DDBA 8161 Week 3 Three-Band Resource Audit Example

What a Rival Can Buy Is Already Bought: A Resource Audit of a Precision Machining Shop Making Flight-Critical Aerospace Parts, Sorting Its Assets Into Purchasable, Accumulated and Hard-to-See

Student Name

Walden University

DDBA 8161: Business Strategy and Innovation for Competitive Advantage

Instructor Name

Month Day, Year

What a Rival Can Buy Is Already Bought: A Resource Audit of a Precision Machining Shop Making Flight-Critical Aerospace Parts, Sorting Its Assets Into Purchasable, Accumulated and Hard-to-See

The Rule

The owners of Northfield Precision, a composite machining shop of 52 people near Wichita, Kansas, say their edge is their five-axis machines. This audit treats anything a rival could buy on an open market as already bought. Barney (1986) argued that resources acquired in competitive markets are priced close to their expected value, so buying them cannot by itself create an advantage. What remains after that rule are the resources a better-funded competitor would have to build up over time, or could not identify clearly enough to copy. The shop makes flight-critical parts, such as landing-gear brackets and actuator housings, for two large aerospace manufacturers.

Band One: What a Rival Could Buy

Everything in this band is valuable. None of it is an advantage. A rival with capital could buy the same machines within a year. The owners' claim fails the audit's first test.

Table 1

Purchasable Resources and Approximate Market Prices

Prices from equipment quotes the shop received and regional salary surveys; composite case.

Band Two: What Must Be Accumulated

Dierickx and Cool (1989) argued that strategic assets are stocks built up through flows of investment over time, and that they resist imitation because time cannot be compressed: doubling the spending does not halve the years. Northfield holds three such stocks.

First, qualification on 14 part families. Each part the shop supplies passed a first-article inspection and a customer source approval, and many required months of trial runs before the customer accepted the process. A new supplier would have to repeat that process part by part, and each customer limits how many new sources it qualifies in a year.

Second, a delivery record. Northfield has shipped 99.2 percent of orders on time for six years, a figure both customers track in their supplier scorecards. A record like that can only be built by delivering on time for years.

Third, process histories. For each part family, the shop keeps setup sheets, tool-wear notes and inspection data from thousands of runs, which let it hold tight tolerances on hard alloys with low scrap.

Band Three: What a Rival Could Not See Clearly

Reed and DeFillippi (1990) argued that causal ambiguity, uncertainty about exactly which skills or routines produce a result, can stop imitation even when a rival is willing to spend. At Northfield, scrap on titanium parts runs about 2 percent against an industry figure the owners believe is nearer 6 percent. The shop's own staff cannot fully say why. Machinists point to fixture designs; the quality manager credits a habit of stopping a run at the first sign of chatter; the programmers credit cutting strategies refined over years. Probably all three contribute and interact. A rival who hired one of these people would get one piece of a system whose pieces depend on each other.

How the Bands Were Checked

The sorting was tested in two ways. First, the owners were asked to name a competitor that could match each first-band resource within a year; for every item, they could name at least two. Second, the quality manager reviewed the second-band list against the customers' supplier scorecards and approval records, confirming the 14 qualified part families and the six-year delivery figure. The third band could not be checked the same way, which is the point of it: no one at the shop could write down a complete account of why scrap stays low.

What Survives

Of everything the owners listed, the purchasable band contributes nothing that protects Northfield. The accumulated band, qualifications, delivery record and process histories, protects it for years, and the hard-to-see band may protect it longer, because a rival cannot buy what it cannot identify.

What This Means for the Owners

Northfield's strategy should protect the accumulated stocks: keep qualifications current, guard the delivery record when taking on new work and preserve the process histories in a form that does not depend on a few people. Capital spending on new machines is necessary to stay in the business, but it should not be mistaken for the source of the edge.

References

Barney, J. B. (1986). Strategic factor markets: Expectations, luck, and business strategy. Management Science, 32(10), 1231-1241. https://doi.org/10.1287/mnsc.32.10.1231

Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504-1511. https://doi.org/10.1287/mnsc.35.12.1504

Reed, R., & DeFillippi, R. J. (1990). Causal ambiguity, barriers to imitation, and sustainable competitive advantage. Academy of Management Review, 15(1), 88-102. https://doi.org/10.5465/amr.1990.4308277