally organizational effort, means must call attention to themselves. This is most apt to happen when they are closely tied to the mission, reflect great skill, or embody cherished values. Vagueness, mediocrity, and bureaucracy are anathema to salience.

For years, Caterpillar Tractor was famous for its abiliw to manufacture super-durable, high° quality heavy equipment. The theme of quality and reliability was reflected in the company's manufacturing methods, design practices, and advertising and distribution. The far-flung distribution network ensured that spare parts could be sent anywhere in the world within 24 hours. And quality assurance routines were airtight and in a state of continual refinement. Mthough product lines were quite stable, everyone was committed to making improvements to ensure that Cat stayed ahead of its competitors.

Market~ Matching Capability with Customer Needs

Means matter only when the market values them, and especially when competitors cannot match


them. A firm's central talents or resources must be amply rewarded by outside parties; otherwise a configuration will be useless and sterile. Indeed, most effective configurations are built with specific niches or customer needs in mind.

We are not suggesting that firms should poll customers and simply react to what they want. That would enforce eternal followership and prevent a company from exploiting its theme. Instead, we urge managers to strive for deep insights into their customers and the problems they face. Firms must discover needs they can fulfill better than their compet i to rs - -or identify a market gap that dovetails with their special skills and resources. This allows them to lead their customers, suggesting to buyers where they want to go before they realize it themselves. But leadership must be based on understanding true market needs, both present and evolving. And that often requires intensive face-to-face customer contact, not only via avid market research but by on-site visits and regular dialogues as well.

At Bandag Corporation, a large tire retreader, CEO Martin Carver discovered that customer costs were largely a function of an entire set of activities for operating and maintaining tires. It became clear to Carver that Bandag should no longer define its business as tires alone, but stress how its product interacted with other parts of the system. So Bandag got closer to its fleet managers to understand their needs, and set up dealerships that sold total solutions, not just tires. In this way, the firm's strength of producing durable and eco- nomical tires was augmented greatly by improving the reliability of the delivery and maintenance systems used by the customer and the dealer. Bandag's configuration extended all the way to the final use and user of the product.

Although firms vary in whether they ponder mission, means, or market first, all of these components must converge in the core. What use is a mission of innovative leadership in a company that cannot develop sufficient means for research or creativity, or that operates in a market unwill- ing to pay for same? If corporate priorities, talents, and sources of advantage in the market do not converge, there can be no effective configuration.

BUIIDING COMPREHENSIVE SUPPORT

T he seeds of configuration are unlikely to take root unless they are cultivated and nurtured by an appropriate support structure. Such support includes rituals

and ceremonies, the power and reporting structure, plans and information systems, human resource policies, and administrative routines. This need for support is dramatically illustrated by a recent intervention conducted in a company with a faltering Pioneer configuration.

The Zimmer Inc. subsidiary of Bristol-Myers Squibb manufactures orthopedic implants and the surgical instruments required for their insertion. Although it was the market leader, Zimmer realized it had to get new products to market much faster than before. Its mission, means, and market were clear and complementary, but it lacked an appropriate administrative and collaborative support structure to develop new products quickly and efficiently.

To remedy the situation, one of us was brought in to help the division reconfigure the unit to develop a new hip implant. He found Zimmer's structure and systems wanting. Process, design, and manufacturing engineers all reported vertically, slowing and distorting communication. The functions were separated geographically and cross-functional communication was too rare. R&D, marketing, HR, manufacturing, and finance all communicated via the top, so those doing the work had constantly to wait until the functional heads ironed things out.

We decided to dramatically reconfigure both the structure and the process for the hip project, choosing a Lockheed-type "skunk works" (a cross-functional team reporting to one leader) and adding a few special provisions. First, all team members were assigned full-time to the project, from inception to completion. For example, quality control people who were normally brought in only at the end of a project came in to make recommendat ions right from the beginning. The apparent inefficiencies of this arrangement were ameliorated by two factors. First, the entire as- signment could be carried out speedily because information was shared so widely and communication was so swift. Second, everyone became a "generalist" and could contribute to many tasks. These advantages were facilitated by locating everyone in the same space. Design engineers sat beside process engineers, and so on. Almost all communication was oral rather than written. A climate of collaboration soon ensued in which everyone felt free both to seek help and give adv ice- -no t by long memos but by discussion.

Capital budgeting and control systems were also made more friendly. The hip project team was given control of its own budget. Everyone realized controls would be needed, so all committed to a series of milestones developed to trigger corporate reviews. Time-consuming ad hoc reviews with detailed presentations to top management were eliminated. To control quality and ensure that the product design would be acceptable to customers, 19 surgeons were re- cruited from around the world as team members. It was understood that all team members - - in - cluding a sales force of 25- -had quick access to the surgeons for the duration of the project.

The result of this reconfiguration of the sup-


port structure was that it took Zimmer only 29 months to complete the hip project--about one- third the time it took to develop its knee system. This example shows the kind of system that can support complex pioneering projects that demand close collaboration among a wide range of spe- cialists. Companies producing simpler, stabler offerings would require quite different support structures. Our main point is that organizational support systems must be tailored in a multifac- eted way to the core of the configuration. The three configurations of Figure 2 give some examples of how this can be done. They suggest that supports can be broken down into six key parts to direct: attitudes, influence, resources, motives, attention, and effort.

Directing Attitudes: Rittl~i.g and Ceremo- nies. The goals and priorities of top managers will have little effect unless they shape the values and attitudes of most other members of the organization. This is often accomplished using an elusive phenomenon called organizational culture. By regularly celebrating certain achieve- ments, firms call attention to the importance of fundamental goals and values. Pioneers celebrate new patents; Craftsmen have ceremonies for quality awards. Vehicles for embedding important values include: bull sessions to discuss ideologi- cal or strategic priorities; training programs; sym- bolic actions by an inspiring leader; celebrating figures or feats via rituals and ceremonies; slogans and special vocabularies; company newspapers; and even advertising that defines a firm's image and distinctiveness. Most of all, culture must create a sense of common purpose that inspires targeted effort toward the corporate mission. And that comes more from the actual work environ- ment than from company pronouncements.

Directing Influence: The Power and Re- porting Structure. Organization structure speci- fies how responsibility and authority are to be distributed. In well-configured firms, it is used to give those with the most important tasks the discretion and influence to perform them. Structure also signals which units and individuals--and hence which priorities and tasks--are especially critical. For instance, by funneling power toward selected divisions, a firm stresses the significance of a particular product or niche. By favoring a department with extra discretion, a firm estab- lishes the primacy of a specific function. Biogen and Intel give great scope for initiative to their R&D people. And power gravitating to the operating level signals the importance of a specific task to a firm's mission--such as customer service at Marshall.

Marshall's managers knew their aim of becoming a solutions company required a shift of power from headquarters functions to the real point of contact: the field representatives. But

they also knew this transition could not occur by simple edict. So they are upgrading their field force to ensure that all representatives have the skill to deal with complex customer problems. As the field force is upgraded, it will gain more re- spect in the company, thereby making the trans- fer of power more appropriate and more acceptable to other organizational members.

Through the grouping of tasks and specifica- tion of hierarchies, structure also determines how easy it will be for different specialties or departments to collaborate; recall the Zimmer example. Such hierarchies also influence the speed and flow of information. Pioneering firms must have fewer levels of hierarchy to promote easier collaboration among different functions, liberate initiative, and foster quicker decision making. Collaboration is also facilitated by integrative devices such as teams, task forces, and commit- tees---other important elements of structure. In situations of crisis, clear lines of communication and authority are especially important.

These examples demonstrate how the support systems must reflect the core, and they again dramatize that designing good configurations is as much art as science. There are no hard and fast rules. But there is always the need to harmo- nize the organizational elements.

Directing Resources: Strategic Plans and Budgets. Configurations must be operationalized by plans and programs that break down strategic priorities into sub-objectives and sub-tasks. Cen- tral activities feature most directly in strategic plans, while more peripheral concerns are given less prominence. To be effective, however, such plans must be linked to capital and operating budgets that allocate funds, personnel, and other resources to key activities. In this way, core concerns are accorded the resources that give them life and, just as important, extraneous activities are starved and eliminated. Biogen, Microsoft, and Intel likely spend well over 10 percent of their sales on R&D, leaving little doubt about the pioneering theme that pervades their configurations.

Directing Attention: Information Systems. Good configuration demands that managers pay special attention to particular kinds of information. Information systems, whether formal or informal, need to be designed to direct managers' attention to the trends, facts, and issues most central to their missions, means, and markets. Salesman companies must assiduously collect information on customers, sales breakdowns, and competitors; cost-focused companies must gather crucial data on efficiency, expenses, capacity use, productivity, and such. Information systems reinforce configurations by directing managers' attention, informing their interpretations, and telling them how well they are accomplishing their mission. Moreover, they keep different departments


thinking about similar concerns, facilitating communication and collaboration.

Information systems, however, include far more than formal financial reports; they are the means by which organizational members acquire and share their knowledge- - the cornerstones of organizational learning. According to Peters (1994), McKinsey & Company has evolved an extremely thorough means of documenting the new information garnered in each of its consulting assignments, then making the information available to others in the firm. There are information managers and resource people in the firm whose sole job it is to collect this information, package and index it in the most convenient and accessible way, find experts within the firm to give additional support, and make sure those who need help receive it within 24 hours.

Directing Motives: Recruitment, Training, Promot ion, and Compensat ion . Configurations are best sustained when people enthusiastically direct their efforts toward a common purpose. This is achieved in part by strategic human resource management. On the one hand, recruiting policies must address the compatibility of new people with the organization; they must seek out individuals with skills especially appropriate to the core theme who complement one another. Salesman firms must attract and reward superb marketers; Pioneers must go after technical wiz- ards. But on the other hand, especially in changing industries, managers must avoid any tendency to look for clones. Diversity and independent thinking are required if the firm is to move forward and adapt. Promotion policies too must be guided by the need to reward talent for exist- ing priorities, while motivating those who will master opportunities that are just emerging.

Compensation policies may pose the greatest challenge of all. High merit is rewarded with high pay, and the highest pay, often quite aptly, goes to the most critical tasks or functions. But the configural view also recognizes that firms are complex systems of interdependency. Even the most proficient individual needs the willing support of many coworkers. And such harmonious collaboration demands that all employees be rewarded for their contributions. Widespread ownership in the firm via stock options, or stock ownership or universal bonuses for all in the company, are ways of enlisting everyone's partici- pation (recall the Marshall example). But perhaps the most important compensation a company can give is that which is intrinsic--that which comes from the work itself and its meaning to the em- ployee. And this relies on most of the aspects of configuration that we have already discussed.

Directing Effort: Administrative Routines. Routines serve as primary tools for directing human effort and ensuring compatibility in the ac-

tivities of different departments and decision mak- ers. There are routines for almost everything-- from purchasing sup- plies to filling or- ders, from training to hiring, from col- lecting to dissemi- nating data, from creating new products to discontinuing old ones. Routines not only guide the performance of most tasks, they also channel the percep- tions and assumptions of the people performing t h e m - - assumptions about what is worthy of attention. By shaping thoughts and actions throughout a firm, routines can serve as powerful devices for ensuring conformity to a clear set of priorities. Indeed, they may be said to implement or enact the priorities embodied by a configuration. For example, the administrative routines in a bank mirror its responsibilities of protecting de- positors' funds and preserving its capital. The routines of a pioneering high-tech firm will, of necessity, be less formal and more geared toward encouraging research and creativity. Managers should strive to shape routines in a great many areas around the core means and mission. But because most firms must address ever-changing internal and market needs, routines must be con- tinually reexamined for relevance, currency, and dangerous side effects.

CONFIGURATION AS A PII.IAR OF COMPETrFIVE ADVANTAGE

C onfiguration can be a potent weapon. Indeed, the heart of distinctive competence and competitive advantage may lie not in the possession of specific organiza-

tional resources or skills, which can often be imitated or purchased by others, but in the power of the orchestrating theme and the degree of complementarity it engenders among the elements we have introduced: mission, means, market, and support systems. In fact, companies may be seen as systems of interdependency among these elements, all of which must be harmonized to compete effectively. It is he subtlety and range of these interrelationships that give firms like Marshall capacities that are distinctive and tough to copy. We have found six primary competitive advantages of good configuration.

Clar i ty o f Direction. The sharp, well-communicated, and well-diffused mission of a highly


configured firm gives employees a shared per- spective on where the firm should be going and how to get there. When employees at all levels believe in the essential priorities of their organization, they work hard to achieve the most critical aims and do not waste their time on trivial matters. Common values also reduce the need for bureaucratic rules and close supervision, replac- ing compliance with conviction, liberating initiative and creativity, and speeding decision making.

S m o o t h C o l l a b o r a t i o n . When employees share common values and have a thorough understanding of core priorities, they are able to work together toward com mon objectives. Petty disputes are rare, and organizational politics takes a back seat to accomplishing an overriding goal. So highly configured firms can react quickly to challenges in the marketplace, even when such challenges demand the collaboration of different departments and areas of expertise.

Solid Commitment. Configurations are united by complex networks of personal relation- ships and interdependencies, the intensity and durability of which create real advantages. Tightly knit working groups or interdepartmental teams em body such interdependencies. Within them, people come to rely so much on one another that irresponsibility is rare. A commitment to "do the right thing" further reinforces trust and opens communication, making these teams increasingly effective.

A second type of commitment is not of

people to each other, but of resources to a long- term endeavor. Configured firms do not scatter their resources over time or projects; they con- centrate on major priorities. This resolute commitment of resources not only builds significant competencies and products that are hard to imitate, it also tells competitors that a firm is there for the long haul and will not be deflected from its plans or market. The chances of whimsical onslaughts from rivals are thereby reduced.

Core Competency. Configured companies, because they distinguish sharply be tween thematic and peripheral activities, are able to focus their resources to develop powerful and unique competencies. It is neither feasible nor productive for most firms to try to become jacks-of-all- trades. Instead, managers must prioritize activities and allocate resources to what their companies do especially well. This gives firms a lasting edge. It propels them along a trajectory of constant learning that hones the most critical skills and processes. In short, being enduringly great at something often demands the focus and dedication of highly configured firms.

After the Second World War, Roils Royce became the most innovative aircraft engine manu- facturer in the world. It retained this position for almost 30 years, largely because it put so much attention and resources into innovation. The innovative mission was heralded throughout the company; an astounding 22 percent of sales went to R&D, and successful engineers became heroes. The firm was dominated by managers with considerable technical expertise, and information sys tems--formal and informal- -kept everyone abreast of scientific developments. Every- thing about the firm reflected its innovative focus.

M a r k e t Supe r io r i t y . Configured organizations, because they have a good command of their strengths, are able to beat their less integrated rivals. Not only do they possess core competencies, but the intense dedication of their staffs enables them to reach out to customers and closely tailor these competencies to competitive and market needs. The more managers understand and believe in their core strengths, the more they are apt to use their initiative to build on them to serve customers and surpass rivals. In short, good configurations include the customer.

E n d u r i n g Or ig ina l i ty . Business scholars have argued that the primary sources of long- term profitability are talents or resources that competitors cannot imitate. Abilities or resources that are easily copied soon lose their value. But the core competencies, competitive advantages, and synergies that inhere in a tight configuration are very hard to imitate. In part, this is because configurations creatively combine many ele- m e n t s - m u t u a l l y reinforcing means, cohesive teams, complex administrative structures, and


elaborate systems. These elements are tough to duplicate, as is the complementari ty among them.

For example, the cohesive teams one finds in many well- configured companies are very hard to copy. Hiring away several team members would do a rival little good; it is the context within which these members work, and the inter- personal and organizational knowledge they have, that are the primary sources of strength.

In summary, there are major advantages to effective configuration. Highly configured organizations possess a clear sense of direction. Their goals inspire, their strategies are clear, and their efforts are well-targeted. So employees are committed and coordination is graceful. Add the syn- ergy present within configurations to these other advantages and we get firms with distinctive competences and products that competitors cannot imitate. Configuration can be as great a competitive advantage as any other aspect of strategy.

When There Is Too Much Configuration

For all their strengths, highly configured firms risk becoming too s imple - - too dominated by a single viewpoint, too monolithic, too driven by one talent or function. Once a central theme takes hold, Darwinistic processes often rise up to reinforce congruent elements and expel all others. In bureaucracies, for example, formal rules multiply as systems become more targeted and routinized. Meanwhile, innovation and discretion are extinguished. When a configuration becomes too narrow or simple, a firm loses its resilience and its relevance, becoming too focused to address the complexity of its market.

Excessive configuration can be indicated by many things: a preponderance of resources going to a particular activity or function; an intolerant culture that expels dissenters; a narrow set of hiring and promotion criteria; and a stifling array of programs and routines. One skill or issue may become too dominant, one group too powerful, and one objective too exclusive. Thus, as outlined in F igu re 3, there arises excessive consensus, inadequate skepticism, and an incapacity to recognize and respond to the need for change. An abridged audit for assessing a firm's quality of configuration is presented in the A p p e n d i x on pages 16-17.

Reconfiguration

Perhaps one of the most important things about a good configuration is the possibiliw it allows for ultimate reassessment and reconfiguration. A configuration is not forever; it must constantly be renewed. Moreover, its elements are interdepen- dent. If the market shifts, the mission and means must shift. If there is a change in the means--say ,

a technological b reakthrough-- the mission and the market approach must be adapted accordingly.

These changes in the core mission, means, and market will require changes in the support systems: budgets and plans will be affected; recruiting, training, promotion, and compensat ion practices must be adapted; information systems will need to be brought up to date; structure might be affected; even rituals and ceremonies may have to change. Many of these changes will be subtle, but essential nonetheless.

Such reconfiguration has been taking place at General Electric. CEO Jack Welch believes improved quality will reduce unit costs and improve customer relations. He also senses that traditional manufacturing and process operations are vulner- able. So in addition to the quality initiative, he has mandated that all divisions develop consulting skills and marketing services. To make sure these core changes are sustained, Welch has begun to revamp support systems. The new corporate heroes are those who attain "six sigma" quality or excel at marketing auxiliary services. Corporate- wide training and recruiting reflect these new quality and service objectives, as do the information systems. And functional structures at some divisions are being supplanted by cross-functional teams to better pursue quality improvement.

T he very heart of configuration demands that "the pieces be put together" in a way that ensures both harmony and creative

dissonance: harmony for maintaining the system, creative dissonance for moving it forward. Select- ing the right degree of configuration demands a complex balancing act. The need for continuity must be traded off against the need for change, requiring managers to embrace the future while


respecting the past. Managers must also avoid the blandness or chaos of too little configuration as well as the obsession of too much. Salesman firms, for example, must be careful not to neglect cost or quality; Craftsmen must be sure to keep products relevant and costs in line; Pioneers must take care not to squander resources in pursuit of utopian ventures.

Excellent wines have complexity and nuance, blending together different tastes into a harmonious balance. They avoid clashing cacophonies of flavors as well as the strident dominance of a single sharp note. So too must it be for the configured company. [:3

References

C. Hofer and D. Schendel, Strategy Formulation: Ana- lytical Concepts (St Paul: West, 1978).

D. Miller, "The Architecture of Simplicity," Academy of Management Review, January 1993, pp. 118-138.

D. Miller, "Configurations Revisited," Strategic Manage- mentJournal, July 1996, pp. 505-512.

D. Miller, The Icarus Paradox (New York: Harper Busi- ness, 1990).

T. Peters, Liberation Management (New York: Fawcett, 1994).

M. Porter, Competitive Advantage (New York: Free Press, 1985).

M. Porter, Competitive Strategy (New York: Free Press, 1980).

M. Porter, "What is Strategy?" Harvard Business Review, November-December 1996, pp. 61-81.

C.K. Prahalad and G. Hamel, "The Core Competence of the Corporation," Harvard Business Review, May- June 1990, pp. 79-91.

Danny Miller is a research professor at i'l~cole des Hautes l~tudes Commerciales, Montreal, Quebec, Canada, and at Columbia Business School in New York. John O. Whitney is a professor of business at Columbia Business School. The authors wish to thank Nida Backaitis, Martin Carver, Sheryl Conley, Bob Lear, Isabelle LeBreton, John O'Shaughnessy, Hal Parmelee, Dean Phypers, Rob Rodin, and Jamal Shamsie for their useful sug- gestions.


The Conf igurat ion Audit

B ecause there are no generic configurations, there are no generic audits. The high-tech startup will not look like Hewlett-Packard; Wal-Mart

will not look like Kmart or Targe t - -and certainly not like Saks Fifth Avenue. But a reasonably generic process can be used to determine whether there are problems with your company 's configuration. The audit be low is merely a suggestive set of opening queries. They probe into the genesis, mission, means, and market of your configuration and examine whether managers truly understand and agree on these things. Later questions probe into the adequacy of structure and support systems. All participants should be reminded, first, that diverse opinions will come from this process and, second, that no organization can do everything it knows and wants to do.

The best way to determine whether the configuration is appropriate is to talk to the people who are doing the w,~rk. The nature of organizations usually shields the most senior executives from the true picture, even when the following recognizable symptoms of disarray are known to others.

CORE

Mission

Convene a representative group, or series of groups, of managers and employees. Ask them to write briefly their understanding of the firm's mission without referring to any written mission statement. To allay any fears, assure re- spondents that replies will remain anonymous.

A brief review of the statements will determine the congruence of managers ' beliefs with the company 's pub- lished mission. If congruence exists, congratulations! If not, use the occasion to discuss areas of disagreement.

If consensus exists, ask the following questions: Is the mission so vague as to have few action implications? Is it so narrow as to prevent learning or adaptation? Is the mission still relevant in today's market? Or does the mission change so often as to have little credibility?

Market

Next, ask managers to write, in order of importance, the three most important markets for the company 's products and services. Again, review the replies for congruence and use the review as a springboard to discuss the following questions: Who are the major actual and targeted customers? Are these distinct groups? Is the intended market so vague as to offer little guidance in formulating strategy? Is it so narrow as to limit growth or enhance vulnerability?

Means

• Discuss the means that are (a) essential to ensure vi- ability in the market, and (b) those at which the company excels.

• Discuss the complementarit ies among the m e a n s - - among the different tactics, practices, and policies in the areas of production, marketing, R&D, and so on. (The diagrammatic examples of Porter [1996] can be used as guides for mapping the complementarities.)

• Discuss how good the firm is at developing its means - -a t continual learning.

• Discuss how salient the means are to most employees.

Genesis

Now talk about the following issues with the group: Where does the company's configuration come from? What causes it to cohere? What is at its co r e - - a skill, a leader, a market niche, a special technology, a mode of administration, etc.? What is missing? What are the most important sources or areas of vagueness, disagreement, or conflict.

Support Systems

Once a better understanding of the core mission has developed means and market, ask the participants to assess the adequacy of the support systems in reinforcing and sharpen- ing the core. You could start by asking managers to position their answers on a five-point cont inuum ranging from "very good support" to "no support," and then to explain their rating. In discussing the results, give equal attention to areas of agreement and disagreement as well as to areas of good and poor support. Both will generate ideas for corrective action.

Here are some questions to start with: • Do we recognize and celebrate the things that are

important to support our core mission, market, and means? • Are our formal and informal information systems

appropriate? Why? • Is our planning and budgeting system appropriate?

How does it help or hurt configuration? • Are our hiring, compensation, and promotion policies

appropriate to our configuration? • Is there a proper alignment be tween our performance

measurements and rewards? • Do our structure and power distribution support the

core? Where are some problems and opportunities for improvement?

• Do our administrative practices support the core? If so, how?

The discussions this audit provokes should offer insights not only about the degree of configuration that exists, but also about how your configuration can be improved.

When a company has--or cares to develop--a special relationship with its customers and suppliers, these parties should be invited to participate in some of the audit discussions. We have found in our own sessions that on every occasion, these outside constituencies uncovered both surprising and useful insights.


beyond strategy: configuration as a pillar of competitive advantage

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