Page 201 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 10: Strategy Implementation

5. External influences: Apart from internal politics, external influences like government Notes
policy, demands of shareholders, financial institutions, community and others, also affect
resource allocation. For example, legal requirements may require additional finances in
labour welfare and social security, pollution control, safety equipments and energy
conservation. The shareholders may expect higher dividends, and resources have to be
directed to them. Financial institutions may impose restrictions or require companies to
invest in technology up-gradation and R&D. Similarly, the discharge of social
responsibilities by the firm requires allocation of sufficient funds. Thus, external influences
affect the process of resource allocation.
To sum up, we can say that the ‘behavioural’ and ‘political’ considerations are inevitable in a
typical organisation, but one must ensure that they do not dominate the ‘rational’ considerations
in allocation of resources. Otherwise, irrational allocation of funds may jeopardize effective
implementation of the strategy and lead to problems in achieving the desired strategic change.

Task Find out how Microsoft allocates its human and financial resources into various
units.

10.5.5 Difficulties in Resource Allocation

The resource allocation process can sometimes become fairly complex, and may even create
several difficulties to the strategists. Some of the difficulties that can create problems are:

1. Scarcity of Resources: Resources are hard to find. Even if finance is available, the cost of
capital could be a constraint. Non-availability of highly skilled people could be another
problem.

2. Restrictions on Generating Resources: Within organisations, the new units which have
greater potential for growth in the future, may not be able to generate resources in the
short run. Allocation of resources on par with existing SBUs, divisions and departments
through the usual budgeting process, will put them at a disadvantage.
3. Bloated Demands: Unit managers may sometimes submit inflated or overstated demands
for funds to guard against any budget-cuts. This subverts the decision process.
4. Negative Attitude: Units, which do not get the desired allocations, may develop a negative
attitude towards the corporate managers. They may work at cross purposes, which may
obstruct the implementation of the intended strategy.
5. Budget Battles: The actual allocation of funds to any unit has a major effect on the work
environment of the unit and the career of the manager concerned. If a manager loses the
‘budget battle’, his subordinates feel that the manager has failed them, and may not
cooperate with him.
6. Budgetary Process: The budgetary process itself can lead to problems if it is not tied to the
strategic plans of the firm. If top management fails to communicate the shifts in the
strategic plans and the lower levels are unaware of the shifts, any intended strategy is
unlikely to succeed .
7. New SBUs: The budgetary process is tied to the way units and divisions are arranged
organisationally. New SBUs can be at a disadvantage if they are unaware of the intricacies
of the budget procedures used in their organisations.
To avoid the above difficulties, strategists should pay maximum attention to resource allocation,
and ‘prioritize’ budgeting allocations in the initial stages taking overall objectives into account.

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