STRATEGY Leveraging 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

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.
2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.
2003 Simchi-Levi, Kaminsky, Simchi-Levi

In contrast, less-resourced firm 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.
Exploit

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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, dont also spread yourself thin and Fall down. Work on your strengths or Ascertain where your strengths lie.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Now, what is strategic leverage

Doing

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

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Before we can discus strategic leverage, we must first understand what is resourcebased view of a firm

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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)
2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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)

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

How to achieve resource leverage Five basic items to focus:

1.

2. 3.

4.

5.

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.
2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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 6sigma quality and reduced defects from 60 per million to 40 per million.
2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Borrow Resources to improve strategic leverage

Borrowing joint ventures, alliances, subcontractors, 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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.
2003 Simchi-Levi, Kaminsky, Simchi-Levi

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
2003 Simchi-Levi, Kaminsky, Simchi-Levi

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).

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.

2003 Simchi-Levi, Kaminsky, Simchi-Levi

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.
2003 Simchi-Levi, Kaminsky, Simchi-Levi