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are concerned, with low growth and low market share, they may not need any thrust, and resources can be gradually withdrawn from such businesses and invested in other promising businesses.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

Unit 10: Strategy Implementation

Notes

justify the budget requests. ZBB is, therefore, a type of budget that requires managers to rejustify the past objectives, projects and budgets and set priorities for the future. It amounts to recalculation of all organisational activities to see which should be eliminated or funded at a reduced or increased level.

Capital Budgeting

Capital Budgeting techniques can be used for long-term commitment of resources, such as capital investments in mergers, acquisitions, joint ventures, and setting up of new plants etc. Various techniques like payback period, net present value, internal rate of return, etc. can be used to find which investments would earn maximum returns.

Operating Budgets

Operating budgets are necessary for more routine resource allocation for conducting operations. There are two types of systems:

1. Fixed budgeting system: This system commits resources based on activity levels. In this

type of budgeting, there may be a tendency to retain the committed resources even if the activity levels are not being achieved, thus depriving other divisions of the resources, which have a better potential.

2. Flexible budgeting system: This system provides for transfer of funds from one unit to

another if a fall is expected in actual activity level in a particular unit, thus ensuring better resource utilization. But this system has the disadvantage of encouraging non-seriousness about budgetary allocations.

Did u know? What are the different types of routine budgets?

1. Operating budget specifies materials, labour, overheads and other costs.

2. Financial budget projects cash receipts and disbursements.

3. Sales budget specifies sales revenues and selling, distribution and marketing costs.

4. Expenses budget projects expenses not carried out in other budgets.

10.5.3 Criteria for Resource Allocation Process

In large, diversified companies, the corporate office plays a major role in allocating resources among various strategies proposed by its operating units or divisions. In many cases, product groups, business units or functional areas may bid for funds to support their strategic proposals. There are three criteria which can be used when allocating resources.

1. Contribution towards fulfillment of organisational objectives: At the centre of the

organisation, the resource allocation task is to steer resources away from areas that are poor at delivering the organisation’s objectives and towards those that are good at delivering the organisation’s objectives.

2. Support of key strategies: In many cases, the problem with resource allocation is that the

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.

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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.