Dynamic Resource Reallocation

… a core concept in Governance and Institutions and Atlas100

dynamicresourcereallocation

Relative performance of companies grouped by percentage of resources reallocated over 10 years

Concept description

McKinsey Managing Partner, Dominique Barton (reference below), defines dynamic resource reallocation as shifting money, talent, and management attention to where they will deliver the most value. He suggests that, to keep up with changing technology and global pressures, public as well as private institutions should aim to reallocate about 10% of their resources each year.

Fellow McKinsey partner, Yuval Atsmon (reference below), explains how hard this is, given that:

“executives struggle to figure out where they should reallocate, how much they should reallocate, and how to execute successful reallocation. Additionally, disappointment with earlier reallocation efforts can push the issue off top management’s agenda.”

Atsmon recommends:

“Start by acknowledging that everyone has biases. Resource-allocation decisions tend to be heavily affected by these biases: executives are often overconfident, believing they can reverse and improve on past performance, and find it hard to back away from big bets, even when those investments fail to deliver. At the same time, they attribute too much risk to new opportunities and can be slow to embrace them. … Ultimately, even with the best intentions, resource reallocation can fall victim to organizational inertia and internal power dynamics. In companies where unit heads run their businesses like fiefdoms, with little input from those outside the walls unless they fail to make their numbers, the challenge is particularly daunting.”

Atlas topic, subject, and course

Organizational Design and Behaviour (core topic) in Governance and Institutions and Atlas100 Governance and Institutions.

Source

Dominic Barton (2016), 2016 David Peterson Leadership Lecture, at http://publicpolicy.utoronto.ca/2016-david-peterson-leadership-lecture-with-dominic-barton/, accessed 11 October 2016.

Yuval Atsmon (2016), How nimble resource allocation can double your company’s value, McKinsey & Company, August, at http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-nimble-resource-allocation-can-double-your-companys-value, accessed 11 October 2016.

Page created by: Ian Clark, last modified on 11 October 2016.

Image: Yuval Atsmon (2016), How nimble resource allocation can double your company’s value, McKinsey & Company, August, at http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-nimble-resource-allocation-can-double-your-companys-value, accessed 11 October 2016.