Leadership & Business Wisdom

Resource-Allocation Decisions

The allocation of capital and performing people converts into action all that management knows about its business – they determine whether the organization will do well or well or poorly.

An organization should allocate human resources as purposefully and as thoughtfully as it allocates capital.

To understand a capital investment, a company has to look at four measures: return on investment, payback period, cash flow, and discounted present value. Each of these four measures tells the executive something different about a prospective capital investment. Each looks at the investment through a different lens. Decision makers should not evaluate capital investments in isolation, but as part of a cluster of projects. They should then select the cluster that shows the best ratio between opportunity and risk. The results of capital spending be assessed against expectations in the post audit procedure. Information gathered from the procedure can then be used to help make decisions about future investments.

The decisions to hire, to fire, and to promote are among the most important decisions of the executive. They are more difficult than the capital allocation decision. An organization needs to have a systematic process for making people decisions that is just as rigorous as the one it has for making decisions about capital. Executives need to evaluate people against expectations.

Six Rules of Successful Acquisitions

Acquisitions should be successful, but few are, in fact. The reason for this nonperformance is always the same: disregard of the well-known and well-tested rules of successful acquisitions.

The six rules of successful acquisitions are:

  1. The successful acquisitions must be based on business strategy, not financial strategy.
  2. The successful acquisition must be based on what the acquirer contributes to the acquisition.
  3. The two entities must share a common core of unity, such as markets and marketing, or technology, or core competencies.
  4. The acquirer must respect the business, products, and customers of the acquired company, as well as its values.
  5. The acquirer must be prepared to provide top management to the acquired business within a fairly short period, a year at most.
  6. The successful acquisition must rapidly create visible opportunities for advancement of for both the people in the acquiring business and people in the acquired business.

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