Companies face a rapidly changing environment spurred by disruptive technologies, volatile markets, and shifting demographics. To keep pace, they need an equally dynamic resource allocation strategy. But when it comes to investing in capital, talent, and other scarce resources, some business leaders will stick to what’s been working and leave well enough alone. That’s a risky move. As the authors of this McKinsey Quarterly classic observe, if a company’s resource allocation strategy is stuck in the past, soon the company may be as well.
To overcome this inertia, business leaders can take four critical steps. First, develop a target portfolio to inform your allocation agenda. Second, seed and nurture promising investments while also pruning resources from less promising ventures and harvesting businesses that no longer fit the portfolio. Third, adopt simple rules to help remove politics and bias from decision-making. And fourth, implement systematic processes to strengthen allocation activities, such as granular planning and regular investment reviews.
For more on how companies can shift their resource allocation strategies into high gear, read our 2012 Quarterly classic “How to put your money where your strategy is.”
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