Strategy Dynamics Briefing 16: What drives gains and losses of resources?

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I hope we have now made a pretty solid case for the first two parts of the core strategy dynamics framework:

  • Performance at any time of any organization depends on the levels of resources in place at that time
  • Resources accumulate and deplete over time – mechanisms that therefore cause performance to change over time

We got to these principles by repeating relentlessly the question ‘What causes what?’ So the next logical question is… ‘What causes the rate at which resources are won and lost?

Answering this question will bring us shortly to the final part of the theory and thus complete the core ‘strategic architecture’ for a business or other organization – a rigorous, quantifiable, diagrammatic representation of the structures causing performance to change over time.So – what doescause the rate at which resources are won and lost? Just three clear kinds of factor are involved:

  • Certain management decisions. We decide, for example, how many people to hire, how much capacity to add, and how many products to launch from period to period.
  • External factors. Competitive issues are the obvious category here, such as price levels or product improvements which may steal our customers. More general market factors are also influential, though. Increasing disposable income for consumers, for example, may cause them to become customers for goods and services that they previously could not afford.
  • Existing levels of resources. This turns out to be the third and final piece of the theory we have been building, and we will have much more to say about this in the next few briefings.

Let’s just look at the first of these items in a bit more detail.

How Management Decisions drive resource flows

It would be neat if all resource flows could be determined directly by management, i.e. we get exactly what we want, the minute we ask for it. Want 100 more customers next week? – so send an email to make it so! Unfortunately, of course, that isn’t possible. It is possible, however, for some kinds of resources. For example, a transportation firm can generally decide directly how many additional vehicles to add to its fleet. Unless there was suddenly a worldwide shortage of the particular vehicle type required, that decision will simply happen. Similarly, many companies can decide how many products to discontinue, or how much capacity to shut down.

Others’ decisions may be wished-for, but be moderated by other factors. You may want to hire 50 people each month, and set your human resource department the task of getting these people, but though you may interview 200 people, and offer 50 jobs, you can’t be exactly sure whether 50 people will accept, or 30 or 80.

Other decisions have much more unpredictable impacts on resource flows, the most substantial example being customer acquisition. As indicated above, while you may wish to add 50 customers in any year, that rate is ultimately in their gift, not yours, and is strongly moderated by factors outside your direct control. Marketing spend may build awareness and understanding among possible customers, a price cut may increase their perceptions of value, and sales effort may be sized to target a known number of possibilities. However, whether these factors will bring in 50, 10 or 100 new customers—or none at all—is rarely certain.

The figure below shows this spectrum of influence that management has over the rate at which resources are won – from almost total, immediate control, to indirect and uncertain influence.

Diagram: Control vs Influence

In the next few briefings we will go on to look at how existing resources help or undermine efforts to develop other resources into the future. We will return to the impact of external factors – especially competitors – later.

Until next time…

 

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When you ‘step on the gas’ and nothing happens…

You may find that the degree of control you have over the capture and retention of key resources changes, sometimes suddenly and surprisingly.

Law firms, for example, depend on hiring each year enough newly qualifying lawyers with the skills they need. Normally, well-established firms can be reasonably confident of getting these hires, but that was not the case on one occasion for one particular firm.

Strategic Management Dynamics book coverThis firm regularly received about 300 applicants each year, to whom it would offer 100 positions, and expect to hire 50 people. It was surprised one year, though, when applications fell to only 80 and it managed to hire only a small fraction of the staff it needed. After worrying for some time about how this disaster had occurred, the leadership was mortified to learn that they had brought this problem on themselves. In the year in question, the firm had merged with another and changed its name. Whilst it had taken great trouble to publicize and promote this change amongst its clients and potential clients, it had neglected to communicate to the ‘market for talent’ – so the young graduating lawyers simply did not recognize the new firm’s name among the list of recruiters!

This briefing summarises discussion from chapter 3 of Strategic Management Dynamics,
pages 142-145

Read more about the book on our website

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