STRATEGY Leveraging organizational resources

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STRATEGYLeveraging organizational resources
Suggested Reading Competing for the Future by
Hamel and Prahlad and articles on strategic
leverage
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Strategy and Leverage

• While strategy is long-term goal and deciding
  objectives related to marketing, procurement,
  financial, and selling areas,
• Leverage is doing more with less resources.
• Can you suggest a way to manufacture an I-Pod
  with limited resources?

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Compared to your competitors, if you organization
has more resources Spends more research and
development and Has more trained
employees, Does that mean that you are likely
to be strategically more successful?
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Doing more with less is called Leverage

• G.M. spends more on research than Honda Motors.
• Honda has come out with greater quality products
  than G.M.
• Philips spends more on research than Sony and
  yet, Sony is more innovative

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Successful strategy

• Is not assured because of availability of
  resources.
• Resources reflect past successes and not future
  leadership.
• Success depends more on vision, better products,
  and compatible sub-strategies.

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The common fallacy

• Company with more resources I have more
  resources than my competitors and therefore, I am
  more powerful is the mindset of larger companies.
• Company with less resources I have less
  resources and therefore, I must innovate more,
  offer the best products and compete better. I
  should outmaneuver rather than outpower.

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Strategic differences

• Resource-surplus firms Spend much on
  technology, RD, etc.
• But, they do not match with employee training,
  technology-absorption, or new product
  introductions.
• Result Not only are resources wasted but, too
  much of the unwanted can lead to serious problems.

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In contrast, less-resourced firm

• Exploit opportunities a niche market (Dell,
  Amazon)
• Focus more on core-competencies and doing more
  with less.
• Find alternative ways of doing things (Etrade,
  Dell), leaner manufacturing
• Less confrontational than bigger firms.

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What do we infer from this?

• There are no abundant resources.
• But, you can succeed by your own innovation
  (instead of imitation)
• Do not try to match dollar-for-dollar with your
  larger competitors. But,
• Work on other competitive advantages and
• Find out how you can match existing advantages to
  become strategically more competitive.

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INNOVATE

• Can a company offer a better product that
• Reduces manufacturing time
• Is less expensive to produce,
• Has fewer features than its competitors
• Just simple to operate and
• Yet capture market share?

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The message

• There is nothing wrong in aiming high.
• But, dreaming alone is not sufficient.
• But, dont also spread yourself thin and
• Fall down.
• Work on your strengths or
• Ascertain where your strengths lie.

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Now, what is strategic leverage

• Doing more with less.
• Creating strategic alliances (Wal-Mart)
• Building customer bases (Amazon)
• Transporting skills across business units.

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Before we can discus strategic leverage, we must
first understand what is resource-based view of a
firm
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Resource-based view of a firm

• A firms resources does not only refer to its
  financial abilities but
• A portfolio of resources that include
• Financial
• Technical
• Human
• And so on.
• These portfolio of resources focus is called
  Resource-based view of a firm.

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Importance of resource constraints

• Resource constraints are not necessarily an
  impediment to achieving success nor does
  abundance a ticket to success.
• Examples Amazon, E-bay (success with limited
  resources), or GE, GM, Westinghouse (abundance of
  resources and yet could not sustain success)

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What could explain the following

• Dell challenged HP and IBM
• Wal-Mart overtook Sears with limited resources
• Honda stole market share from GM with its quality
  power train.
• IBM challenged Xerox in copier business but
  failed.

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Dont measure success wrongly

• Efficiency and success should be measured by
  profits, revenue (the numerator) and
• Not by reducing investments (the denominator
  e.g. cost cutting through layoffs)
• Inefficiencies wont go away. Find the cause and
  improve technology leadership, brand loyalty, and
  customer relationships (British airways)

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The message

• Laying off employees or selling assembly plants
  is not innovative but
• Improving customer relationships, supply chains,
  product introductions is creative and shows
  managerial success.
• That is resource leverage is more important than
  resource allocation.

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Indicators of resource leverage

• A simple measure ratio of market share to the
  relative share of investment or resources (Ford
  versus GM).
• Revenue growth.
• It s not enough to get to the future first, one
  must also get there for less. Prahlad.

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How to achieve resource leverage

• Five basic items to focus
• On concentrating resources on key strategic goals
• By accumulating resources efficiently,
• On efficient use by complementing one resource
  with another
• On conserving resources where possible and,
• Earn resources back by spread between outflows
  and inflows.

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Concentrating resources on key strategic goals

• Every individual, function, and unit within an
  organization must concentrate on the same
  organizational goal.
• Everyone should know and understand core
  competencies, investment programs and
  organizational direction.
• Multiple goals and conflicting goals would
  undermine goals.
• Similarly, multiple focus will undermine strategy.

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The Komatsu example

• Komatsus strategy quality drive.
• Komatsu pointed out quality improvement comes at
  a cost (at least in the short-run), investment in
  production equipment, training, technology and so
  on.
• After it twice won the Deming price, it continued
  its focus on quality while increasing focus on
  product development, cost management, and value
  engineering.

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Remember Focus

• Is not an excuse for concentrating on one item
  while ignoring the others.
• It is more on setting priorities and putting
  resources to its best use.
• It is a preventive against diluting and
  dissipating resources.
• By focusing, Motorola established a 6-sigma
  quality and reduced defects from 60 per million
  to 40 per million.

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Accumulating resources

• Learning from experience (the fourth quadrant of
  balanced scorecard).
• Firms that constantly learn and could pick the
  gem from the pile of garbage succeeds.
• Just because your company is older and has been
  there longer, does not mean your firm is more
  productive and efficient.
• Often, an older dog does not learn new tricks.

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Borrow Resources to improve strategic leverage

• Borrowing joint ventures, alliances,
  sub-contractors, outsourcing (we will discuss
  these more during strategic implementation).
• In the West, they cut down trees and we build
  houses. A Japanese Manager.
• Sony built the transistor while Bell Labs
  pioneered it.
• Amazon knew what to do with the Internet.

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Complimenting Resources

• Another attribute of strategic leverage.
• Combine different types of resources to multiple
  the value technology, HR, financial and so on.
• Why couldnt GM or Ford create a power train than
  Honda in spite of their resource advantages?
• Possessing resources is different from blending
  those resources to advantage.

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Complimenting resources

• Whether it is product innovation or cost
  management, blending becomes essential.
• Example technology and business process
  analysis.
• Other examples Sony combines headphone and tape
  recorder to produce Walkman

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Complimenting Resources

• Many small companies with good products have
  these weaknesses.
• They are strong on product quality but weak on
  distribution or lack strategy, a good
  distribution arrangements, the marketing
  structure, etc.
• Although they can partner with firms having these
  resources, they will be better of developing them
  internally (greater control and bargaining power).

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Last but most important for resource leverage

• Reduce the time between expenditure outflow and
  revenue inflow
• A rapid recovery is a resource multiplier.
• In simple arithmetic, a firm with rapid recovery
  is twice better than its competitors.
• Example Detroit car makers (8 years to introduce
  a new model while Japanese, 4.5 years).
• Japanese manufacturers could recover their
  investments sooner than its US counterparts.

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The lessons we learnt

• Resources are scarce and use them with care.
• More resources does not mean more success.
• Multiply the limited resource base through
  creative approaches.
• Strategic leverage provides answers to many of
  these issues.