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
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?
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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, 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.

© 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 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
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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.
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.
6.
© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
Concentrating resources on key
strategic goals
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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
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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 6sigma quality and reduced defects from
60 per million to 40 per million.

© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
Accumulating resources
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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
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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 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
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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
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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