The allocation of capital and people determine whether the organization will do well or poorly.
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 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 should be assessed against expectations in the postaudit 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.
ACTION POINT: Review your capital allocation decisions of the past year. Are they meeting your expectations? Review your hiring and promotion decisions of the past year. Are they meeting your expectations? Make changes to your resource allocation procedures based on feedback analysis.
Management Challenges for the 21st Century
From Data to Information Literacy (Corpedia Online Program)
* Source: The Daily Drucker by Peter F. Drucker