Academic journal article IUP Journal of Applied Economics

Optimal Resource Allocation for SQM: A Comparative Case Study in Pharmaceutical Industry

Academic journal article IUP Journal of Applied Economics

Optimal Resource Allocation for SQM: A Comparative Case Study in Pharmaceutical Industry

Article excerpt

Introduction

The trade-offs and tension associated with the allocation of scarce resources form the core of modern economies. While the strategic management literature is more concerned about the narrower challenge of resource allocation for corporate strategy, the central issue facing corporate strategy is an appropriate allocation of financial as well as non-financial resources across multiple lines of activity at a given point in time and across time (Levinthal, 2017).

This study is concerned with the allocation of these scarce resources among the selected quality strategies for implementing Strategic Quality Management (SQM). Quality being a critical issue in the pharmaceutical sector, the present study uses a case study approach to compare the efficiency with which two selected pharmaceutical companies are allocating resources for implementing SQM strategies. The study also assesses the gap between actual and desired resource allocation and suggests the optimum resource allocation for each strategy.

The paper is structured as follows: it examines the related literature defining SQM and firm resources, followed by a discussion on the research methodology and data used in the study. Subsequently, the results are analyzed, and finally, the conclusion is drawn.

Literature Review

Resource Allocation

The resource-based view of the firm gives an inside-out view of it. It considers that organizations are made of resources and capabilities that can be assembled to formulate a competitive strategy to achieve a sustainable advantage in its markets. Hence, it is the internal capabilities that determine the strategic choice for competing in its external environment (Wernerfelt, 1984). Anderson et al. (1987) examined the resource allocation behavior in conventional channels by describing the impact of financial incentives and aspects of channel relationship on the allocation of resources by channel members across various suppliers. The results of the multinomial logit model applied to dependent and independent variables indicate that resource allocation decisions are influenced by short-term marginal returns reflected in the optimal resource allocation. The channel members responded to financial incentives, inter-organization climate and trusting relationships (Anderson et al., 1987). Harrison et al. (1993) tested the hypothesis concerning the effect of resource allocation similarities on performance among the business lines of large, diversified firms using secondary data through seven years. The study treated each firm as a unique configuration of resources with the potential for achieving a sustainable competitive advantage. The variations in capital intensity and R&D intensity across business lines were used as a measure of the difference in resource allocations. Return on Assets (ROA) was used as a measure of firm performance. Leverage, firm growth, relative market share, and diversification were used as control variables. It concludes that the consistency given to strategic resources across businesses like R&D is positively related to corporate performance. However, the same is not valid for capital intensity (Harrison et al., 1993).

Blake and Carter (2002) described a methodology for using two linear Goal Programming (GP) models for allocating resources in the hospital. The decision-making model allows the managers/decision makers to set case mix and case cost in such a way that the institution can break even. Chen and Hsu (2010) examined the effect of internationalization and resource allocation on firm performance using a regression model in a sample of Taiwanese firms. The dependent variable was performance and independent variables were level of internationalization, R&D expenditures, advertising expenditures, and strategic emphasis. Firm size and international experience were used as control variables. The study argues that the level of internationalization as well as resource allocation influences the firm performance. …

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