How might a firm’s resources limit its search for opportunities? Cite two specific examples for two specific resources.
A firm’s resources might limit its search for opportunities when “deficiencies” in its resources preclude it from pursuing them. The following are two examples of how this can happen:
1. Lack of cash flow
It is important for a business enterprise to have a healthy flow of cash. That is, its inflow of cash must consistently be greater than its outflow of cash. A healthy cash flow enables a business to invest in programs it deems will be profitable to the company. Think of it this way, as an individual or family, you require more income coming in (through wages, salary, investments, and such) than money going out (a plethora of household expenses). The more that comes in as income and the less that goes out to pay expenses is beneficial to you and your family. You are experiencing a positive cash flow and with that money you can explore opportunities that interest you. You may decide to use the money to have a pool installed at your residence.
The same holds true for businesses. A positive cash flow is vital to maintaining a healthy business. A business with a significant positive cash flow can possibly purchase new equipment without relying on loans. A business can hire more employees as part of an expansion program when cash flow is very positive. A business may recognize an opportunity to open a new location in a different city that they believe will add to their bottom line. They can only pursue this opportunity if they have the funds to do so. A healthy cash flow can enable them to do this. A limited or a negative cash flow (little or no cash resources) can limit its plans to open a new location or expand in some other way.
2. Lack of qualified labour
Labour, employees, are a resource of a firm. A lack of qualified (knowledgeable and well-trained) employees can hinder a company’s search for new opportunities. Consider that a company, as mentioned above, may want to take advantage of an offer from a city that’s giving tax breaks to new businesses that open in its jurisdiction in the next six months for example. A company may want to pursue this opportunity. However, the city may have this definite time frame for companies to put in an application for this offer.
A company may want to pursue this, but recognizes that they do not have enough trained staff ready to operate the new location efficiently. They also recognize that they don’t have time to get enough trained staff in place before the city’s offer expires. Therefore, the company’s limited labour force (in terms of numbers and quality of training) is limiting its chance to take hold of this opportunity.
Consequently, regarding the above two examples, the company’s limited cash resources and labour resources are stalling its initiatives to better the company. They may refrain from going after new opportunities until they resolve these company inadequacies.
A firm’s resources limit its search for opportunities by helping the firm to target specific strengths and areas for improvement. For example, when Harley Davidson ran into problems due to stiff competition from Japanese manufacturers, the company studied those same competitors to determine how they could lower costs while still producing high-quality goods. Likewise, U.S. Steel and other American steel manufacturers have had to alter their production strategies since the downturn of the American steel industry. By examining smaller producers who have more flexible production schedules, U.S. Steel has been able to turn their situation around.