It is easy, when planning and making strategy, to overlook the fact that in order to make any strategy work, resources will be required. Too often companies either assume that the necessary resources will be found when needed, or underestimate the level of resources needed, or both.
In fact, as both experience and theory show, resource planning is an essential part of strategy making. This is important for two reasons. First, lack of necessary resources can cripple a strategy and even force its abandonment. And second, and perhaps even more importantly, having the right strategic resources can itself be a source of competitive advantage.
Let us start with the first point. The history of business is full of disasters caused by firms and entrepreneurs setting out on ambitious strategies which they had not the resources to finish. Take for example the case of the French entrepreneur Ferdinand de Lesseps, builder of the Suez Canal. In 1869 when the canal was completed, Lesseps was named by the president of France as ‘the greatest Frenchman of our time’. Many attempts to dig a canal across the Isthmus of Suez had failed, through lack of money and manpower. But Lesseps raised money from banks and on the stock market, and recruited some of Europe’s best engineers. He had enough money, enough men and enough equipment to get the job done.
But ten years later when Lesseps tried to build a canal across Panama, the story was different. This time, Lesseps failed to estimate correctly the amount of money and manpower that would be required. It soon became clear that he did not have, and would never have, the resources to complete the task. Landslides and disease killed thousands of his workers. Vital supplies and equipment failed to arrive, often because they could not be paid for. In the end investors accepted the inevitable and withdrew their support, and Lesseps went bankrupt.
Of course we do not have to go as far back as the Panama Canal to find similar examples. In more recent times companies such as Dutch supermarket group Royal Ahold and Canadian telecoms company Nortel launched ambitious expansion projects which turned out to be under-resourced and under-funded. Both ran into trouble as a result. And we can all think of ambitious banks that expanded by acquiring rivals and then, burdened by the ensuing debt, came to grief when the financial crisis struck.
There are plenty of small-scale examples around us too. Watchers of television programmes such as Property Ladder and Grand Designs will recall how many – indeed, most – of the home building and renovation projects featured on these programmes start with the owners hugely underestimating the time, money and other resources that will be required for completion. They then struggle to complete the job, and often end up hugely over budget and in debt. The old adage when estimating the cost of building works, ‘think of a number, double it, and then add 10 per cent for contingency’, does not seem to have been heard of by many of the people appearing on these shows.
The concept of ‘resources’ includes much more than money. The American academic Jay Barney, writing in the Journal of Management in 1991, argued that when planning, managers need to think about three types of resource. These are (1) physical capital resources, including money but also technology, plant and production capacity, distribution capacity and so forth; (2) human capital resources, meaning the right people with the right sets of skills, and (3) organisational capital resources, including a range of factors from stocks of organisational knowledge and information to organisational structure and even organisational culture.
Most of these resources are not easy to acquire. In fact, money is one of the easiest. Others take time to develop. Barney argues that most companies develop sets of resources that are particular to themselves, often for historical reasons. Over time, they become good at doing certain things. Kodak, for example, became very good at making, distributing and selling cameras and film, to the point where its brand became synonymous with camera film in some parts of the world. As the core business grew, Kodak developed the necessary resources to support both the existing business and future expansion.
When the digital camera revolution commenced, Kodak was caught in a classic strategic dilemma. Should it stick to its core business and continue to do what it did best, or should it change its strategy to accommodate changes in the environment? Conventional wisdom says the companies in this position should do the latter, but this can be equivalent to changing horses in midstream. A complete strategic shift to digital camera technology would have required Kodak to abandon its hard-won expertise and knowledge, and make large and risky investments in completely new areas.
In fact, Kodak opted for the best of both worlds, investing in new technology and leveraging its existing skills and knowledge to good effect. For example, Kodak developed a range of digital cameras with its own very high-quality lenses and camera operating systems, which were successful and much admired by professional photographers in particular. In his 2005 book The Next Global Stage, Japanese strategy guru Kenichi Ohmae argued that this kind of leveraging of existing resources – money, yes, but also skills and competences and organisational strengths - is vital to achieving competitive advantage.
What kinds of resources should a firm be seeking to develop? Jay Barney argues that the most important resources have three qualities. First, they are valuable, not in the sense of intrinsic value but rather because they have the capability to add and create value for customers. Second, they are rare; few if any competitors have access to them. Third, they cannot be easily imitated, meaning that competitors cannot quickly develop similar resources of their own.
Viewed in this light, it can be seen that the most important resources a business can have are its knowledge and skills and experience of doing things well: what C.K. Prahalad and Gary Hamel, in their book Competing for the Future, referred to as ‘core competencies’.
Money is not the only thing required to make a strategy work: one cannot spend one’s way to a successful conclusion. Successful implementation of a strategy requires a variety of resources. It also requires resource planning: the company must either have the requisite resources and know how to use them, or else plan carefully how and when it will acquire resources and what the cost will be.
Again, this is true of any project, whether renovating a house, digging the Suez canal, designing and installing an IT system or taking over a bank. Without the right resources, little can be done, and what is done will be done cheaply and badly and will probably fall apart very soon after.
When making strategy, then, it is not sufficient to determine a strategy and then work out what resources will be required to implement it successfully. Consideration of current available resources should be one of first steps in strategic thinking, not the last. What the business has, what it can do, what its competencies are: these are factors that help to determine what a company can achieve – and even more importantly, show the limits of possibility and define what it cannot achieve. Ferdinand de Lesseps fail to do this, and watched his fortune and his reputation disappear into the Panama mud. We need to avoid the same fate.
