strategy leveraging organizational resources suggested reading: competing for the future by hamel...

STRATEGYLeveraging organizational resources

Suggested Reading: Competing for the Future by Hamel and Prahlad and articles on strategic leverage

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?

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?

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

© 2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.


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.


Strategic differences

Resource-surplus firms: Spend much on technology, R&D, 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.


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.


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.

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?


The message

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


Now, what is strategic leverage

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

units.

Before we can discus strategic leverage, we must first

understand what is resource-based view of a firm


Resource-based view of a firm

A firm’s 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.”


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)


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.


Don’t 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 won’t go away. Find the cause and improve technology leadership, brand loyalty, and customer relationships (British airways)


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.


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.


How to achieve resource leverage

Five basic items to focus:1. On concentrating resources on key strategic

goals

2. By accumulating resources efficiently,

3. On efficient use by complementing one resource with another;

4. On conserving resources where possible; and,

5. Earn resources back by spread between outflows and inflows.

6.


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.


The Komatsu example

Komatsu’s 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.


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.


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.


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.


Complimenting Resources

Another attribute of strategic leverage. Combine different types of resources to

multiple the value – technology, HR, financial and so on.

Why couldn’t 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.


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


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).


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.


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.

strategy leveraging organizational resources suggested reading: competing for the future by hamel...

Documents

success slide

firm slide

firms resources

strategic leverage slide

innovative slide

resources ford

organizational resources

availability of resources