Sum zEGF
BOOK REVIEW

CREATING VALUE THROUGH SKILL-BASED STRATEGY
AND ENTREPRENEURIAL LEADERSHIP

By William C. Schulz HI and Charles W. Hofer
Amsterdam: Pergamon, 1999

Reviewed by: James J. Chrisman, University of Calgary
chrismantLt)mgmt.ucalgary.ca

Schulz and Hofer's book, Creating Value Through Skill-Based Strategy and Entrepreneurial

Leadership (1999), is an ambitious effort to develop a process-oriented, resource-based theory
of the firm. The authors suggest that their objective is to provide an improved understanding
of skill-based strategy and entrepreneurial leadership through a detailed review of the
literature on resources and strategy and in-depth field research of four firms that used skill-
based strategies to improve their performance and create sustainable competitive advantages.

From this improved understanding, the authors present a quite detailed theory and process

model of the resource-based determinants of competitive advantage.

The core of the authors'ontributions rest on three research findings that appear to explain the
success of the firms studied (p. 219): "(1) Meeting the customers'eeds is a function of
knowing what the customers want and need. (2) Resources in and of themselves are not as
important as what management does in assembling them and developing integrative systems

that can allow the company to produce quality products and be flexible, fast and cost eAicient.

(3) The challenge for general managers is to keep the company 'in the hunt'y knowing both
what the customers want and what the company is capable of doing with its resources and
skills."

At first glance one might be tempted to ask "so what?" since these three findings really just
represent the strategy problem of matching opportunity and resources as defined by authors
such as Hofer and Schendel (1978) over 20 years ago. However, if anyone were to assume
that this reiteration of the fundamental premises of strategic management otTers no new value,
they would be wrong. For one thing, in this reviewer's mind the field of strategic
management, to its detriment, has lost sight of these fundamentals, in favor of a search for
measurement rigor and methodological elegance. Therefore, Schulz and Hofer's return to the

basics is welcome. More importantly, this important book gives new meaning to the match of
opportunity and resources.

Schulz and Hofer make it clear that the entrepreneurial process of identifying opportunity is
one of the three most important competencies of an organization and its management. This

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competence, which depends on a firm's absorptive capacity, interpretive systems, and
leadership, might not normally be associated with a resource-based view of the firm but it is
important nonetheless. For example, the entrepreneurial search process can be the basis for
first mover advantage.

'I'hc authors also effectively argue that an organization's 'institutional competence", the
building of a distinctive organizational character that makes it peculiarly suited to perform
certain types of work, is equally important. Schulz and Hofer borrow and adapt this concept
froin Selznick (1957) concepts of institutionalization, character, and distinctive competence.
While I agree with the end result of their efforts, I disagreed with the inference of the authors
in Chapter 3 (pp. 53-55) that the concepts of organizational character and distinctive
competence are essentially synonymous. Although interrelated, I have always viewed
distinctive compeience as that more measurable aspect of character, i.e., the particular task-
related orientations of the organization, rather than its ephemeral features such as culture or
'personality". Regardless of this small disagreement, the point is that organizations,
successful ones at least, dri appear to take on a special character and do seem to become adept
at performing certain types of work. Furthermore. as the authors suggest, it may prove to be
more effective in the long run to measure such competencies in a more holistic way, nero»»
functions, than b» functional areas such as marketing, production, and so on (Snow &
Hrebiniak. 1980).

Finally, Schulz and Hofer introduce the competence of "dynamic capability". This important
determinant of competitive advantage is a measure of an organization's ability to develop and
maintain systems and structures to support learning, and flexibly utilize its systemic resources
to meet changing strategic requirements. In other words, dynamic capability allows the
or anization to exploit its entrepreneurial and institutional competences more effectively.

When all is said and done, what the authors propose are three competencies, developed by
entrepreneurial leadership and given meaning through the formulation of a skill-based
strategy, that define the long run productive opportunity of a firm and determine its potential
to create sustainable competitive advantage. Because these competencies depend upon a
mixture and configuration of a variety of individual skills and basic resources, they will be
rare, difficult to imitate, and have no substitutes, per Barney's seminal expositions (1991,
1997). However, because the competencies are important to the organization in its
identification and provision of value to customers, rather than of direct value to customers in
and of themselve~, Schulz and Hofer's theoretical model avoids the tautological problems that
have tended to plague the development of the resource-based view of the firm (Priem &
Butler, 200 la; Priem & Butler, 200 lb). Finally, although somewhat cumbersome in its style,
the detailed development of the literature, the longitudinal nature of the data collected, the
turnaround situations of the Iirms studied, and painstaking presentation of the theory, provide
something that is often missing in theoretical works: evidence of a cause-effect relationship
between skill-based strategy and entrepreneurial leadership on the one hand and sustainable
competitive advantage on the other. Simply put, what the authors have accomplished may be
the most important advancement of strategic management theory since Porter's (1980)
seminal work on competitive strategy.

As noted at the outset of this review, Schulz and Hofer have undertaken an ambitious project.
As suggested throughout this review their book is one of ideas, and they are important ideas.
However, despite its many strengths, the book has some limitations that should be discussed.
While it may sound trite, a major limitation for me was the writing style. I admit to a great
difficulty in preparing a review that I hope does justice to this book. Part of the difliculty is
undoubtedly due to my own limitations as a scholar; nevertheless, I did not find the book
particularly reader-friendly despite the authors'bvious attempts to make it so. There were so

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many ideas, so many new terms. The relationships among them were not always clear. There

was also a distracting tendency of the authors to repeat themselves, sometimes using the

repetition as part of their explanations.

There also was somewhat of a disconnection between the sections prior to and following the

presentation of the four case studies from which the authors'kill-based strategy and

entrepreneurial leadership theory was derived. For example, in Chapter 3 (pp. 35-56) the

authors present a very interesting and compelling 'typology" of resource levels: (I) basic, (2)
systemic, (3) organizational services, and (4) stock assets. Unfortunately, this potential
contribution to the literature is then more or less abandoned in the remainder of the book. No

attempt is made to explain what the four levels of resources are for the companies studied, nor

do the four levels appear in a distinct, consistent fashion later in the development of the

theory.

Given the authors'ropensity to develop deliniuons for their terms, I was surprised that they

did not provide more attention to the definitions of two very key terms: entrepreneurship and

competitive advantage. Certainly there were allusions from which one could make inferences.

However, I would have wished for more concrete definitions. For example, Schulz and

Hofer's research and theory is clearly about corporate entrepreneurship, not new venture

creation. Indeed, one of the compelling features of their book is the presentation of a theory
that explains why entrepreneurial leadership and managerial direction are integral and

intertwined parts of the formulation and implementation of skill-based strategies.
Unfortunately, all the authors'ffer is vague suggestions that entrepreneurship has something

to do with opportunity recognition and creative destruction (Schumpeter, 1934), the latter

allusion provided in a context (see p. 237) that made the definition of entrepreneurship
difficult to distinguish from the definition of strategy (Hofer gr Schendel, 1978). Some further
attention and discussion of entrepreneurship vis-a-vis mainstream definitions (e.g., Gartner,

1988; Schumpeter, 1934) would have been useful. The need for greater definitional precision

is also true for the concept of sustainable competitive advantage.

As noted above the book is primarily process, not content oriented. Still I wish the authors

would have come to grips with some of the fundamental content issues that must be resolved

if the resource-based view of the firm is to tlourish rather than fade. The recent interchanges

of Priem and Butler (2001a, 2001b) and Barney (2001) highlight some of these concerns. The
first is whether sustainable competitive advantage should be, because the question is in what

way the field should develop its language and theories to better frame business problems, a

fimciion of valuable, rare, inimitable, unsubstitutable resources or whether sustainable

competitive advantage should be defined by such resources? Likewise, should firm

performance (e.g., profitability) be considered a fimcrion of the presence or extent of

sustainable competitive advantage, and other factors, or should sustainable competitive

advantage be assumed to equal (lead automatically to) above normal firm performance? As

noted earlier, I believe that Schulz and Hofer have effectively avoided tautology in their

theoretical model; however, they have also avoided tackling those two fundamental issues.

Finally, Schulz and Hofer have neglected one other factor: the way the academic market

places value on ideas. Whether one likes it or not, measurement is of primary value in the

academic marketplace. I fear that the ideas presented in this book will prove extremely

difficult to measure. Consequently, the problem of measurement must be tackled at some

point if the full potential of the theory presented in this book is to be realized.

In conclusion, this important book is neither an easy read nor a cookbook for a host of
quantitative studies. Nevertheless, it is rich in valuable ideas that must be carefully digested.

As possibly one of the most important books on strategy from a resource-based perspective

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ever written, it deserves to be read and re-read by all serious scholars in the fields of
entrepreneurship and strategic management.

REFERENCES

Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of
Management 17( I), 99-120.

Barney, J. B. (1997). Gainin and sustainin com etitive advanta e. Reading, MA: Addison-
Wesley.

Barney, J. B. (2001). Is the resource-based 'view" a useful perspective for strategic
management research? Yes. Academ of Mana ement Review 26(l),41-56.

Gartner, W. B. (1988). Who is an "entrepreneur?" is the wrong question. American Journal of
Small Business 12(4), 11-32.

Hofer, C. W., & Schendel, D. (1978). Stratef formulation: Anal tical conce ts. St. Paul,
MN: West Publishing Company.

9 .M.E.)1989).~Cii mk ~ Y R.NY:F 9
Priem, R. L., & Butler, J. E. (200la). Is the resource-based "view" a useful perspective for

strategic management research? Academ of Mana ement Review 26(l ), 22-40.
Priem, R. L., & Butler, J. E. (200lb). Tautology in the resource-based view and the

FII ) f* llfd«ad I:FE.A~df
Mm R i 26)l).8)-66.

Schumpeter, J. A. (1934). The theor of economic develo ment. Cambridge, MA: Harvard
University Press.

Selznick, P. (1957). I.eadershi in administration. Berkeley. CA: University of California
Press.

Snow, C. C., and Hrebiniak, L. G. (1980). Strategy, distinctive competence, and
organizational performance. Administrative Science uarterl . 25, 317-335.

James J. Cltrismuni» a Professor in the Entrepreneurship and Innovation Area, holder ofthe
Endow cd Professorship in Fafnily Bufiness Entrepreneurship, and the Director of the Centre

fi)r Fafnily Busmess Management and Entrepreneurship in the Faculty of Management of the
Univerfitv of Caltfary.

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