Post on 31-Mar-2015
transcript
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.
© 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
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.
© 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.
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?
© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
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.
© 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.
Before we can discus strategic leverage, we must first
understand what is resource-based view of a firm
© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
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.”
© 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
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)
© 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. 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.
© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
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
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.
© 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 6-sigma 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, 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.
© 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 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.
© 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.