P. A. Ra(k)

Resource Allocation Levels

Allocation at Corporate Level Depends upon two factors. Need for change in the existing pattern. Extent of centralized control.

Low

High

Centralized Control

Need for Change

Low High

Various Situations in Resource Allocation

Allocation at Business Unit Level • Depends upon two factors. • Investment opportunities from its

environment. • Strategic abilities to take up opportunities.

PEST Analysis Model

Political / Legal Factors Stability of the govt. Labor legislations. Tax laws. Foreign trade regulations. Monopolies legislations. Environmental protection laws.

Economic Factors Interest rates. Business cycles. Trends in GNP. Money supply. Inflation. Unemployment. Disposable income level. Availability of fuel and cost.

Socio-Cultural Factors Changes in lifestyle. Attitude towards work. Prevalence of consumerism. Population demographics. Income distribution. Social mobility. Levels of education.

Technological Factors New discoveries and

development. Levels of government spending on research. Speed of technology transfer. Rates of obsolescence.

Michael Porter’s Model

Threat of Entry • Economies of scale, advantage to larger • • • • • •

players. Minimum level of capital. Access to channels of distribution. Cost advantage due to technology. Legislation governing entry into market. Level of differentiation of the product. Expected retaliation from the existing firms.

Bargaining Power of Buyers • The buyers are few and volumes are high. • Alternative sources of supply are

available. • The material cost makes up a substantial part of the cost. • Backward integration by buyers is not difficult.

Bargaining Power of Suppliers • The suppliers are few. • Alternative sources are not available. • Switching - one supplier to another is

difficult/expensive. • Suppliers have strong brand image. • Forward integration by the suppliers is not difficult.

Threat of Substitutes The availability of substitute products can

almost act as a ceiling on the price at which the product can be sold. • Issues in evaluating the substitute products are as under :• Whether the substitute product provide a

higher value than the product of the firm. • Ease or difficulty for the consumer in switching from the original product to the

substitute product.

Extent of Rivalry Competitive rivalry will be high in an

industry where the threat of entry is high, both buyers and suppliers exercise tight control and substitute products abound. • Following factors are important :• Relative size of the players, If all are of equal

size, competition will be high.

• Stagnation, for a long time. • High fixed cost, leading to a scramble to sell

the break even quantity. • High exit barriers.

Assessment of Balance of Resources The firm should consider whether the resources as a whole are well balanced or not. Study of this involves three factors, as under :Whether the activities carried out by various business units are complementary to each other or not (called portfolio analysis). Whether the stock of skills well balanced or not. Whether the resources are flexible and adaptable to future needs or not.

Allocation at Business Unit Level Depends upon two factors. Investment opportunities from its

environment. Strategic abilities to take up opportunities.

Analysis of Strategic Capabilities Resource audit. Resources available , and those, that can be obtained when required. Quality and quantity of resources.

Value chain analysis. Aimed at identifying activities that are contributing

value to the firm. Michael Porter’s model – activities are grouped in primary and support activities.

Portfolio Analysis BCG Matrix. GE Spotlight Matrix.

Value Chain Analysis Primary Activities Inbound logistics. Operations. Outbound logistics. Marketing and sales. Service.

Value Chain Analysis Support Activities Procurement. Technology development. Human resources management. Infrastructure.

BCG Matrix Market Share

High Low

Market Growth

High

Low

v

General Electric Stoplight Matrix

High Med Low

Industry Attractiveness

Business Strength

Flexibility Analysis The resources be flexible enough to modify

strategy in the face of any uncertainty and identify the areas which present uncertainty. Then, identify the impact of an adverse happening in the area presenting uncertainty. Further, it is required to design tactical and strategic changes the organization may have to undertake to overcome the possible problems. Finally, to find out how far the resources available permit the changes required to meet the situation.

Identification of Key Issues The flexibility analysis should enable the

firm to identify its core competencies. A core competency is an ability of the firm that gives it an edge over its competitors. The firm should match its competencies with its strategy and arrive at a conclusion on areas and activities for investment.

Identification of Opportunities Study of the inputs and outputs of

various industries. Import substitution. Report of studies conducted by institutions. Revival of sick units

Generation of Ideas and Creativity Creativity is the ability to create what does not already

exit. It is the ability to combine or synthesize the available information and experience to see pattern and possibilities. Hurdles to Creative Ideas. Creative ideas often calls for changing the way things are being done at present. People are inherently averse to change.  People in the higher positions of power hate to admit that there is a better way of doing things than what they have been doing all along. Trying out new methods is risky- managers always want to avoid risk.

Individual Creativity Believe

that all the objects, procedures, and systems are inadequate to meet our needs.  Decide on the criteria or specifications that the new idea we now want to generate should meet. Finally, go on generating ideas. The focus while generating ideas should only be on the quantity and not on quality.

Individual Creativity Techniques Attribute listing.  Checklist.  Black Box.  Directed Dreaming.

Group Creativity Techniques Brainstorming. Delphi. Nominal Group Technique. Silent idea generation Round-robin presentation. Idea classification. Voting and ranking. Discussion of results.