"A recent study of more than 200 large enterprises by McKinsey found that the reallocation of resources to faster-growing segments within a company’s portfolio of businesses was the largest single driver of revenue growth." --Donald Sull.
We have been working with clients on this subject, using a "reasoning process" for decision-modeling and simulation of the Resource Reallocation problem. The challenge is how to redeploy resources in the areas of the business that generate the greatest benefit towards meeting the changing organizational objectives--effectively a "cost-benefit" approach to resource reallocation.
Donald Sull's recent HBR article "How to Survive in Turbulent Markets" (quote above) may have been referring to McKinsey's study on "The Granularity of Growth"-- although he does not specifically cite the study by name. Professor Sull discusses three types of organizational "agility:"
- Operational (to seize opportunities quickly)
- Portfolio (quickly shift resources), and
- Strategic (seize "game-changing" opportunities)
With respect to his second "agility" metric, we have seen two problems with the execution of this "best practice" business process; 1) modeling what to shift (from what-to what?), and then 2) actually making the shift (i.e. quickly reaching consensus, deciding, and then acting). The first problem is relatively easy to solve through proper structuring of the decision-model(s) and group facilitation with the stakeholders.
However the second problem is much harder in that it involves actually implementing the decision to reallocate resources from one under-performing business unit or project to others that are ranked higher. Typically we see the 80-20 rule apply, in that 80% benefit can be had with 20% of the alternatives. The potential for cost savings is very large if managers have the "intestinal fortitude" to act.
Just now, General Motors--on the verge of bankruptcy--is killing some divisions and is being forced by the government to deal with UAW legacy costs and work rules... one might argue that they are about ten years late! GM is proving that deciding and acting are two entirely different things. In GM's case, they lack Operational agility, Portfolio agility, and clearly Strategic agility with their investment decisions through the 1990's when they had both the time and money to act. Could the EV-1 have been a "game changer" or was it in the end the Hummer?
In many situations, the alternatives at the bottom of the list represent pet-projects of key stakeholders involved in the decision-making process or were originally started when the strategic future was different, and due to the "vesting" of the players in a specific viewpoint, people are now unwilling to change. Further, those "almost done" projects tend to suck resources during the diminishing return of that remaining perpetual 95% complete phase!
We have seen these sacred-cows continually fed at the expense of those projects/business units that should be receiving the new focus/emphasis/resources. It is a zero-sum game which means that when resources are reallocated they have to come from one place in order to go to another. Sull summarized what leaders have to do:
- "Make unpopular calls on resource reallocation."
- "Base decisions on rational rather than emotional or political criteria."
- "Invest heavily in promising opportunities."
The "facilitated reasoning process" we are refining with our clients now start to address these characteristics--based on facts and then on creating rapid action and a sense of urgency.
Rapid action versus delay could result in many organizations not making it to the "other side" when we emerge from the current economic difficulties. It is better to be roughly right than exactly wrong.
Here is a link to Donald Sull's HBR article "How to Thrive in Turbulent Markets" and his website -- interesting work, worth reading.
Related | Drive with both feet | Decision-making today and the implications to "the other side" | A management simulator... what to cut in order to achieve the maximum benefit from the remaining resources? |
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