By Dada Adefolami
An efficient allocation of resources is: That combination of inputs, outputs and distribution of inputs, outputs such that any change in the economy can make someone better off as measured by indifference curve map only by making someone worse off pare to efficiency.
Resource allocation is the assignment of available resources to various uses. In the context of an entire economy, resources can be allocated by various means, such as markets or central planning.
1. Government need to consider and analyses the impact of boost production globally and its impact on the way business is conducted
2. Efficient allocation of resources to compete globally
3. Organizations in the IT and communications industry will need to consider major investment in human and organizational development, to enable them to compete globally and facilitate collaboration between in technology companies
4. Geo-political influences should be included in the scope of business risk assessments. Competing with other firms on production costs will be tough and it is expected that trading with Nigeria will increase because of the infrastructure development linking across the country, inevitably increasing competitive pressures on local products. Risk-management mechanisms must be adapted to allow timely identification of any business risk.
Allocative efficiency is a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing. In the single-price model, at the point of allocative efficiency, price is equal to marginal cost.
Skills for the future
Better communication and better business analytics to deal with the expected changes, along with taxation knowledge and leadership ability will also be key to take advantage of the expected changes Nigeria.
According to the Department of Agricultural Economics at Michigan State University, efficient resource allocation means that there is efficiency in production, consumption and system. Production efficiency involves producing the best value of goods and services with given resources.
Government and business Executive can prepare themselves for the business growth that will take place:
1. Understand how it will affect lives of citizen lives and organizations
2. Learn from the ‘early harvest’ projects taking place.
3. Take stock of the additional skills required to take advantage of infrastructure improvements
4. Visit Chamber of Commerce and Industries and meet relevant companies
5. Develop detailed future strategies based on the long-term implications
6. Think carefully about cross-border trade and the cultural and ethical values
The complexities of strategic planning and how they can be broken down into three main areas
The following provides an insight into how to apply your knowledge effectively.
1. Strategic analysis.
2. Strategic choice.
3. Strategic implementation.
Strategic analysis:
Essentially a business will address the following questions:
1. Where do we want to go?
2. What constraints exist on our resources?
3. What are the key threats from the external environment?
Where do we want to go?
The answer to this question is influenced by many factors. Key influencers are often the owners for example, shareholders who may have a particular expectation for the organization. However, one also needs to take into account other stakeholder influences, which could include the government, employees and the general underlying culture of the organization. These views are very often consolidated into a corporate vision or mission statement.
What constraints exist on our resources?
Resources needed would include finance, plant and machinery and human resources. However, to make it easy, would simply think 6Ms. 6Ms is basically a reminder used to save time when thinking about the various resource constraints. It can be summarized as:
1. money
2. machinery
3. manpower
4. markets
5. materials
6. Make-up.
The typical questions against each of these resource constraints would be as follows:
Money
1. How much do we have?
2. What is the current cost of our capital?
3. Is the company excessively geared or are there any opportunities for raising additional finance?
Machinery
This would refer to machinery in the broadest sense of the word, and emblematic questions one might ask would include:
1. How technically up to date is the machinery?
2. Is there a danger of obsolescence?
3. Has it been poorly maintained over the years?
Manpower
1. How expensive is our workforce?
2. How efficient are our employees?
3. Is the business overstaffed?
4. Is it understaffed?
5. What is the labour turnover rate?
6. What is the absence rate?
7. Are there good structures to allow management succession?
Markets
There is a danger of overlapping with the external environment, so try to keep to these questions as:
1. Are the markets declining/ growing?
2. Where are new markets emerging?
3. How strong are our brands in the current market?
Materials
1. How expensive are our materials compared to our competitors?
2. Do our suppliers have excessive control of materials?
3. Do we have favourable access to materials?
4. Are our raw materials becoming exhausted?
Make-up
1. What type of structures do we have and are they likely to limit future growth?
2. What is the culture of the organization and will it choke or fuel future developments?
What are the key threats from the external environment?
Once we have established constraints on our internal resources we need to assess the threat posed by the external environment. The easiest way to assess the external environment is to use the following two frameworks:
1. Porter’s five forces.
2. PESTEL analysis.
Porter’s five forces
The American management writer Michael Porter describes the main external competitive threats to be summarized by his five forces model. Essentially, this model determines the level of competition an organization is facing by assessing the extent to which the five forces are relevant. The five forces are summarized as follows:
1. The threat from new entrants.
2. The bargaining power of buyers.
3. The bargaining power of suppliers.
4. The threat from substitute products.
5. The extent of competitive rivalry.
Threat from new entrants
This is a problem because if competitors can easily enter your business sector they will be able to put a ceiling on your profits. Therefore, the greater the threat from new entrants entering the sector, the higher the levels of competition. The ease which new entrants can enter the business segment is largely determined by the extent of the barriers to entry.
The following summarizes the main barriers to entry.
1. Capital cost of entry. The higher the capital cost, the greater the deterrent to someone entering the business and, therefore, the likelihood of competition being less than in industries where it is much cheaper to set up business.
2. Economies of scale. This will apply if a substantial investment is needed to allow a new entrant to achieve cost parity. Therefore, anyone entering the segment that cannot match the economies of scale will be at a substantial cost disadvantage from the start.
3. Differentiation. Differentiation is said to occur if consumers perceive a product or service to have properties, which make it unique or distinct from its rivals. The differentiation can be in the appearance of the product, its brand name or services attached to the product. Therefore, if new entrants are to be successful in entering the market they will need to spend a lot of money on developing the image of the product – hence, they are likely to be put off.
4. Switching costs. This is the cost not incurred by a new company wishing to enter the market but by the existing customers. If the buyer will incur expense by changing to a new supplier, they may not wish to change. For example, when the compact disc was invented consumers had to incur a cost of a CD player, as the new compact discs would not work on a conventional record player.
5. Expected retaliation. If a competitor entering a market believes that the reaction of an existing firm will be too great then they will not enter the market.
6. Legislation. There might be patent protection for a product or the government might only license certain companies to operate in certain segments for example, Nuclear Power.
7. Access to distribution channels. Existing relationships between manufacturers and the key distributors of the products may make it difficult for anyone else to enter the market.
Therefore, in summary, when thinking about the barriers to entry go through the above list in your planning to see which of them apply. Remember that it is unlikely that they all will apply, but the checklist should ensure that all those that do apply would be picked up.
Bargaining power of buyers
Do the buyers of the product have the power to depress the supplier’s prices? If the answer to this question is yes, it is likely that competition will increase. Buyers will have power when:
1. they are concentrated and can exert pressure on the supplier
2. The buyer has a choice of alternative sources of supply.
Bargaining power of suppliers
The extent of supplier bargaining power is very closely linked in with the issues of buyer power. The extent of the power of the suppliers will be affected by:
1. The concentration of suppliers: if only a few suppliers, the buyers will have less opportunity to shop around
2. The degree to which products can be substituted by the various suppliers
3. The level of importance attached to the buyer by the supplier. The switching costs of moving to another supplier.
Threat from substitute products
If there are similar products that can be used as substitute then the demand for the product will increase or decrease as it moves upwards or downwards in price relative to substitutes.
Extent of competitive rivalry
The most competitive markets will be affected by the previously discussed forces. Though, they will also be affected by:
1. The number of competitors and the degree of concentration
2. The rate of growth of the industry
3. The cost structures if high – fixed costs prices are often cut to generate volume
4. The exit costs. If they are high, firms may be willing to accept low margins so as to stay in the industry.
PESTEL factors
The other framework, which should be applied when surveying the external environment, is PESTEL factors:
1. Political
2. Economic
3. Social
4. Technological
5. Environmental
6. Legal.
Again, these factors will not necessarily apply but provide a useful checklist against which you can compare.
Political environment
The organization must react to the attitude of the political party that is in power at the time. The government is the nation’s largest supplier, employer, customer and investor and any change in government spending priorities can have a significant impact on a business.
Political influence will include legislation on trading, pricing, dividends, tax, employment, as well as health and safety.
Economic environment
The current state of the economy can affect how a company performs. The rate of growth in the economy is a measure of the overall change in demand for goods and services. Other economic influences include the following:
1. Taxation levels.
2. Inflation rate.
3. The balance of trade and exchange rates.
4. The level of unemployment.
5. Interest rates and availability of credit.
6. Government subsidies.
Efficiency is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without waste. In more mathematical or scientific terms, it is a measure of the extent to which input is well used for an intended task or function (output).
One should also look at international economic issues, which could include the following:
1. The extent of protectionist measures.
2. Comparative rates of growth, inflation, wages and taxation.
3. The freedom of capital movement.
4. Economic agreements.
5. Relative exchange rates.
A shortageoccurs when the quantity demanded is higher than the available supply. When the demand for a good rise but there are a few in supply there are two things that could happen.
A surplus is when there is EXCESS, or too much of a resource/product/item. A shortageis when there is a LACK (not enough) of that resource/product/item.
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