Reliance on only one dominant mode leads firms to believe that their success depends on working hard at implementing that mode. Business leaders often blame poor implementation when their firms struggle in the effort to add new resources. More than half of the 162 telecom firms we surveyed flagged implementation—particularly the lack of personnel and skills (67 percent) and an inability to integrate external resources effectively (50 percent)—as the primary cause of problems.
But the blame is misplaced. The real culprit is an ineffective process for selecting the right paths for obtaining resources. Sticking to a familiar or popular path may work in the short term. But in the long term, the implementation trap becomes a self-reinforcing cycle, with each new resource an occasion for continuously improving implementation of the wrong activities. To be sure, firms that fall into the trap do end up doing the wrong things quite well. They then become deeply frustrated when they struggle competitively. Assuming that the cause is implementation perpetuates the problem.
Instead, executives must think carefully about the important work that precedes implementation: the disciplined process of selecting the best way to obtain new resources. Firms that select the best path integrate new resources more quickly, cheaply, and effectively than do competitors. Our telecom study revealed that firms using multiple modes to obtain new resources were 46 percent more likely to survive over a five-year period than those using only alliances, 26 percent more likely than those using only M&A, and 12 percent more likely than those using only internal development.
Of course, some companies invest considerable time and effort in their build-borrow-buy decisions. Throughout the book, we will draw on many of the firms we have studied, including well-known companies from around the world. But even leading firms can make mistakes, sometimes rushing into deals without thoroughly exploring the implications, or succumbing to internal or external pressures to favor one pathway over another. The discouraging results of such lapses remind the firms to reassert the necessary discipline. Let’s look now at what that discipline involves.
Finding Your Resource Pathways
The resource pathways framework allows you to compare the potential benefits and risks of all the possible sourcing modes and, ultimately, select the best option for obtaining needed resources. In devising the framework, we’ve assumed that your firm has developed its corporate strategy and identified its resource gaps—whether through structured planning activities or other more ad hoc processes. Nonetheless, the sidebar “Recognizing Resource Gaps” highlights problems that can arise if that work has not been done properly. As a useful preliminary, you may want to revisit initial strategic planning activities and confirm that identified resource gaps and targeted resources align well with your firm’s broader strategy.
RECOGNIZING RESOURCE GAPS
The old adage about errant computer data—“garbage in, garbage out”—applies to the challenge of correctly identifying resource needs. It’s unproductive to follow the right pathway to the wrong resources. Consequently, you need to make sure you target the right resources.
Companies sometimes stumble at the initial stage of targeting the right resources for the strategy they have set, especially when they have enjoyed great success in a dominant core domain. When it comes time to pursue a new strategy, with a new product line or in a new market, companies’ past habits and expectations may lead them to misjudge the needed resources. Ingrained competencies, entrenched processes, and the power of existing brands can impede a clear-eyed assessment of resource gaps—particularly when the gaps result from disruptions in the competitive environment or from emerging fields or markets.
A prototypical example of this type of failure occurred when successful producers of steam locomotives responded to new diesel and electric locomotives by producing the most advanced, cost-competitive steam locomotives ever seen. Despite their hard work, these once-famous companies disappeared into the mists of business history, seen only thereafter on the logos of toy trains.
More recently, both Nokia and Research In Motion have struggled to respond to advances in consumer smartphones. Both companies overvalued the relevance of their existing internal resources in responding to advances from Apple, Google, HTC, and Samsung. Each has lagged badly in the smartphone market.
A form of myopia prevents companies from seeing that their existing core resources are unequal to the competitive demands of the moment—a problem caused by misaligned resource-management strategies. Consider what happens when management is properly aligned. In the locomotive example of the early twentieth century, a few steam locomotive producers—perhaps most notably Siemens—recognized the opportunity to build on their existing resource base by allying with firms possessing expertise in diesel and electric technologies. They became leaders in the new field because they targeted the right resources—the ones they lacked internally but recognized as core to their future survival. Likewise, in the smartphone market, Samsung combined internal development with focused alliances to take a leading position in Android-based systems.
New competitive realities often call for radically different resources. If your company fails to understand what resources it needs to compete in the future, it makes little difference what pathway you take to obtain them. If you have doubts about which resources your company needs to achieve its goals, your first step should be to use your company’s strategic planning process to identify key resource gaps.
Assessing the Different Resource Pathways
The framework focuses on resources you deem to be strategically important—those that, when added, will either reinforce your existing competitive advantages or lay the groundwork for new ones. We will continue to stress the question of strategic importance, because it will help you think about how much to invest in resources that turn out to have less strategic value than you initially believed.
Four questions frame the selection of the different pathways (internal development, basic contracts, alliances, and acquisitions). These questions derived from our field interviews and work with firms across various industries and countries. We validated the relevance of the four criteria through a large-scale survey that we administered within the global telecommunications industry and through subsequent discussions with executives in many industries and countries and with our MBA and executive MBA students. Figure 1-1 illustrates the resource pathways framework as a decision tree addressing the four key questions.
FIGURE 1-1
The resource pathways framework as a decision tree
Although the questions are general enough to address most contexts, we offer additional detail throughout the book to help you tailor your own decisions to your company’s particular circumstances. The balance of this chapter summarizes the four key questions that will guide your path selection.
Question 1. Are Your Internal Resources Relevant?
Can you leverage existing company resources to satisfy new needs? Developing new resources internally is often faster and more effective than obtaining them from third parties. But this strategy is viable only when internal resources (knowledge bases, processes, and incentive systems) are similar to those you need to develop and superior to those of competitors in the targeted area. If so, your internal resources are relevant.
Often, existing resources will not be relevant. For instance, most traditional publishing firms’ legacy print-media resources were so far removed from digital media that publishers had to bring in outside resources through acquisitions and partnerships—often after trying without success to have inside staff learn the ropes.
Likewise, a global investment bank recently sought to develop a private-equity business in Eastern Europe. The CEO of the country unit first assessed whether internal