Page 198 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes

Notes Broadly, there are three approaches to resource allocation:
1. Top-down approach
2. Bottom-up approach
3. Strategic budgeting

1. Top-Down approach: In this approach, resources are allocated through a process of
segregation down to the operating levels. The Board of Directors, the Managing
Director or members of top management typically decide the requirements of each
subunit and distribute resources accordingly.
2. Bottom-up approach: In this approach, resources are distributed through a process
of aggregation from the operating level. The operating levels work out the
requirements of each subunit and the resources are allocated accordingly.

3. Strategic budgeting: This approach is a mix of the above two approaches, and involves
an interactive form of decision-making between different levels of management.

10.5.2 Managing Resource Conflict

The common approach to resource allocation is through budgetary system. There are however,
many other tools, which can be used for this purpose. Some of the important tools used for
resource allocation are discussed below:

BCG Matrix

The BCG matrix, which is generally used for portfolio analysis, can also be used as a guideline
for resource allocation. The surplus resources from “cash cows” can be reallocated to “stars” or
“question marks”. In so far as businesses categorized as “dogs” are concerned, with low growth
and low market share, they may not need any thrust, and resources can be gradually withdrawn
from such businesses and invested in other promising businesses.

The BCG matrix is a useful tool because it impresses upon a portfolio approach to resource
allocation. It helps in averting over-investment in any particular type of business and under-
investment in promising businesses from the long-term perspective. Despite the utility of the
BCG matrix, however, it should be used with care and only as a guideline. It does not provide a
concrete measure for making a finer choice, particularly among the businesses of the same
nature.

PLC-based Budgeting

Resource allocation can also be linked to different stages of a Product Life Cycle (PLC). A
product in introductory and growth stages may require more resources than a product in mature
and decline stages.

Zero-based Budgeting (ZBB)

The key differences between ZBB and traditional budgeting is that ZBB requires managers to
justify their budget requests in detail from the scratch, without relying on the previous budget
allocations. Therefore, instead of taking the last year’s budget as the base for projecting the
future allocations, ZBB forces the managers to review the objectives and operations afresh and

192 LOVELY PROFESSIONAL UNIVERSITY