Resource allocation is a central management activity that allows for strategy execution. The real value of any resource-allocation program lies in the resulting accomplishment of an organization's objectives.
A number of factors prohibit effective resource allocation, including an over-protection of resources, too great an emphasis on short-run financial criteria, organizational politics, vague strategy targets, a reluctance to take risks, and a lack of sufficient knowledge.
Yavitz and Newman explain why below the corporate level, there often exists an absence of systematic thinking about resources allocated and strategies of the firm:
Managers normally have many more tasks than they can do. Managers must allocate time and resources among these tasks. Pressure builds up. Expenses at too high. The CEO wants a good financial report for the third quarter.
Strategy formulation and implementation activities often get deferred. Today's problems soak up available energies and resources. Scrambled accounts and budgets fail to reveal the shift in allocation way from strategic needs to currently squeaking wheels.
The relationship between resources and strategy is two-way. Strategy affects resources and resources affect strategy.
Resources can be evaluated from several different perspectives:
- The most prevalent way of evaluating them is by functional areas:
- finance, research and development, human resources, operations, marketing.
- A second way of evaluating resources is by type:
- financial, physical, human, and organizational.
- A third way of evaluating resources is in terms of their tangibility.
- Tangible resources (e.g., a plant or the number of employees) can be observed and measured. Less tangible resources (e.g., corporate name) are also important though their characteristics and importance are harder to evaluate.
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