New strategies often entail budget reallocations because

Good strategy execution requires that top management be deeply involved in directing the proper kinds and amounts of resources to the enterprise’s various organization units and value chain activities. Plainly, organizational units must have the operating budgets and resources for executing their respective pieces of the strategy effectively and efficiently. Too little funding (stemming either from constrained financial resources or from sluggish management action to marshal the full force of the organization’s resources behind the drive for good strategy execution) slows progress and impedes the efforts of organizational units to competently execute their assigned strategy elements. Too much funding of particular organizational units and value chain activities wastes organizational resources and reduces financial performance.

Both changes in strategy and efforts to improve execution of an existing strategy typically entail budget reallocation and resource shifting. Previously important units with a lesser role in a new strategy may need downsizing. Units that now have a bigger strategy-critical role may need more people, new equipment, additional facilities, and above-average increases in their operating budgets, especially if they need to develop and strengthen competitively valuable capabilities or if they need more resources for other reasons. For example, Microsoft has made a practice of regularly shifting hundreds of programmers to new high-priority program ming initiatives within a matter of weeks or even days. Fast-moving developments in many markets have prompted companies to abandon traditional annual budgeting and resource allocation cycles in favor of making resource reallocation adjustments on an as-needed basis to support newly made adjustments in strategy. However, when changes entail mere fine-tuning of an existing strategy or approach to execution, then very little, if any, resource reallocation may be needed.

Generally, though, implementing new strategy initiatives and/or launching important efforts to improve execution requires managers to consider shifting resources and to play an active role in screening requests for more people and new facilities or equipment, approving those with valuable benefits and, in the interest of operating cost efficiently, turning down requests that offer too little benefit relative to the cost. Should internal cash flows be insufficient to fund needed strategic initiatives or execution-related improvements, then management must consider raising the needed funds through borrowing or selling additional shares of stock to investors.

In the event that all strategy changes and/or new execution initiatives need to be made without adding to total expenses, managers have to work their way through the existing budget line by line and activity by activity, looking for ways to trim costs and shift the savings to activities where more resources are needed. In the event that a company needs to make significant cost cuts during the course of launching new strategic initiatives or pushing for better strategy execution, managers must be especially creative in