Resource mobilization involves procurement of resources that may be required to implement a strategy, and depending on the nature of the strategy, type and volume of resources will be determined. For example, a strategy involving substantial expansion of business will require huge resources of different types as compared to a strategy involving market development. An organization’s capacity to mobilize resources has reciprocal relationship with strategy. On the one hand, a strategy determines what type of resources will be required, on the other hand, resource mobilization capacity determines what type of strategy will be selected. For example, high competence of Reliance Industries to mobilize financial and human resources has enabled it to go for highly investment-oriented strategies.
Resources can be owned, leased, or rented. What emphasis will be put on different sources depends on the nature of resources and resource procurement strategy of the organization. Traditionally, companies owned and controlled most of the resources that entered their business. But this situation is changing. Companies are finding that some resources are not performing as well as those that they could obtain from outside. Many organizations have decided to outsource less critical resources if these can be obtained at better quality or lower cost from outside the company.
Resource Allocation
After resource mobilization, resource allocation activity is undertaken. This involves allocation of different resources- financial and human-among various organizational units and subunits. In order to understand the rationality of resource allocation, it is essential to understand commitment principle because resource allocation is a kind of commitment.
Commitment Principle: Commitment involves adhering to a thing for which a person is committed. In the context of planning, commitment principle implies planning for the future impact of today’s decisions. Since the futurity of different decisions varies, risk involved in respective decisions also varies. Applying the concept of commitment principle in resource allocation implies that when resources are committed to a unit or a project, the organization takes a risk. The risk involved depends on the time taken to recover resource cost. Since a unit requires resources for varying periods-long-term for creation of physical assets; short-term for inventory, debtors, etc., cost recovery period also varies. Therefore, while allocating resources, commitment principle should be taken into consideration.
Basis for Resource Allocation: While allocating the resources, an organization may take two alternative steps: (i) resources should be allocated at a place where these have their maximum contributions, or (ii) resources should be put according to the needs of various organizational units/subunits. Both these alternatives may become complementary to each other if there is an objective evaluation of the resource requirement of various units.
Budgeting is the means through which resources ‘are allocated to various organizational units. However, the traditional budgeting which focuses just on the past resource allocation as the basis is not useful for resource allocation in any way because the conditions, both external as well internal, change making the past practices of resource allocation meaningless. Therefore, when budgeting is used as a tool for resource allocation, it has to be oriented to the objectives of the organization and the way each unit of the organization will contribute to the achievement of these objectives. From this point of view, following types of budgeting are more relevant:
- Capital budgeting
- Performance budgeting
- Zero-base budgeting
- Strategic budgeting
Capital Budgeting: Capital budgeting is the planning of deployment of financial resources of an organization for the purpose of maximizing the long-term profit ability of the organization. In this budgeting, various techniques like average rate of return, payback period, internal rate of return, and net present value, are used to determine where a rupee put will earn maximum profit. This method, however, is more useful at the stage of considering the various alternative project proposals. From strategic management point of view, it does not offer much help at the strategy implementation level. Also if does not consider the allocation of human resources who’ really matter in making a project successful.
Performance Budgeting: A performance budgeting is an input/output or cost/result budgeting: It emphasizes non-financial measurement of performance, which can be related to financial measurement in explaining changes and deviations from planned performance. Historical comparisons of non-financial measurements of an activity are particularly helpful in justifying budget proposals
These measurements are useful for evaluating past performance and for planning future activities.
Zero-base Budgeting: Zero-base budgeting (ZBB) is based on a system where each function, irrespective of the fact whether it is old or new, must be justified in its entirety each time a new budget is formulated. It requires each manager to justify his entire budget in detail from scratch, that is zero bases. Each manager states why he should spend any money at all. The process’ of ZBB involves the four basic steps:
- identification of decision units, that is cluster of activities or assignments within a manager’s operations for which he is accountable;
- analysis of each decision unit in the context of total decision package;
- evaluation and ranking of all decision units to dev-clop the budget request; and
- allocation of resources to each unit based upon ranking. Thus, emphasis is placed upon resource allocation according to the contributions of each decision unit.
ZBB results into a number of benefits over traditional budgeting. Such benefits may be in the form of
- effective allocation of resources,
- improvement in productivity and cost effectiveness,
- effective means to control costs,
- elimination of unnecessary activities.
- better focus on organizational objectives, and
- Saving time of top management.
However, ZBB may result into some problems if not followed properly. For example, it may result into extra paper work, difficulty in identifying decision packages, tendency to establish minimum level of efforts, etc. However, these problems can be overcome when an organization gains experience of ZBB.
Strategic Budgeting: Strategic budgeting is comparatively a newer concept as a tool of resource allocation among various SBUs and units of an organization. Under strategic budgeting, in determining the resource needs of an organizational unit, the basic question that is put is: ‘What sort of performance and results do we want to generate?’ This should be followed by another question: ‘What key activities, organizational units, tasks, and jobs need to be set up and organized to produce these results?’ The answer should suggest the kinds of skills, expertise, and funding which will be needed to allow the various organizational units to accomplish the designated results. Therefore, jobs and tasks should be defined in terms of the desired strategic results and performance rather than in terms of the functions to be performed. Specific objectives should be developed not only for the organization as a whole but for each major organizational unit, and through the efforts of subordinate managers, for each job. Every manager in the organization needs to have his job spelled out in terms of expected results and the resources that may be required to accomplish those results. One of the major advantage of setting up of careful network of verifiable results to be achieved and a requirement of resources for achieving these effectively is the opportunity to tie up the resources with results which ultimately helps in implementing the strategy. In strategic budgeting, there are two stages of budget- preparation: (1) preparation of position papers and (2) preparation of budget.
