Page 200 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes some further selection mechanism beyond the delivery of the organisation’s mission and
objectives. This second criterion relates to two aspects of resource analysis:

(a) Support of core competencies: Resources should develop and enhance core competencies
which, in turn, help achieve competitive advantage.
(b) Enhancement of value chain activities: Resources should assist particularly those
activities of the value chain which help the organisation to achieve low cost or
differentiation and thereby enhance and sustain competitive advantage of the firm.

(c) Risk-acceptance level of the organisation: Clearly, if the risk is higher, there is a lower
likelihood that the strategy will be successful. Some organisations will be more
comfortable with accepting higher levels of risk than others. So, the criterion in this
case needs to be considered in relation to the risk-acceptance level of the organisation.

!
Caution Sometimes, special circumstances may cause an organisation to amend the criteria
for allocation of resources, Those considerations are:
1. When major strategic changes are unlikely: In this situation, resources may be
allocated on the basis of a formula, e.g. marketing funds might be allocated as a
percentage of sales based on past history and experience. The major difficulty with
such an approach is its arbitrary nature. It may, however, be a useful shortcut.
2. When major strategic changes are predicted: In this situation, additional resources
may be required to respond to an expected competitive initiative. In this case, special
negotiation with the corporate office is required for resourcing rather than the
adherence to dogmatic criteria.

3. When resources are shared between divisions: In this situation, the corporate office
may seek to enhance its role beyond that of resource allocator. It may need to
establish the degree of collaboration and, where the areas disagree, impose a solution.

10.5.4 Factors affecting Resource Allocation

Resource allocation may not necessarily be a purely ‘rational’ decision-making process. It is also
a behavioural and political process involving people who may be motivated by different
objectives. Some of the major factors affecting resource allocation are discussed below:
1. Objectives of the organisation: People motivated by different objectives exercise their
influence over the funding of projects. There are two types of objectives. Official (explicit)
objectives and operative (implicit) objectives. Allocations of resources are more guided
by implicit objectives than explicit objectives. The formal and informal organisations also
influence the perception of which projects should be chosen for funding.
2. Powerful units: Sometimes, powerful SBU heads secure larger allocation of funds than
their ‘fair share’.
3. Dominant strategists: The preferences of dominant strategists like the CEO, Directors,
SBU heads, etc. are reflected in the way resources are allocated. The divisional and
departmental heads know that such preferences matter and try to present their demands
in line with them.
4. Internal politics: Resources are often construed as power, and those units, which manage
to secure substantial resources, are perceived as more powerful than others. Internal
politics within the organisation to secure more and more resources, affect the process of
resource allocation.

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