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STRATEGY Leveraging organizational resources

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Title: STRATEGY Leveraging organizational resources


1
STRATEGYLeveraging organizational resources
Suggested Reading Competing for the Future by
Hamel and Prahlad and articles on strategic
leverage
2
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?

3
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?
4
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

5
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.

6
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.

7
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.

8
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.

9
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.

10
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?

11
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.

12
Now, what is strategic leverage
  • Doing more with less.
  • Creating strategic alliances (Wal-Mart)
  • Building customer bases (Amazon)
  • Transporting skills across business units.

13
Before we can discus strategic leverage, we must
first understand what is resource-based view of a
firm
14
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.

15
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)

16
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.

17
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)

18
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.

19
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.

20
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.

21
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.

22
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.

23
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.

24
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.

25
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.

26
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.

27
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

28
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).

29
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.

30
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.
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