This is “Problems Caused by Resource Attributes”, section 6.3 from the book Business Strategy (v. 1.0). For details on it (including licensing), click here.
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6.3 Problems Caused by Resource Attributes
Understanding resource attributes and how to manage them gives you still more control over the performance you can develop from your business architecture. But you also need to be conscious of the troubles they can cause. Some of the most common challenges that attributes produce are as follows:
Resources only bring access to other resources, which means that you still have to work to develop them. In Figure 6.4 "Dilution of Average Client Quality", your restaurant attracted new customers and you immediately enjoyed new sales. But such immediacy does not always apply. Sometimes resources bring with them only potential resources that we then have to develop if we are to turn them into active resources. A new product may bring with it the possibility of serving the needs of many new customers, but we still have to develop these customers. A newly appointed dealer may provide access to new end users for our products, but that dealer still has to sell the benefits to them before they will become active users.
Potential resources can dry up. I mentioned in Chapter 3 "Resources and Bathtub Behavior" that managers can easily be blind to the drying up of potential resources; now we have the further problem that any resources that do remain are likely to be of poorer quality too. This challenge of diminishing returns is often simply ignored. It is more comfortable to assume that the great opportunity associated with the early expansion of our business is going to continue on the same attractive trajectory.
Cannibalization can set in. To these two problems we must add a third: cannibalization. There will come a point when new routes opened by an airline start to divert active passengers away from existing routes. Leisure travelers in particular select from a range of possible destinations, so if you add a new one, some people will probably migrate to the new offering. The bigger you get, the more this is going to happen. So resource items that were originally high in quality deteriorate as you take more away from them.
Action Checklist: Upgrading Your Resources
As you assess how your organization is doing and where it may be capable of going, extend your thinking beyond the quantity of resources that you have and can win and focus on their quality. Obvious resources to view in this way include customers, staff, and products.
- Consider the attributes of the resources you currently have. What exactly is the quality of each resource, and how is this quality distributed? Do you have a uniformly valuable group of key staff, products, or customers, for example, or do you rely on a handful of stars?
- Find out how those qualities are changing. Are your customer base and revenue growing but only through the addition of low-value business? Or are you making inroads into really good-quality customers? At what rate do you hope to improve that quality over time and to what level?
- How healthy are your resources overall? Do you have low-value customers, marginally valued products, and staff working unproductively to support these poor-quality resources? If so, you may have to consider rationalizing the whole system to a smaller but more powerful and competitive core.
- Consider potential resources. Are you focusing on building business with a new potential resource, but failing to capture that potential? Or is there an opportunity to use new markets or products, that bring with them the chance to reach out to new customers?
- Finally, be sure you are not approaching any quality problems. Is any potential resource in danger of running out? Are resources declining in quality? Is there a danger of resources cannibalizing each other? If any of these problems are approaching, can you do anything to escape their grip, or do you have to recognize the resulting limits and begin reconfiguring your organization?
Remember, the only way to understand what these phenomena really mean for your organization is to work out the numbers.