Increasing economic uncertainty is forcing many leaders to clarify business priorities and align resources with changing business needs. That means focusing with a renewed intensity on key business priorities and initiatives. But how quickly can resources be reallocated to where they are needed most?
Here we explore why resource fluidity is becoming increasingly important at a time of change and uncertainty.
The Main Points:
- Scarcity of resources is emerging as a key organizational concern. It requires greater clarity and focus in respect of business needs and priorities. But, how quickly can organizations shift resources to where they are most needed?
- Traditional resource allocation can hinder organizations in responding to opportunities and challenges that happen outside the annual budgeting cycle.
- A fast-changing environment requires dynamic alignment and fluid resources.
- Aligning resources with changing business needs and priorities requires a process that balances bureaucratic control, with the need for speed, agility and innovation.
- Traditionally resource allocation was driven by the numbers, the spreadsheet and the forecast. That is still very important, but alignment is also about the strategy – about priorities, choices and tradeoffs. So, you need both!
- Allocating resources is only half the work. The challenge of aligning resources (assets, people, etc.) with ever-changing business needs and market opportunities is never really finished.
- The next time you are setting a plan, allow for dynamic alignment of part of the budget. Maybe that is 10% or 20% that can be fluidly aligned with emerging business needs and priorities.
Resource Allocation: A Job Half Done!
The budget was allocated in the final quarter of last year. That is the job done for another year, right? Well, it is only half done!
The next part of the budgeting process is the part that matters most. It is also the most difficult in many ways. Called Resource Alignment it is the ongoing challenge of ensuring that resources are aligned with business needs and priorities, as well as market opportunities and challenges. The problem is that business needs and priorities are continuously changing.
A fast-changing business environment demands speed and agility in responding to change. This requires balancing annual allocation with dynamic alignment. However, while allocation is relatively straight-forward, alignment is complex and demanding.
A portfolio is always ‘a mixed bag’. Some strategies and initiatives are probably doing better than planned, while others are falling behind. Chances are there are one or two projects or priorities that require a fundamental rethink and may even need to be scrapped. The question is how efficiently can you shift resources across the strategic portfolio when what is happening in reality is different to what was set out in the plan? For example:
- Can you scrap the project(s) that no longer make sense and move the resources to those projects that are more deserving?
- The key project that is a risk of missing a critical deadline, can you apply extra resources in order to bring it back on track?
- Where no more resources are available for a struggling project are you prepared to accept that either the project’s scope or the timeline will need to be adjusted correspondingly?
Allocating Resources is the Easy Part!
Organizations have never failed to allocate their resources, in one way or another. The real question is:
Q: How well are resources aligned with your organization’s needs and priorities?
The answer to the above may be: ‘Resources are well aligned with the organization’s needs and priorities’. But fast-forward 3 or 6 months and the answer could be very different.
More than 12 long months may pass between the date that a budget was created and when it next gets revised. But what if things change in between? For example:
- Business needs or priorities change
- A new market opportunity or challenge emerges
- Results on the ground are deviating from those in the plan
- A project or initiative is struggling or needs more resources
- An initiative is seen to no longer make sense and should be slowed or stopped
How quickly will your organization be able to respond to these emerging realities? The answer depends on striking a balance between annual resource allocation and dynamic resource alignment.
The pandemic has shown many CFOs that a more dynamic approach to budgeting is required in dealing with uncertainty. Moreover, fears of recession make it doubly so. This has given new impetus to a movement called ‘Beyond Budgeting‘.
Beyond the Calendar
Traditionally, the allocation of resources has been calendar-driven and episodic. It has been centered around the annual budgeting cycle and guided by a multi-year strategic planning process. However, alignment does not respect the calendar!
Resource Alignment enables greater speed, agility and innovation. That is because it is bottom up and ongoing, compared to the top down and calendar driven nature of Resource Allocation. Thus, ongoing resource alignment enables organizations to engage with an increasingly fast changing and complex world – to ‘see around corners‘ so to speak.
For leaders the nature and the goals of resource allocation and alignment are fundamentally different, as shown below.
‘Bureaucratic’, ‘rigid’, and ‘slow’ – these are words that many executives use to describe with the annual budgeting process. Other words are ‘non-value adding’, ‘time-consuming’ and ‘political’. These point to the reality that: In many organizations, the Finance Department gets more out of the process than most executives.
Allocating resources is about the numbers, the spreadsheet and the forecast, while alignment is also about the strategy—about priorities, choices and scenarios. The requirement is to ‘shift the focus from financial precision to strategic success’1.
To ensure resource alignment requires engaging executives in a strategic dialog. That is essential because Resource Alignment requires absolute clarity regarding business needs and priorities. It requires what we call ‘Disciplined Prioritization‘.
Essential too is making the required trade-offs. Indeed, the greatest risk to alignment is not the absence of priorities, but their over-abundance. When a new business priority gets added to the list it is essential that another gets taken off. Making the required trade-offs is key because there are simply not enough resources to go around.
Are people in your organization regularly heard complaining about resources? Well, 70% of executives say ‘yes’.
However, is it a complex picture, closely tied up with:
– ‘A lazer-like focus on priorities (47%)
– The ability to make tadeoffs (63%)
– The ability to scrap projects (36%).
Datasource: Pitstop Analytics 2022 (685 Responses)
In understanding an organization’s effectiveness at the alignment of resources, a key question is: What projects and initiatives have been paused or scrapped? Have resources moved to more important areas as a result?
How good is your organization at killing-off projects that no longer make sense? Is it able to ‘see the writing on the wall’ for a project and take decisive action, thereby freeing up resources to be allocated elsewhere? Is it easy for leaders to say ‘I/we were wrong, this is not going to work’, especially when significant resources have been spent and reputations are on the line? If the answer is ‘no’, then it’s time to destigmatize failure!
Alignment is Strategic
Resources are finite while the demands on them are not. Because resources are limited they cannot be spread like peanut butter – they should be allocated where they can generate the greatest reward. This is not just measured in meeting short-term targets, but delivering on the strategy too.
The traditional budgeting process often results in costly short-termism2. To drive and sustain value creation and performance, organizations must allocate and align resources across multiple time horizons (short term, medium term and longer term). Similarly, it must encompass the core business (business as usual) as well as adjacent and new products, customers and markets (i.e. business unusual).
Going beyond traditional budgeting means adding alignment to allocation3. When this happens the budgeting process goes from being a bureaucratic exercise, to being about strategy and execution, performance and value creation.
Ensuring alignment despite changing business needs and priorities requires being able to fluidly move resources (assets, people, etc.) to where they are needed.4 These ‘resource fluid’ organizations are prized to profit from change.
CEOs often say they want greater speed, agility and innovation. This fuels the demand for organizational re-structuring and cultural change initiatives. However, in the quest for a new organizational dynamism one crucial element gets overlooked – that is the level of bureaucracy around resource allocation.
Talk of agility and innovation amounts to little, if it takes 3 to 6 months and multiple committee meetings to access resources for an emerging business need or market reality. Being able to dynamically align resources is key to speed, agility and innovation. It is therefore essential to bridging the gap between strategy and execution.
‘Priorities are mere words until they are backed up with resources’ said the increasingly frustrated program leader. ‘Everybody is saying how important this initiative is and talking-up what it can do for the organization, yet we are running things on a shoe-string’ she continued. ‘If this initiative was really important it would have access to the resources that are required… …as an organization we need to put our money where are priorities are’ she added.
Getting the Balance Right
What is the right balance between fixed allocation and dynamic alignment? For some organizations that may be 80:20, where:
- 80% is rigidly allocated to business as usual, typically on the basis of last year plus 3, 5 or 10%.
- 20% is dynamically aligned to accommodate change and uncertainty – ideally suited to business unusual strategies and initiatives.
This is something to keep in mind in setting the budget for your department, strategy, or initiative. In this way the budget becomes a ‘rolling budget’ rather than a rigid annual budget.
What % of the allocation will you keep fluid—where resources can be aligned with changing needs and priorities? The percentage that should be fluid will likely vary depending on the extent of innovation and uncertainty involved. That includes the extent to which a strategy or initiative is business as usual versus business unusual.
Take a moment to reflect on the implications for your organization, as well as for resourcing your key strategies and initiatives.
You can recap on the main points as shown at the top of this article by clicking here: jump to the summary above.
- Colin Price and Sharon Toye, Accelerating Performance: How Organizations Can Mobilize, Execute, and Transform with Agility, Wiley; 2017 [↩]
- The CFA Institute defines short-termism as ‘…an excessive focus on short-term results at the expense of long-term interests’ See: https://www.cfainstitute.org/en/advocacy/issues/short-termism [↩]
- See Beyond Budgeting by Steve Willis of the ACCA (The global body for professional accountants), Link: https://www.accaglobal.com/ie/en/student/exam-support-resources/fundamentals-exams-study-resources/f5/technical-articles/budgeting5.html [↩]
- The importance of ‘resource fluidity’ is highlighted by Colin Price and Sharon Toye with research showing that companies that can rapidly reallocate capital and people outperform those who adopt more traditional and rigid approaches to budgeting. See: ‘Accelerating Performance: How Organizations Can Mobilize, Execute, and Transform with Agility’, Wiley; 2017. [↩]