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Resource Allocation

In: Business and Management

Submitted By meliana
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Summary – Resource Allocation

1. The universal aspects of the way strategic commitments get made fall into two categories: a. Organizational Structure. At any company, responsibility is divided up among various individuals and units has vital consequences for how strategy gets made. * Knowledge is dispersed. For any given strategic question, relevant expertise resides in scattered, sometimes unexpected parts of a corporation. * Power is dispersed. * Roles determine perspectives. Miles’s Law – the notion that where you stand is a function of where you sit—is central to how strategy gets made in practice. b. Decision-making processes. Just as important, the way decisions are made throughout an organization has vital consequences for strategy. * Processes span multiple levels; activities proceed on parallel, independent tracks. * Processes are iterative. Crafting strategy is an iterative, real-time process; commitments must be made, then either revised or stepped up as new realities emerge. 2. Six ways that senior managers can direct the strategy of their firm by better understanding the resource allocation process: a. Understand the people whose names are on the proposals you read. b. Recognize the strategic issue and make sure it is addressed. c. When a debate reflects fundamental differences about the strategy, intervene. d. Use operational managers to get work done across divisional lines. e. The leadership has to connect the dots. f. Create a new context that allows leadership to circumvent the regular resource allocation process. 3. The following four factors can also help to determine the appropriate resource allocation: a. The rate of growth in the core business. A decreasing growth rate mandates that a company direct more resources toward new initiatives. b. Changes in the competitive intensity of the base business. When competition heats up in the base business, more resources should be allocated to new initiatives, particularly if the base business is mature. c. The company’s expertise in creating new growth business. If a company has never before successfully created one, it needs to allocate comparatively greater resources to such initiatives, because it will inevitably make more mistakes as it navigates unfamiliar territory. d. The ratio of capital intensity of potential new businesses compared with older ones. Efforts with relatively high asset intensity require more resources. 4. Resource allocation process is the key process that filters both the intended and emergent factors during strategy formulation and implementation. It is the process through which proposals to invest capital, talent, and other resources to develop new products, services and processes are valuated. In the resource allocation process, some proposals get approved and are accorded high priority, some get approved but are given lower priority and many proposals never get approved. 5. Bower suggests that generally, proposals go through a process comprising four components: a. Definition – the articulation of the problem or idea b. Impetus – the determination of whether the defined proposal is viable and worthy of support or funding. c. Structural context – the organizationla forces that influence the definition and impetus processes d. Measurement – the determination of the proposal’s return on investment. 6. Strategy formulation – whether intended or emergent – occurs at the beginning of the proocess and continues as the resource allocation process defines what the company actually does. Strategy is never static – each resource allocation decision, no matter how slight, continually shapes what the company actually does, creates a new set of opportunities and generates new intended and emergent contributions into the process.

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