Strategy: Resource Allocation and Everyday Decisions Create

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The cumulative impact of the allocation of resources by managers at any level has more real-world effect on strategy than any plans developed at headquarters.

How Managers’ Everyday Decisions Create—or Destroy— Your Company’s Strategy by Joseph L. Bower and Clark G. Gilbert

Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 How Managers’ Everyday Decisions Create—or Destroy—Your Company’s Strategy 9 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

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How Managers’ Everyday Decisions Create—or Destroy—Your Company’s Strategy The Idea in Brief
Top leaders’ formal strategies determine how business gets done in your firm— right? Wrong, say authors Joseph Bower and Clark Gilbert: It’s other managers’ decisions about where to commit resources that really drive strategy. Sometimes these choices support corporate plans. Other times, they don’t. Take Toyota: It launched the Echo—a nofrills, inexpensive vehicle—to fight low-cost rivals. But salespeople, seeking higher commissions, steered customers to higherpriced models. How to avoid such scenarios? Understand who’s driving resource-allocation decisions. For example, is a division manager only sending you proposals for projects that will expand his turf? Is an R&D manager giving a large customer too much say over product development decisions? Then step in as needed: Prompt unit managers to ask, “What’s best for the company?” (not their divisions). Form cross-divisional teams to discuss strategic options. By managing your company’s resourceallocation process, you align bottom-up actions with top-down objectives. And you drive your company in the right direction.

The Idea in Practice
To regain control of your company’s strategic process: UNDERSTAND W HO’S DRIVING KEY DECISIONS Bower and Gilbert identify four key players in resource-allocation choices: • General managers translate broad corporate objectives (such as earnings and growth goals) into specifics that operating managers execute. They also define plans, programs, and activities they believe are essential for their division’s performance. Then they decide which proposals to send upward for corporate review. The way they translate strategy—and the proposals they choose to present—may or may not align behind the enterprise-level strategy. • Operational managers make choices that either support the company’s highlevel plans or contradict them—as the Toyota Echo example reveals. Senior executives overlook these managers’ impact at their peril. • Customers can powerfully affect strategy. Example: Newspaper company Knight Ridder redirected its corporate strategy to focus on the Internet. But existing advertising customers in the newspaper business shaped how actual strategy was carried out. These advertisers weren’t interested in online ads, so sales reps kept selling them traditional print ads. Result? Knight Ridder had difficulty tapping into the new revenue stream. • Capital markets can dramatically reshape corporate strategy. For instance, earnings pressure causes a company to exit a new market too soon. Or a dip in stock price compels a firm to sacrifice long-term strategy for short-term fixes that improve immediate performance. ACTIVELY MANAGE RESOURCE ALLOCATION The authors suggest ways to direct your firm’s strategy by better managing resource allocation: • Understand the people whose names are on the proposals you read. When you read a proposal to commit scarce resources, calibrate what you’re reading against the track record of the proposal’s sponsor. If he or she has a near-perfect record of proposals implemented, there’s probably little downside to approving the request. • Make sure managers address the strategic issues. In evaluating requests for resources, spend more time...
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