strategy leverage

7/31/2019 Strategy Leverage

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STRATEGY

Leveraging 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 anddeciding objectives related to marketing,procurement, financial, and selling areas,

Leverage is doing more with lessresources.

Can you suggest a way to manufacturean 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 thanHonda Motors.

Honda has come out with greater qualityproducts than G.M.

Philips spends more on research than

Sony and yet, Sony is more innovative


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2003 Simchi-Levi, Kaminsky, Simchi-Levi

Successful strategy

Is not assured because of availability ofresources.

Resources reflect past successes andnot future leadership.

Success depends more on: vision, betterproducts, and compatible sub-strategies.


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The common fallacy

Company with more resources: I havemore resources than my competitors andtherefore, I am more powerful is the

mindset of larger companies.

Company with less resources: I haveless resources and therefore, I must

innovate more, offer the best productsand compete better. I shouldoutmaneuver rather than outpower.


7/30 2003 Simchi-Levi, Kaminsky, Simchi-Levi

Strategic differences

Resource-surplus firms: Spend much ontechnology, R&D, etc.

But, they do not match with employeetraining, technology-absorption, or newproduct introductions.

Result: Not only are resources wastedbut, too much of the unwanted can leadto serious problems.



In contrast, less-resourced firm

Exploit opportunities a niche market(Dell, Amazon)

Focus more on core-competencies anddoing 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 yourlarger competitors. But,

Work on other competitive advantages and

Find out how you can match existingadvantages to become strategically morecompetitive.


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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?



The message

There is nothing wrong in aiming high.

But, dreaming alone is not sufficient.

But, dont also spread yourself thin andFall 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.


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Before we can discus strategic

leverage, we must firstunderstand what is resource-

based view of a firm



Resource-based view of a firm

A firms resources does not only refer toits 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 notnecessarily an impediment to achievingsuccess nor does abundance a ticket to

success.

Examples: Amazon, E-bay (success withlimited resources), or GE, GM,

Westinghouse (abundance of resourcesand yet could not sustain success)



What could explain the following

Dell challenged HP and IBM

Wal-Mart overtook Sears with limitedresources

Honda stole market share from GM withits quality power train.

IBM challenged Xerox in copierbusiness but failed.



Dont measure success wrongly

Efficiency and success should be measured byprofits, 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, brandloyalty, and customer relationships (Britishairways)



The message

Laying off employees or sellingassembly plants is not innovative; but

Improving customer relationships,supply chains, product introductions iscreative and shows managerial success.

That is resource leverage is moreimportant than resource allocation.



Indicators of resource leverage

A simple measure: ratio of market shareto the relative share of investment orresources (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 betweenoutflows and inflows.

6.



Concentrating resources on key

strategic goals

Every individual, function, and unit within anorganization must concentrate on the sameorganizational goal.

Everyone should know and understand corecompetencies, investment programs andorganizational direction.

Multiple goals and conflicting goals wouldundermine goals.

Similarly, multiple focus will underminestrategy.



The Komatsu example

Komatsus strategy: quality drive.

Komatsu pointed out: quality improvementcomes 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, itcontinued its focus on quality while increasingfocus on product development, costmanagement, and value engineering.


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Remember: Focus

Is not an excuse for concentrating onone item while ignoring the others.

It is more on setting priorities andputting resources to its best use.

It is a preventive against diluting anddissipating resources.

By focusing, Motorola established a 6-sigma quality and reduced defects from60 per million to 40 per million.


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Accumulating resources

Learning from experience (the fourth quadrantof 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 ismore 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 discussthese more during strategic implementation).

In the West, they cut down trees and we buildhouses. A Japanese Manager.

Sony built the transistor while Bell Labspioneered 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 tomultiple 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 fromblending those resources to advantage.


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Complimenting resources

Whether it is product innovation or costmanagement, blending becomesessential.

Example: technology and businessprocess analysis.

Other examples: Sony combines

headphone and tape recorder to produceWalkman


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Complimenting Resources

Many small companies with good productshave these weaknesses.

They are strong on product quality but weak

on distribution or lack strategy, a gooddistribution arrangements, the marketingstructure, etc.

Although they can partner with firms havingthese resources, they will be better ofdeveloping them internally (greater control andbargaining power).


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Last but most important for

resource leverage

Reduce the time between expenditure outflowand revenue inflow

A rapid recovery is a resource multiplier.

In simple arithmetic, a firm with rapid recoveryis twice better than its competitors.

Example: Detroit car makers (8 years to

introduce a new model while Japanese, 4.5years).

Japanese manufacturers could recover theirinvestments sooner than its US counterparts.


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The lessons we learnt

Resources are scarce and use them withcare.

More resources does not mean moresuccess.

Multiply the limited resource basethrough creative approaches.

Strategic leverage provides answers tomany of these issues.

strategy leverage

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