Question

Identify ways that an organization can achieve competitive advantage through effective and efficient capital allocation structure and management.

Answer 1

An organization can achieve competitive advantage through efficient capital allocation and management using the following ways

1) Effective capital allocation would help to minimize or even size down operations which are not useful for the company and which do not lead to higher margins. This would help the company to save capital being used in such low efficiency tasks/processes

2) Effective management can lead to proper vision on which product lines for the company to focus on. This would help to focus and put capital only on product lines where the business has more probability of seeing growth.

3) Capital allocation can help the company maximize its output in areas where the company has an edge rather than in areas where the company has no business edge.

4) The company can achieve competitive advantage by expanding operations or innovating by using capital on products/product lines / processes which have more probability and capacity to deliver. This would help the company in terms of higher ROI later on and also cost recovering.

5) They say management is the heart of a company. Good management can take the company places and a bad management can ruin a successful business. Thus it is imperative for management to take steps in the best interest of the company as a whole after considering all possible pros and cons. In every decision, capital allocation is of primary importance.