Capital Resourcing system
By Md Rezaul Karim, 12th Jul 2012 | Follow this author
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Posted in WikinutBusinessAnalysis
There are traditional focuses on resource planning what if someone tried it differently and succeed!
Xerox: Changing the values that drive its capital Resourcing system
As part of his effort to make Xerox a more competitive rival, Paul Allaire, the corporation’s CEO, attempted to change the way individuals throughout the organization viewed the capital Resourcing system. To understand the change he tried to bring about considers the way in which R&D resources were allocated. Allaire wanted to alter this system from one that reflected the values of a welfare state doing out funds based on centralized planning to one that would reflect the values of entrepreneurs seeking out venture capital.
Under the old system, an annual ritual that went by the grandiose name of ‘resource optimization’, the top management team took the R&D budget, which typically ranged from $800 million to $900 million, and allocated it to major priorities. They then used threes priorities to decide which projects would get funded and at what levels. The system made sense if it was assumed that the top management team was the only group that knew the firm’s strategy and or it was assumed that the top management team knew how best to implement the strategy. Allaire did not think either of these conditions existed at Xerox, and he greatly disliked the values the old system had been built on.
‘It was as if the people who actually had to spend the money were living in a welfare state. They told us what they needed – ‘I need $50million.’ – Then they waited. At some point, somebody would come back to them and say, ‘what will happen if you only get $30 million instead of $50 million?’ And then they would revise their plans according to the new figure. Finally, someone would come back yet again and say, ‘okay you get $35 million.’ That’s how the process worked. It was completely crazy.’ What Allaire developed as an alternative was a system that placed greater responsibility for deciding how funds will be allocated lower in the organization. Division heads were told to set their own priorities and to determine what funds they would need to reach their targets. Then they were evaluated on how efficiently they were able to use the capital they were allocated to reach the targets they set. Such a system was based on a very different set of values than the former system had been. It assumed that division level managers knew what their strategic priorities were and should be and that they were in a better position that senior corporate executives to decide how funds should be allocated in pursuit of those priorities. Allaire’s new capital allocation system was much more aligned with the concept of discovery and organizational learning, while the old system had been closer to that of strategic programming.
In describing the way division heads throughout the organization should approach the new capital Resourcing system, Allaire explained, ‘They should be coming to corporate management the way an entrepreneur goes to a venture capitalist or banker - we should not be starting out with a fixed R&D budget. How the hell is anybody smart enough to say what the right amount should be?’--
Comments
13th Jul 2012 (#)
Thanks for quick moderating.
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14th Jul 2012 (#)
You always write such informative pieces Md...thank you for this one too...
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15th Jul 2012 (#)
It's a pleasure to see after a while cnwriter.
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15th Jul 2012 (#)
One has to earn it than be just given. The latter means easy money with no incentive. Allaire should be commended for change in strategy. Thanks for the share Karim - siva
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15th Jul 2012 (#)
How can I disagree with you Siva ji. Thank you for sharing.
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15th Jul 2012 (#)
Thank you Md for this.
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15th Jul 2012 (#)
Oh, it's a nice pleasure to see you Adam. Thank you for visiting.
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19th Jul 2012 (#)
I agree with your other followers! You always give us a lesson in business economics! Thanks for sharing your knowledge with us! Great article!!
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20th Jul 2012 (#)
Thank you Judy for your appreciation.
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18th Oct 2012 (#)
Interesting!
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21st Oct 2012 (#)
Thank you Teila.
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