In the competitive world of business, you can’t really have sustainability without innovation. Businesses that stagnate are left to the wolves, abandoned by customer for brands with a better value proposition. Its grow or fail; there’s no staying in your lane on cruise control.
Business owners know this, of course. By nature, they’re the type to want to improve their lot, anyways. But business, predictably, is busy. Its also complicated. Growth takes many forms, some of which are easy to overlook. But some of these opportunities can be identified by assessing your Resource Dependency.
Becoming dependent on a single party for any given resource can put your business in a bind. For one, it puts you at great risk, should that party ever pull the plug on you (or go belly up). The element of risk leaves you at their mercy. Even if they are a trusted party, they can be unintentionally holding you over the barrel — because the second way that this dependence hurts you is by limiting innovation and adaptability.
Solving dependence problems
The antithesis to single party resource dependence, naturally, is diversifying your resources. The more diverse you are, the more innovative your ideas will be, and the more adaptable your company will be as a whole. Additionally, you don’t have to worry about being crippled by a single piece of the puzzle falling out of place.
So let’s take a look at the major resources at play. This might be a little uncomfortable to look into, at first. But growth requires more than hard work and brainstorming; it requires that we look into areas that are uncomfortable to look into. As such, this needs to be a fearless inventory. So proceed with vigor.
Your major resources are your people (employees, managers, executives, everyone —including you),your suppliers and strategic partners, and your customers. Even your marketing strategies can be analyzed this way, leading to insights about your general attitude, as a company, toward marketing
People as a resource
On the Resource Dependent end of the spectrum, most of your people are fairly replaceable. As such, they are not large contributors to innovation and are not invested in improving the company’s sustainability. They have insight into company weaknesses at their level of the organization, but as insignificant players, their ideas carry less weight.
They are all held up on the shoulders of a few who are indispensable to the survival of the company. If one of these few fails or falls out, all suffer, because chaos ensues. Additionally, all initiative comes from the same few. This decentivizes a culture of innovative thought and limits the pool of available ideas.
When your team is diverse, you have many different perspectives, and they’re all big contributors. Even though every person is integral, only a small (not crippling) impact is felt and adjusted for should somebody miss a day of work, or exit the company. There is little to no bureaucracy occurring, because nobody can intentionally or unintentionally hold the company over the barrel.
Just as importantly, free thought becomes an every day norm and the pool of ideas expands. The company is adaptable and free to pivot on any valuable idea. Opportunities for improvement are found at every level of the organization.
To become more diverse, you need to understand who is indispensable to company, and how that status can be mitigated. Consider yourself in this, as well. You might be doing too much, because you’re scared to trust somebody else, or simply haven’t considered the upside to handing off some of your duties. You might need to pay somebody more money, but you can use the extra time to do whatever provides the most value to the company.
As a bonus, the company will be more secure, and you’ll be less relied upon. Maybe then, you can even just sell the company. It worth noting that, when you do eventually exit your business, investors will want to see that the company doesn’t rely on the very person who is leaving to turn a profit.
Suppliers as a resource
When you’re reliant on a single supplier, the supplier has a disproportionate amount of control overprice and terms. For them to exploit that might be bad for business, but if you don’t have another relationship to fall back on, you don’t have a choice. Lets put it this way: the percentage of your business that relies on a supplier is the percentage that is at the mercy of that one supplier.
Even if you trust a supplier, you’re losing out on a great strategic advantage by cutting others out. Your suppliers are a valuable source for industry news and information. The fewer you talk to, the less you know about how the industry is evolving. Additionally, you only get the benefit of innovations by that one supplier. The fewer suppliers that contribute to your business, the fewer opportunities you’re going to have to pass more value on to your customers.
This form of dependence can also limit your ability to adapt. What if you need 60% of your purchasing power for a new opportunity, but one supplier commands 50% of it each month and is unwilling to compromise?
We’re not saying consolidating is a poor strategy. What we’re saying is it can compromise your ability to grow and to change, and this should be a factor you consider when you arrange terms with any supplier. Long contracts — especially ones that command a lot of your purchasing power — will put you in a bind. They may offer logistical value, but if you’re less innovative, you’re less competitive.
To diversify, you can maintain relationships with all the available suppliers of a resource. You don’t necessarily need to purchase regularly, or in volume, or even at all. A good supplier will know that the opportunity to step in could arise at any time. They’ll also be more motivated to provide more value if they know you’re willing and able to go with other options. Note that nickel and diming a supplier might do more harm than good for the relationship.
Whenever you can, maintain relationships in a way that is not a burden to them. The small cost of this(time and effort on your part) is trivial compared to the ability to innovate and adapt. And of course you need the reassurance that comes from knowing your supply chain won’t be crippled should one supplier let you down.
Customers as a resource
It can be tempting to choose what looks like security when a customer offers to take up a large chunk of your sales. But as soon as they become the lion’s share, the lion’s share of your resources is also tied up in making them happy. This comes at the cost of other customer relationships that could be nurtured. And you’ve also lost your greatest leverage — the ability to walk away. The customer is now calling the shots, and you know whose interests they’re protecting. Of course, its in their best interest to keep you in business…until it isn’t. And they really don’t care if you innovate and grow, unless it serves their interests, which just might be keeping you under their thumb.
But lets not look at all customers as potential tyrants. Lets just acknowledge that depending on too few of them means you can lose a large chunk of income in a hurry. And customers are, arguably, the most fickle out of the three resources covered here. They’ll go where the value is, and making the transition is relatively easy for them.
Again, being married to a single party makes it hard to pivot or expand. If you’re locked into terms with a huge account holder, you have far fewer resources to invest in innovating in other areas.
You can diversify your customer base by expanding your geographic market, improving your sales team, building products to serve different demographics, or simply targeting different demographics with your marketing. A change as simple as marketing in different mediums will get the attention of a different audience. For example, young adults don’t watch much cable, but they use the internet a lot. Being dependent on traditional advertising mediums could be limiting your customer base.
On that note, its important to understand that resource dependence in one area can affect resource dependence others areas. For example, you might be rolling out strong marketing, but in the wrong medium. Because you’re in the wrong medium, your customer base lacks diversity.
And so it goes throughout your organization. One account might cover 60% of sales, and that account might be handled by one trusted sales person who has been with them 20 years. The customer might insist on having that rep, and only that rep, which gives the rep a disproportionate amount of influence, internally. An employee on that gravy train is not going to be motivated to change things. Then, that same customer might also insist that you use a material from one specific supplier, making you dependent on that supplier. If the supplier raises the price, and the customer refuses to pay, who is eating the loss? Yep. Time to adapt.
Incorporate Resource Dependence Theory into how you think about value
When it comes to diversifying your resources, it helps to think of your company not as a product, but as a system that is designed to create a product. How can you modify the system so that it can run more smoothly with different people operating it? A few simple tactics are to redefine roles within the company, write manuals, and cross-train for certain roles. Ideally, these roles would be redefined to make it easy to cross train and write manuals for.
We’re not prescribing diversifying your resources as a way of life or the top priority. Rather, it is a model you can use to understand the power your company has to adapt, innovate, and grow. At the same time, it offers you a way measure just how sustainable you business model currently is when a specific asset becomes unreliable.
We’re also not encouraging you to place your trust in no one. Rather, diversifying your resources means you diversify that trust. So you trust more people, but rely on no one too much.
Use resource dependence as a way to measure how much a particular relationship is holding you back. And weigh that against the value they have to offer. Because if the ability to grow is at stake, so is the ability to compete.