With the ever-increasing competition in the world due to entrenchment in globalization, there is a need for corporations to ensure effectiveness and efficiency in their strategies. One way of achieving efficiency and effectiveness is in the optimal deployment of resources in the investments into which it ventures (Arrfelt, Wiseman, McNamara, & Hult, 2015) . Capital investments and resource deployment should therefore not happen haphazardly, but follow a well laid down strategy.
Capital allocation policy
For any organization, the capital allocation policy is prudent because it spells out how the organization will use and distribute company resources, all for long-term business growth. Arrfelt et al. (2015) posit that f irst, a company should determine the source of its funds. The major source of funds can either be from debt or equity. There are, however, cases when a company has financing from its off-balance sheet activities. Whichever the source of financing, transparency, and full disclosure should always be maintained. The next important step in the capital allocation policy is to forecast the future cash flow which the company is expected to generate. These cash flows are from the operations of the company; hence, they are predictable to a high degree. There should however be some acceptable margin of error.
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With these cash flows from operations as well as from financing, it is only logical that the next step spells out how the company plans to invest. Arrfelt et al. (2015) further argue that t he investment forecast of a company may be varied and diverse. Some of the most common investment forecasts in the capital allocation policy are investments in organic business growth, branding, technology infrastructure, and so on. The next criteria are understanding the hurdle rate of return of the capital. It requires investment discipline that takes into consideration factors such as risk, competition, diversification, among others. Eventually, the criteria in the capital allocation policy should have a provision for the return to shareholders for their investments. Shareholder return can be in two major ways: dividend policy or share buyback.
Response in volatile markets
For these shareholders, they sometimes invest in volatile markets such as airline manufacturing. For industries like the airline manufacturing industry where markets are volatile, the management should always be proactive and fast in its response to unexpected problems and challenges. Bauer, Hämmerle, Schlund, & Vocke (2015) argue that t he management of companies in industries that deal in volatile markets should adopt a demand pull marketing strategy which then affects resource deployment. In a pull marketing strategy, a company sells ideas to existing and potential customers, hence create a loyal following, eventually, even when the market is volatile, demand will be steady, and hence resources can be allocated and deployed in advance. Customers are however fickle, and even loyalty may not suffice. In this case, management should adopt just-in-time production. With JIT production, resource allocation and deployment only happen after placement of orders. The above strategies reduce risks of resource wastage associated with volatile markets.
Generation of internal capital
Even as the companies grapple with the volatility of the market, some of them can only general internal capital as they have little to no access to external capital. Singal, & Manrai (2018)) posit that a close-ended mutual fund and wholly-owned private companies can only general internal capital from leverage or retained earnings. In the company types mentioned above, there are restrictions in the issuance of new stocks or shares. For a close-ended mutual fund, investors can only buy shares in the company at the initial public offering (IPO), which is the primary market. After that, trading of shares happens in the secondary market; hence they do not benefit the company financially. Michiels, & Molly (2017) argue that f or a wholly-owned private company, the private owner(s) such as family business may not want to lose any control in the acquisition of capital. For this reason, they prefer only internal capital financing.
Resource deployment
Whichever the source of capital (internal or external), the early deployment of resources to execute strategies should be the norm. According to Arrfelt et al. (2015), resource deployment refers to the provision of necessary resource backed by funds to support the goals and strategies of the organization. When resource deployment takes place within the requisite time, it ensures that the organization’s resources are not wasted but are instead used effectively and efficiently, leading to their optimization. Additionally, early deployment of resources not only leads to taking advantage of opportunities in the market but also gives an organization a competitive advantage over its rivals, leading to consistent business growth.
Conclusion
There are many ways to ensure the sustained growth of a corporation. From the analysis enumerated above, it is clear to see that capital investment and resource deployment is one of the surest ways to achieve this end. It helps a corporation invest its capital in a way that optimizes return while being cautious of the risks that come with it. At the end, when both capital investment and resource deployment happen in a way that is better than rivals, it creates a competitive advantage as a company can take advantage of opportunities in the market finance its operations with little to no interruptions.
References
Arrfelt, M., Wiseman, R. M., McNamara, G., & Hult, G. T. M. (2015). Examining a key corporate role: The influence of capital allocation competency on business unit performance. Strategic Management Journal , 36 (7), 1017-1034.
Bauer, W., Hämmerle, M., Schlund, S., & Vocke, C. (2015). Transforming to a hyper-connected society and economy–towards an “Industry 4.0”. Procedia Manufacturing , 3 , 417-424.
Michiels, A., & Molly, V. (2017). Financing decisions in family businesses: A review and suggestions for developing the field. Family Business Review , 30 (4), 369-399.
Singal, V. S., & Manrai, R. (2018). Factors Affecting Investment in Mutual Funds.
