Page 197 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 10: Strategy Implementation

10.5 Resource Allocation Notes

Most strategies need resources to be allocated to them if they are to be implemented successfully.
Let us examine some special circumstances that may affect the allocation of resources.
Resource allocation deals with the procurement and commitment of financial, physical and
human resources to strategic tasks for achievement of organisational objectives. This involves
the process of providing resources to particular business units, divisions, functions etc for the
purpose of implementing strategies. All organisations have at least five types of resources:
1. Physical Resources
2. Financial Resources

3. Human Resources
4. Technological Resources
5. Intellectual Resources
These resources may already exist in the organisation or may have to be acquired. Resource
allocation decisions are very critical in that they set the operative strategy for the firm. Resource
allocation decisions about how much to invest in which areas of business reinforce the strategy
and commit the organisation to the chosen strategy.

10.5.1 Importance of Resource Allocation

A company’s ability to acquire sufficient resources needed to support new strategic initiatives
and steer them to the appropriate organisational units has a major impact on the strategy
implementation process. Too little funding arising from constrained financial resources or from
sluggish management action slows progress and impedes the efforts of organisational units to
execute their part of the strategic plan effectively.
At the same time, too much funding wastes organisational resources and reduces financial
performance. Both these extremes emphasize the need for managers to be careful about resource
allocation. Resource allocation becomes a critically important exercise when there are major
shifts from the past strategies in terms of product/market scope. For example, if the firm’s
strategy is expansion in one line, withdrawal from another and stability in the rest of the
products, then greater resources will have to flow to the first and lesser to the second and the
third. Similarly, if the strategy is to develop competitive edge through product development,
greater resources will have to be committed to R&D.

Resource allocation is a powerful means of communicating the strategy in the organisation as it
gives the signals to all concerned. It will demonstrate what strategy is really in operation.
Resource allocation decisions should be taken judiciously because using a formula approach
(i.e. allocating funds as a percentage of sales or profits), may be inappropriate and counter-
productive. Care should be taken to see that the resources are not allocated or withdrawn
because of easy availability or paucity.

Example: Cutting down R&D budget in view of sudden fall of profitability should be
avoided as such expenditure may be most critical for developing future competitive advantage.
The resource allocation decisions are generally linked to the objectives. For example, decision
about dividend payment is linked to the ability of the company to attract capital. How to
distribute the expected profits among investors, employees and the company’s own needs is an
important resource allocation decision from the viewpoint of long-term implications of the
strategy.

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