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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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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.
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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.
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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.
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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?
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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.
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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
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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.
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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)
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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.
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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)
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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.
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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.
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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.
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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.
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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.