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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 32
RESOURCE ALLOCATION
Learning objective
This chapter consists of resource allocation and how it is important for the success of the organization. It
also include the "Conflict" its types and how to reduce it.
Resource Allocation
In strategic planning, a resource-allocation decision is a plan for using available resources, especially
human resources especially in the near term, to achieve goals for the future. It is the process of allocating
resources among the various projects or business units.
The plan has two parts: Firstly, there is the basic allocation decision and secondly there are contingency
mechanisms. The basic allocation decision is the choice of which items to fund in the plan, and what level
of funding it should receive, and which to leave unfunded: the resources are allocated to some items, not
to others.
There are two contingency mechanisms. There is a priority ranking of items excluded from the plan,
showing which items to fund if more resources should become available; and there is a priority ranking of
some items included in the plan, showing which items should be sacrificed if total funding must be
reduced.
Resource allocation is a major management activity that allows for strategy execution. In organizations that
do not use a strategic-management approach to decision making, resource allocation is often based on
political or personal factors. Strategic management enables resources to be allocated according to priorities
established by annual objectives. Nothing could be more detrimental to strategic management and to
organizational success than for resources to be allocated in ways not consistent with priorities indicated by
approved annual objectives.
All organizations have at least four types of resources that can be used to achieve desired objectives:
financial resources, physical resources, human resources, and technological resources. Allocating resources
to particular divisions and departments does not mean that strategies will be successfully implemented. A
number of factors commonly prohibit effective resource allocation, including an overprotection 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.
Managers normally have many more tasks than they can do. Managers must allocate time and resources
among these tasks. Pressure builds up. Expenses are 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 away from strategic needs to currently squeaking wheels.
The real value of any resource allocation program lies in the resulting accomplishment of an organization's
objectives. Effective resource allocation does not guarantee successful strategy implementation because
programs, personnel, controls, and commitment must breathe life into the resources provided. Strategic
management itself is sometimes referred to as a "resource allocation process."
Conflict
Conflict is a state of opposition, disagreement or incompatibility between two or more people or groups
of people, which is sometimes characterized by physical violence. Military conflict between states may
constitute war.
In political terms, "conflict" refers to an ongoing state of hostility between two groups of people.
Conflict as taught for graduate and professional work in conflict resolution commonly has the definition:
"when two or more parties, with perceived incompatible goals, seek to undermine each other's goal-
seeking capability".
One should not confuse the distinction between the presence and absence of conflict with the difference
between competition and co-operation. In competitive situations, the two or more parties each have
mutually inconsistent goals, so that when either party tries to reach their goal it will undermine the
attempts of the other to reach theirs. Therefore, competitive situations will by their nature cause conflict.
However, conflict can also occur in cooperative situations, in which two or more parties have consistent
goals, because the manner in which one party tries to reach their goal can still undermine the other.
Types and Modes of Conflict
A conceptual conflict can escalate into a verbal exchange and/or result in fighting.
Conflict can exist at a variety of levels of analysis:
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Strategic Management ­ MGT603
VU
 intrapersonal conflict (though this usually just gets delegated out to psychology)
 interpersonal conflict
 group conflict
 organizational conflict
 community conflict
 intra-state conflict (for example: civil wars, election campaigns)
 international conflict
Conflicts in these levels may appear "nested" in conflicts residing at larger levels of analysis. For example,
conflict within a work team may play out the dynamics of a broader conflict in the organization as a whole
Theorists have claimed that parties can conceptualise responses to conflict according to a two-dimensional
scheme; concern for one's own outcomes and concern for the outcomes of the other party. This scheme
leads to the following hypotheses:
 High concern for both one's own and the other party's outcomes leads to attempts to find mutually
beneficial solutions.
 High concern for one's own outcomes only leads to attempts to "win" the conflict.
 High concern for the other party's outcomes only leads to allowing the other to "win" the conflict.
 No concern for either side's outcomes leads to attempts to avoid the conflict.
In Western society, practitioners usually suggest that attempts to find mutually beneficial solutions lead to
the most satisfactory outcomes, but this may not hold true for many Asian societies.
Several theorists detect successive phases in the development of conflicts.
Often a group finds itself in conflict over facts, goals, methods or values. It is critical that it properly
identify the type of conflict it is experiencing if it hopes to manage the conflict through to resolution. For
example, a group will often treat an assumption as a fact.
The more difficult type of conflict is when values are the root cause. It is more likely that a conflict over
facts, or assumptions, will be resolved than one over values. It is extremely difficult to "prove" that a value
is "right" or "correct".
In some instances, a group will benefit from the use of a facilitator or process consultant to help identify
the specific type of conflict.
Practitioners of nonviolence have developed many practices to solve social and political conflicts without
resorting to violence or coercion.
There is no one optimal organizational design or structure for a given strategy or type of organization.
What is appropriate for one organization may not be appropriate for a similar firm, although successful
firms in a given industry do tend to organize themselves in a similar way. For example, consumer goods
companies tend to emulate the divisional structure-by-product form of organization. Small firms tend to
be functionally structured (centralized). Medium-size firms tend to be divisionally structured
(decentralized). Large firms tend to use an SBU (strategic business unit) or matrix structure. As
organizations grow, their structures generally change from simple to complex as a result of concatenation,
or the linking together of several basic strategies.
Numerous external and internal forces affect an organization; no firm could change its structure in
response to every one of these forces, because to do so would lead to chaos. However, when a firm
changes its strategy, the existing organizational structure may become ineffective. Symptoms of an
ineffective organizational structure include too many levels of management, too many meetings attended
by too many people, too much attention being directed toward solving interdepartmental conflicts, too
large a span of control, and too many unachieved objectives. Changes in structure can facilitate strategy-
implementation efforts, but changes in structure should not be expected to make a bad strategy good, to
make bad managers good, or to make bad products sell.
Structure undeniably can and does influence strategy. Strategies formulated must be workable, so if a
certain new strategy required massive structural changes it would not be an attractive choice. In this way,
structure can shape the choice of strategies. But a more important concern is determining what types of
structural changes are needed to implement new strategies and how these changes can best be
accomplished. We examine this issue by focusing on seven basic types of organizational structure:
functional, divisional by geographic area, divisional by product, divisional by customer, divisional by
process, strategic business unit (SBU), and matrix
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning