• Budgeting
  • McKinsey & Co.

Ten Techniques for Agile Corporate Resource Allocation

These tested ideas can help organizations overcome inertia and implement their strategies more effectively, says McKinsey & Co.

Insanity has been defined as doing the same thing over and over again and expecting different results. Many senior executives face exactly this situation in allocating critical corporate resources. Every year, they turn the handle on the same strategy-development, capital-planning, talent-management, and budgeting processes, and every year the outcome is only marginally different from the one they reached in the previous year and the year before that. Business leaders readily accept that strong corporate performance demands bolder shifts in resources over time; most even agree that this is one of the most important roles of a CEO and top team. Yet they remain prisoners of management processes that have evolved to deliver the exact opposite of what they are looking for.

Refocusing those processes can deliver different results. We do not yet have an exhaustive list, but we’ve been collecting, refining and adapting a rich menu of ideas for shaking up the corporate status quo. Here are 10 proven techniques for putting better information on the table, encouraging boldness, cutting through corporate politics, and improving accountability in this critical area.

1. Create a corporate-resource map.

Some companies now choose to allocate resources at the level of literally hundreds of product and market “cells,” such as product or geographic categories. While that’s too detailed for others, the key, in any case, is to go beyond the big divisions and develop a map that’s granular enough to see where resources are currently deployed. Make sure it goes beyond capital spending, to include marketing expenditures, R&D funds and top talent. Such maps — which one company we know brings to life on a tablet app highlighting resource requirements, returns and growth options — give corporate decision makers the visibility they need for trade-offs between activities and initiatives a level or two below the business-unit level. This detailed transparency is typically required to change the allocation of resources in organizations that have powerful divisional leaders.

2. Benchmark your “resource inertia.”

A number of companies have begun to measure the correlation between the percentage of resources each cell in their portfolios received in the most recent year and what it received in previous years. We encourage you to do the same — like them, you’ll be surprised by how often the answer is well above 90 percent. This provides a good measure for tracking whether a company really reallocates its main resources.

3. Reframe budget meetings as reallocation sessions, and run them accordingly.

This may mean introducing unorthodox approaches, such as giving investment-committee participants a small pile of poker chips and asking them to “place bets” on projects they think deserve funding. Such an approach concentrates minds on the big picture, not individual silos, and makes all of the people in the room aware that a company has other priorities besides their own pet projects. Also useful is the technique of “stage gating,” the common practice — in R&D- or capital-intensive organizations — of setting performance milestones and releasing additional resources only when intermediate targets are hit. This forces periodic debate when new tranches of resources must be released.


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