Vol.1, Issue 5, Sep - Oct 2003

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Creating Value with Strategic Resources

Luz Maria Puente and Hal Rabbino
Strategic Clarity

Why do people have such a difficult time identifying the resources that create value for their organization? Our experience shows that this difficulty stems from a lack of understanding of how resources act together to create value.

Most organizations are still structured around operating functions, such as finance, sales, production, marketing and logistics, which are static descriptions that say what each area is responsible for but not what it is supposed to do in relation to other areas. Each function is considered independent of the other areas.

Considering the organization in terms of its strategic resources helps the organization develop a dynamic, integrated perspective. With an integrated lens of how the multiple functional areas come together to create resources that are valuable for different stakeholders, the leadership team is more able to focus on the right resources to create value.

Luz Maria Puente and Hal Rabbino are consultants with Strategic Clarity, a strategy consultancy with offices in New Hampshire, Massachusetts, and Mexico. Their work focuses on helping strategic decision makers to clearly integrate the many different elements in their world better in order to raise their comfort and effectiveness in making complex decisions with their leadership team.
Luz Maria is also Vice President for the Institute for Strategic Clarity, a non-profit scientific research and educational organization that seeks to enhance the clarity with which decision makers in any organization understand, determine, and communicate the organization's strategic direction.

Strategic-Clarity
6 Ferndale Ave.
Andover, MA 01810
(978) 475-7278

http://www.strategic-clarity.com
http://www.instituteforstrategicclarity.org
Luzmap@strategic-clarity.com

We find that people gain greater clarity about how the resources in their functional area relate with those of other areas when we divide the organization's resources into two types, enabling and value-driving. Enabling Resources are the basic elements that the organization requires to do its work. There are five basic categories of Enabling Resources:

  1. Cash - the money that pays for the organization's functioning
  2. Human Resources - the number of people in the organization
  3. Relevant Skills - the competencies people bring to their work
  4. Technology - software, specific processes, know-how
  5. Physical Assets - offices, computers buildings, production facilities, vehicles
Each organization has access to the same Enabling Resources as their competitors. An organization differentiates its management of Enabling Resources by the level it has of each resource at any point in time and by the way they manage the resources over time.

Organizations use these Enabling Resources to accumulate the other type of resources that drive value for their customers, shareholders, and other stakeholders. We call this second type of resources Value-Driving Resources . These resources are often intangible, such as:

  1. Customer Service Satisfaction
  2. Supplier Satisfaction
  3. Product Competitiveness
  4. Profitability
  5. Brand / Image/ Prestige/ Reputation
  6. Employee Satisfaction
  7. Operational Efficiency
It is important that the leadership team be able to differentiate between these two types of resources in their organization and that they understand how these resources interrelate to create value for their stakeholders over time. We believe it is the leadership team's responsibility to manage the accumulation and usage of these strategic resources to create these types of values over time. Many times these resources are not identified as such in the organization and lead to dire consequences.

For example, a financial institution decided to cut payroll to reduce costs and increase profitability. Unfortunately, this action had detrimental side effects for the financial institution. By reducing the number of employees, the operational efficiency was reduced, decreasing the service quality and subsequently, in short time, customer satisfaction. This action also increased uncertainty for the remaining employees, affecting their motivation to promote the institution's products and to serve its customers. And, as if this were not enough, the institution lost relevant skills influencing its ability to generate profits in the mid-term.

An interesting thing happens in the leadership team when they begin to distinguish between Enabling Resources and Value-Driving Resources . It turns out that often there is nobody in the organization directly responsible for Value-Driving Resources (i.e., service quality in the above example), and all areas affect and are affected by them!

Additionally, there is in many cases a subtle, yet powerful, disconnect in management's understanding of how the Value-Driving Resources relate with each other and with the Enabling Resources. In the case above, management assumed that they could cut overhead without affecting any other aspect of the organization. This was a costly assumption. Managers also tend to think that they can influence Value-Driving Resources directly. For example, invest in customer service and it will improve. The big "a-ha" comes when they realize that they can only act at the level of the Enabling Resources .

We have developed a framework called "Managing from Clarity" to help managers identify enabling and value-driving resources, and to structure the organization to manage the complexity of these strategic resources more effectively.


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