Management: Doing most with least

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The Independent Online
TWENTY years ago, asked to pick winners out of General Motors or Toyota, Upjohn or Glaxo, Pan Am or British Airways, CBS or CNN, Philips or Matsushita, most of us would have bet on the first company in each pairing. This is because they had strong reputations, deep pockets and technological riches.

In short, they had resources. Yet if history teaches us anything it is that existing resources are a poor predictor of future industry leadership. A company can have many resources and squander leadership, or have few resources and attain it.

Companies such as NEC, CNN, Sony, Glaxo, Canon and Honda were united more by the unreasonableness of their ambitions and the creativity thereby engendered in the quest to accomplish the most with the least than they were by any common cultural heritage.

Indeed, what is often described as 'Japanese management' is simply the product of an enormous stretch between ambitions and resources.

For market leaders the problem is not having too many resources, but too little aspiration. Top management must stretch goals if it is to engender a creative search for leverage opportunities.

There are five fundamental approaches to resource leverage:

Concentrating resources. Leverage requires a strategic focal point on which the efforts of individuals, functions and business converge.

For nearly 20 years engineers at Matsushita's subsidiary JVC pursued the dream of creating a video recorder that could be sold for about dollars 500. They succeeded in the mid-1970s with the VHS standard.

Given limited resources, there is a limit to the number of key strategic initiatives available. Resources are leveraged when there is consistency in long-term strategic goals.

Accumulating resources. One approach to this is to maximise the learning extracted from employees day by day. Hence the emphasis of Japanese companies on quality circles and suggestion schemes.

Another cheap way of accumulating resources is to 'borrow' the resources of partners. Ford has done this successfully in its alliance with Mazda and other 'competitors'.

Complementing resources, or blending different types of resources together in ways that multiply the value of each. General Motors spends far more than Honda on automotive research, and may even have absolute scientific leadership in certain engine-related technologies. Yet all this is for naught if it cannot integrate them into a world- class engine. The capacity to harmonise skills, maximising the return on investment in each, needs generalists as well as specialists. As one Japanese manager puts it: 'Specialists cost you money, generalists make you money.'

Conserving resources. One approach to this is to recycle scarce skills across businesses and products. Canon exploits its imaging competencies, or expertise, in cameras, copiers, printers and other devices. But recycling is not limited to technology. Think of the leverage Sony gets when it applies its brand across a new product line.

Another way of conserving resources is to attack an enemy at its weakest point, rather than at its strongest. This can be termed a search for 'loose bricks'.

When Toyota decided to take on Mercedes in luxury cars, it attacked with the Lexus first in the US rather than in Benz's well-defended European home market.

Recovering resources. The quicker resources can be recovered once expended, the greater the resource leverage. This explains the obsession many companies have with shortening product development times. Any organisation that can do something twice as fast as its competitors with a similar resource commitment enjoys a twofold leverage advantage.

Although these are the categories of resource leverage, the opportunities for discovering new strategies for leverage under each are virtually limitless. This is not lean manufacturing, it is lean everything.

In too many companies managers use a false sense of resource constraints to justify a lack of strategic thinking. But being 'strategic' is not a matter of spending bigger or faster than rivals. Just look at GM and IBM - where did their deep pockets get them?

The secret of being strategic is finding every opportunity for resource leverage. It is not enough to get to the future first, one has to get there for less. Yet only when a company sets itself a goal that lies far beyond the reach of existing resources is the incentive created.

Gary Hamel is Associate Professor of Strategic Management at the London Business School.