Strategy Dynamics Briefing 10: Defining, Specifying and Measuring Tangible Resources

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What would be a useful checklist of tangible resources?… customers, products, production capacity, staff and cash.

Since organizations exist to “supply” some form of “demand,” let’s look at demand-side resources first…

The most obvious resource on the demand side of the relationship is “customers” – or clients, users or other terms, depending on the industry. Two important issues to consider are, first, that customers may come in multiple varieties (think consumer/business for telecoms, or leisure/business customers for hotels). Secondly, a company may supply one set of customers, who then have further customers of their own, and these may in turn have further customers. Whilst only the first group is strictly the company’s set of “customers” the other parties downstream in the chain are critical to driving the company’s sales. For a consumer brand such as Coca-Cola or Proctor & Gamble, the direct customers are retailers, such as Wal-Mart or Tesco, who then sell to consumers. So a full explanation of business performance requires information on final customers as well as about the direct customers or intermediaries involved.

Demand-side architecture for a consumer brand company.

Other special cases include:

  • not-for-profit organizations, where “demand” still comes from individuals or groups served by the organization
  • organizations that must serve the needs of two distinct groups, e.g. newspapers serve readers and advertisers, or eBay who must satisfy both buyers and sellers
  • commodity markets, such as oil or agricultural products – where there is sometimes no identifiable customer

For “durable goods”, the customer resource is best described as an “installed base” – sales come from the rate at which new customers arrive, not from continuing existence of these customers. [Strictly, the installed base describes the goods themselves, rather than the owners]. Depending on the product it may be easy or difficult to keep in touch with the people who own the product – your sofa, for example does not need an annual service whilst you would be careless not to send your car to be checked over! In some cases, the installed base continues to generate a separate flow of sales, either from service (e.g. cars, elevators or aircraft engines) or from “consumables” (e.g. ink for printers or games for games consoles). The bottom line, though, is that in some way or other, sales nearly always depend directly on customer numbers.

SUPPLY-SIDE RESOURCES

All organizations need some form of production or service capacity – manufacturing capacity, shelf space in stores, airlines’ aircraft and seats. In some cases, capacity consists of people who provide service capacity, and this is a common feature of many public services and voluntary organizations. Organizations also need staff to undertake the various functions that have to be fulfilled (e.g. marketing, sales, product development, support, accounts and administration to name just a few). For a full analysis it is therefore helpful when thinking about staff to check that everyone associated with the organization’s “capacity” resource has been covered.

Next, all organizations have some range of products or services that they provide. If the range is too limited, they may miss out on substantial groups of consumers: too wide, and the sales they achieve may be fragmented into uneconomically small amounts. Product range can take a variety of forms – for airlines, it is the routes served, and for a TV or radio channel, it is the range of programs broadcast. Whatever its form, though, the range of products has implications for the numbers and skills of people needed to deliver them.

Although not directly associated with “supply” of products and services to customers, cash is an important resource that enables the other supply-side resources to be developed. It is important to note that cash has a negative counterpart – debt – that drives the cost of interest payments. However it is not always essential to include cash in the strategic analysis unless

  • the organization is in financial difficulties
  • the strategy requires costly initiatives
  • the organization concerned is a new venture, which has access to only a limited pool of potential cash to fund its development

It might seem puzzling that “suppliers” themselves are not listed as a universally important factor. Supply can be a constraint in certain circumstances, usually where the physical source itself is limited. Some organizations – Toyota is a good example – have also made a powerful platform for their own performance by developing close relationships with supplier. In either case, it would be appropriate to include them in the analysis.

SUPPLY-SIDE RESOURCES

This table summarizes how the most common categories of tangible resources might appear for certain businesses. The list includes two items—intermediaries and cash—that may need to be added in a significant number of cases.

THE MOST COMMON TANGIBLE RESOURCES IN STRATEGY ANALYSIS
Tangible resource Coffee shop chain Law firm
Start-up airline Consumer brand
Demand-side Customers Consumers Clients Customers Consumers
Intermediaries Retailers
Supply-side Capacity Stores Professional staff Aircraft
Staff People Service staff Sales force
Product range Products Legal services Routes offered Brands offered
Suppliers Airports
Cash cash
(Italic indicates additional resources that may be important in some cases)

This table should provide a useful checklist for most situations.

Doing it right: give resources their proper names

To be useful for explaining performance and developing strategy, each resource will need to be used to calculate other items, so they must be properly defined. The most important guideline for this purpose is to specify a measurement for any resource in its own physical terms – do not use some proxy instead. “Staff” are people, “customers” are people or organizations, a “product range” consists of actual products or services. Using abstract terms makes it hard to quantify resources and to calculate or estimate their impact on other parts of the system.

The occasional exception to this rule concerns “capacity” which can arise from a complex mix of physical items and activities. This may mean that you have to define and measure “capacity” in terms of the potential output, e.g. a chemical plant’s physical capacity consists of its vessels and pipe-work, but it is more useful for strategy purposes to measure it in ‘tons per day’.

Until next time…

 

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SWOT analysis

If you have had any kind of general business course you have probably come across SWOT analysis—Strengths, Weaknesses, Opportunities and Threats. Whilst considered by many to be an outdated and simplistic approach, most managers still think of SWOT first when asked how they would go about assessing their strategy. So how can a resource appraisal clarify to a firm’s SWOT analysis?

The SWOT framework splits naturally into two halves:

Opportunities and Threats: features of the external environment, mostly competitors and other external pressures. Two formal methods in particular deal with these issues – analysis of the “five forces” of the competitive environment (competitors, customers, new entrants, substitutes, and suppliers) and analysis of “PEST” factors (political, economic, social, and technological forces).

Strategic Management Dynamics book coverStrengths and Weaknesses on the other hand are features of the firm itself, relative to competitors and success factors in the market, and have a closer connection with a resource-based approach. Strengths and weaknesses can be evaluated in terms of resources and capabilities that the firm has, or needs, for its system to work. These can then be compared to levels or qualities of resources available to actual or potential rivals.

We can therefore add to a SWOT analysis by carrying out a quantified, fact-based analysis of resources, including an evaluation of their relative strengths and weaknesses.

This briefing summarises discussion from chapter 2 of Strategic Management Dynamics, pp 95-110

Read more about the book on our website

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