I guess we are going to need some kind of resource allocation process unless we are living in Neverland, where time is unlimited. It is a complicated management challenge. Particularly when senior executive leadership starts reinvigorating and revitalizing organization, they are faced with a growing number of ideas, projects and investment opportunities clamoring for their attention. Each new idea seems to be more promising than the last one. But any coach will tell you that if you want to compete effectively, you need to be able to focus on those opportunities and those core strengths where you can do better than your competitors not by 10%, 15% or even 25% but by an order of magnitude.
For NBA players height is an advantage and if you are not tall, you will have to work twice as hard to attain the same level as taller players or you will need some other extraordinary compensating quality, for example, lightening speed and accuracy. Similarly, football is a game that rewards speed and strength and sometimes speed over strength. Therefore, we get a three step resource allocation process. First, identify your strengths, then find the opportunities that match your strengths and finally build a single minded focus on selected opportunities to the total exclusion of everything else. When you focus on a few things, it is likely that you will make errors and those errors will be glaring. Eureka! Making errors, big visible, glaring errors is wonderful, when you are pushing your limits and exploring your boundaries. I hate small, tiny errors. It is hard to recognize them and easy to ignore them. Tiny errors can accumulate over a period of time and then collectively put you in a deep hole, without you ever realizing that you have been screwing up. This is called variously as commitment by default, boiling frog syndrome or slipper slope argument. Big errors show all over. You can't ignore them. They force you to take a lesson.
Jack Welch had decided that GE would stay only in those markets where it would be able to develop and sustain a market dominating number one or two position. As a result of this strategy, GE sold off divisions, which were unlikely to have dominant positions in their markets and used those resources to position itself better in markets, where it was able to create and sustain a dominant position.
Markets reward growth more than profitability. But more and more companies are realizing that they can't be everything to everyone in their quest to find growth opportunities. They are understanding the importance of positioning for building a long-term sustainable competitive advantage. So how are they allocating resources. This is a multi-level process with several variations. Some firms have been prescribed tough resource allocation directives by external parties like banks and other lending entities documented in bank covenants and lending agreements. Often these directives leave little leeway for discretion. Other firms are following annual planning cycles for divisions. Earnings and growth targets are established by the corporate at the division level. After that each division prepares minimum of an operating and a capital budget and corresponding business plan to meet those targets. These are subject to changes and revisions as the year progresses. Capital budgeting and allocation of resources among divisions and within divisions is often guided by relationships among senior executives and how they leverage that relationship to achieve their corporate and divisional goals.
There are major differences among firms' effectiveness and efficiency in converting those resources to desirable results. Some firms are able to achieve more from those inputs. These firms are able to offer better products and services to their customers at a lower or comparable price. Project failure rate among such firms is lower. They are better able to estimate their capacity to do projects and underestimation of project size, a hallmark of maturing organizations, does not happen that often. Having a mature project management process is a critical and necessary part of organizations' capability to manage its resources effectively and efficiently. But project management methodology in and of by itself is not enough to guarantee a high success rate of corporate projects. From senior management's point of view, project governance is a critical part of the overall process that can track execution of a strategy. Governance ensures alignment between strategy and action. I'm in agreement that actions at the shop floor as well as operating level decisions can have a major impact on strategy. Therefore, it is not always that projects have to be aligned with the strategy. Sometimes strategy may have to be aligned with decision made at day-to-day operating level. The story of how Intel transformed itself from a memory chip producer to a microprocessor designer and manufacturer is often cited as an example of operating decisions transforming the strategy of a firm.
To summarize this discussion, I think that strategy should be based on firm's core strengths and resource allocation process should support that strategy by focusing on a few selected opportunities. A strong project governance process ensures that the resource allocation follows the intended strategy and that the gap between realized and intended strategy is not dysfunctional. Finally, project management process ensure that firm has a strong execution capability to create the desired results from allocated resources.
For NBA players height is an advantage and if you are not tall, you will have to work twice as hard to attain the same level as taller players or you will need some other extraordinary compensating quality, for example, lightening speed and accuracy. Similarly, football is a game that rewards speed and strength and sometimes speed over strength. Therefore, we get a three step resource allocation process. First, identify your strengths, then find the opportunities that match your strengths and finally build a single minded focus on selected opportunities to the total exclusion of everything else. When you focus on a few things, it is likely that you will make errors and those errors will be glaring. Eureka! Making errors, big visible, glaring errors is wonderful, when you are pushing your limits and exploring your boundaries. I hate small, tiny errors. It is hard to recognize them and easy to ignore them. Tiny errors can accumulate over a period of time and then collectively put you in a deep hole, without you ever realizing that you have been screwing up. This is called variously as commitment by default, boiling frog syndrome or slipper slope argument. Big errors show all over. You can't ignore them. They force you to take a lesson.
Jack Welch had decided that GE would stay only in those markets where it would be able to develop and sustain a market dominating number one or two position. As a result of this strategy, GE sold off divisions, which were unlikely to have dominant positions in their markets and used those resources to position itself better in markets, where it was able to create and sustain a dominant position.
Markets reward growth more than profitability. But more and more companies are realizing that they can't be everything to everyone in their quest to find growth opportunities. They are understanding the importance of positioning for building a long-term sustainable competitive advantage. So how are they allocating resources. This is a multi-level process with several variations. Some firms have been prescribed tough resource allocation directives by external parties like banks and other lending entities documented in bank covenants and lending agreements. Often these directives leave little leeway for discretion. Other firms are following annual planning cycles for divisions. Earnings and growth targets are established by the corporate at the division level. After that each division prepares minimum of an operating and a capital budget and corresponding business plan to meet those targets. These are subject to changes and revisions as the year progresses. Capital budgeting and allocation of resources among divisions and within divisions is often guided by relationships among senior executives and how they leverage that relationship to achieve their corporate and divisional goals.
There are major differences among firms' effectiveness and efficiency in converting those resources to desirable results. Some firms are able to achieve more from those inputs. These firms are able to offer better products and services to their customers at a lower or comparable price. Project failure rate among such firms is lower. They are better able to estimate their capacity to do projects and underestimation of project size, a hallmark of maturing organizations, does not happen that often. Having a mature project management process is a critical and necessary part of organizations' capability to manage its resources effectively and efficiently. But project management methodology in and of by itself is not enough to guarantee a high success rate of corporate projects. From senior management's point of view, project governance is a critical part of the overall process that can track execution of a strategy. Governance ensures alignment between strategy and action. I'm in agreement that actions at the shop floor as well as operating level decisions can have a major impact on strategy. Therefore, it is not always that projects have to be aligned with the strategy. Sometimes strategy may have to be aligned with decision made at day-to-day operating level. The story of how Intel transformed itself from a memory chip producer to a microprocessor designer and manufacturer is often cited as an example of operating decisions transforming the strategy of a firm.
To summarize this discussion, I think that strategy should be based on firm's core strengths and resource allocation process should support that strategy by focusing on a few selected opportunities. A strong project governance process ensures that the resource allocation follows the intended strategy and that the gap between realized and intended strategy is not dysfunctional. Finally, project management process ensure that firm has a strong execution capability to create the desired results from allocated resources.
