Corporate Strategy of Allocating Financial Resources

Topic: Strategic Management
Words: 2835 Pages: 10


In conditions of a dynamic market environment and a variety of development channels, modern businesses need sustainable programs to control the allocation of financial resources. The conducted literature review, using peer-reviewed sources as a valid theoretical base, evaluates the prospects and features of the implementation of a corporate financial strategy as one of the main and most effective functional approaches to controlling organizational assets. The key activities to undertake are presented, and attention is paid to both internal operational tasks and external aspects affecting the allocation process. The objectives of this activity are reviewed in the context of the security and sustainability of financial control. Relevant policies defining specific interventions are assessed through the lens of impacts on organizational assets. The classification of financial resources allows dividing funds into specific groups, which, in turn, helps highlight the most relevant steps to secure organizational assets within the framework of a corporate strategy.

Role of Corporate Strategy in the System of Allocating of Financial Resources

At the present stage, the development of a corporate financial strategy is not a feature of individual leading organizations but an objective necessity for all market participants who strive for progressive development and maintaining a stable position. One of the key reasons explaining the need for companies to develop and implement an effective approach to allocating financial assets is the recognition of the growing influence of external and internal factors on business performance. Today, a corporate strategy is a significant factor in productive organizational activities because it determines the sources of formation and directions for the use of financial resources and is the basis for achieving the company’s overall corporate goals, which contributes to the growth of its market value and the welfare of its owners. These tactics can be assessed as the most important among the functional strategies of the organization, aimed at choosing the effective ways of its development in the context of long-term financial planning and the constant variability of the external environment. The following literature review performed through the analysis of peer-reviewed articles is aimed at identifying the features and implications of this strategy.

Literature Review

The process of developing a corporate financial strategy involves allocating the dominant areas of strategic financial development. As Wadström (2018) argues, these fields allow determining the priority directions of the organization’s financial activities for the successful implementation of its main target function – the growth of market value in the long term. As the dominant areas of the development of organizational financial activities, several significant activities are crucial to achieving safe and successful growth.

Activities to Realize a Corporate Strategy

Forming organizational financial resources, goals, objectives, and major strategic solutions should be aimed at ensuring the implementation of the overall corporate strategy of the company. This applies both to basic corporate aspects, for instance, defining the mission and vision, and to deeper approaches to development, for example, creating short-term and long-term plans. According to Laventhal et al. (2020), allocating financial resources, on the one hand, should imply providing individual functional strategies and strategies of economic units and, on the other hand, shape the basis for the formation of directions for the organization’s investment activities in a strategic perspective, which is particularly relevant during the COVID-19 pandemic. This means that planning obliges managers and business owners to cover a wide range of tasks that determine the future of the company but not just some immediate steps to generate profits.

Ensuring the financial security of an organization is another essential activity to take into account when building a corporate strategy. Sosnovska and Zhytar (2018) argue that the main purpose of this work is the formation and support of the key parameters of organizational financial balance in the process of its strategic development. Risk prevention programs, engaging machine learning, problem-solving tactics, and other algorithms are topical interventions to implement to achieve safe operations. Finally, improving the quality of financial management of an organization should be promoted as a mandatory criterion for development (Sosnovska & Zhytar, 2018). Appropriate parameters need to be developed, for instance, protection against data leakage, hacker attacks, and other unwanted outcomes. In addition, local organizational services can work to expand growth strategies and market presence, which is an adequate practice in the context of globalization and market economies (Sosnovska & Zhytar, 2018; Parente et al., 2018). These basic principles are crucial to implementing a corporate financial strategy and ensuring that the company’s assets are safe and allocated wisely.

The identified priority areas of a corporate financial strategy should be reflected in specific target strategic standards. According to Ahmed and Afza (2019), they may include such parameters as the growth rate of net cash flow, return on equity, asset structure, financial leverage, the period of turnover of receivables and payables, and some other criteria. In the conditions of active market growth and competition, the organization cannot ignore these financial aspects. Otherwise, significant risks arise because the inability to assess the prospects for capital accumulation and costs adequately can lead to huge losses, up to bankruptcy (Ahmed & Afza, 2019). Therefore, the aforementioned standards are critical as indicators that determine the success of the chosen development course and the sustainability of a corporate strategy. Among the listed main directions of strategic financial growth, the strategy for the formation of financial resources is of fundamental importance. This perspective is designed to provide an organization with sufficient assets in accordance with the needs of its strategic development and, consequently, implement both a functional and an overall corporate strategy.

Directions of Financial Policy

The strategy for the formation of organizational assets includes several areas of financial policy. This is done to address both current and long-term needs as comprehensively as possible and secure the company’s budget from unwanted expenses, debts, and other financial threats. Such areas include depreciation, emission, dividend, profit management, and some other policies (Eka, 2020). These functional types of financial policy are developed within the framework of the organizational resource formation algorithm and are aimed at implementing its overall corporate financial strategy. Failure to take into account these business aspects is fraught with losses and can lead to severe expenses that are difficult to eliminate in a short time.

Peculiarities of Financial Policy Directions

To evaluate specific areas of financial policy, researchers define the relevant approaches to its control. The dividend policy of the organization, being an element of the overall strategy for the formation of financial resources, is aimed at optimizing the proportions between the consumed and capitalized parts of the profit to maximize the market value of the company (Eka, 2020; Yung & Root, 2019). In other words, the emphasis is not only on profit growth but also on raising such an essential criterion as brand value, which, in turn, allows business owners to achieve related goals. Customer loyalty, the share of market partnerships, and other significant prospects largely depend on the success of the dividend policy.

The depreciation policy is another direction that also addresses financial assets. Its main essence is to determine the level of intensity of renewal of depreciable assets while taking into account the specifics of their depreciation. The more successfully a company profits from the development approaches and algorithms involved, the more effective such a policy is (Yung & Root, 2019). If this level is low, it indicates poor management of assets that are difficult to capitalize on in the face of existing constraints, such as poor demand.

The emission policy is a separate economic practice that is associated with the external market. This direction involves attracting organizational financial resources from external sources through the additional issue of shares (Eka, 2020). This nature of financial activity requires careful preparation and is not suitable for all companies. However, in the case of successful implementation, profits are guaranteed to grow due to successful exchange activity and a rational assessment of any fluctuations in the securities market.

The profit management policy can be considered a basic practice used in all organizations since any income is recorded and evaluated in the context of the resources expended. In this case, net profit is a real indicator of the success of this direction of work (Rusiadi et al., 2020). Finally, the policy of attracting borrowed financial resources is aimed at controlling borrowed funds of the organization for the purpose of its strategic development. This may involve loan relationships with banks or other financial institutions, but other business entities may also be engaged in this process (Morozko et al., 2018). As an example, Morozko et al. (2018) mention partnerships as the tactics that help make efficient use of the resource bases of other organizations. Although this principle of cooperation does not imply direct profit, the financial interest of the parties involved is obvious.

All of the aforementioned areas of financial policy can function successfully within one company. One of the main tasks is to ensure that assets accumulate steadily, and no risks affect the stability of the resource base. In this case, short-term and long-term strategic goals can be accomplished successfully, and no unforeseen threats to the budget will appear due to mistakes made and inadequate policies applied when allocating funds.

Types of Financial Resources to Allocate

In general, the financial resources of an organization should be understood as the sum of income, external receipts, and exclusive rights that are formed in the process of interaction of receipts and expenses. These assets are owned or operated by the company and are intended to meet financial obligations, ensure reproduction costs, social needs, and material incentives for employees (Feng et al., 2021). If financial resources are allocated wisely, all business departments function successfully, and a corporate strategy proves its effectiveness.

General Classification

Financial resources are usually classified into a number of categories. Bertacchini et al. (2018) offer appropriate groups that reflect the types of funds. According to the form of ownership, one can allocate own financial resources, that is, those that belong exclusively to the organization and are its independent assets, as well as borrowed ones. Based on the criterion of attitude to the organization, it is customary to allocate internal sources, when money is taken from the budget and distributed in accordance with investment plans, and external sources, for instance, funds received from sponsors, donations, and other channels (Moradi et al., 2020). According to the time period of attraction, the classification of resources involves allocating short-term, long-term, and temporarily indeterminate assets (Ravikumar et al., 2019). The first group includes resources to utilize in the near future, for example, the payment of wages or the purchase of raw materials; the second group involves investment assets associated with long-term development tasks; the third group is associated with resources that are challenging to classify by time period, for instance, profit from transactions.

The list of categories of financial resources can be supplemented by a larger number of groups. Moradi et al. (2020) mention assets defined in accordance with the type of capital owners who provide money for economic use. These can be public funds allocated through business support programs, resources of individuals and legal entities that differ in the degree of responsibility in fiscal legislation, as well as foreign sources, such as international funds or charitable organizations. In terms of economic uses, one can allocate resources to consumption (buying materials, business expansion, and other tasks), replacement (the optimization of equipment or replacement of working models), and accumulation (replenishing the budget to reserve funds for further needs) (Ravikumar et al., 2019). Finally, according to the type of economic activity of the organization, resources can be classified into three groups – operating, investment, and financial (the development of the working base, investments for the purpose of further payback, and direct profit-accumulation activities, respectively) (Moradi et al., 2020). All of the aforementioned categories are essential to consider as they determine which allocation algorithm is optimal in the context of specific financial objectives.

Important Aspects of Resource Classification

In the system of strategic control over the formation of the organization’s financial resources, their division into own and borrowed is decisive for several reasons. As Ichsan et al. (2021) note, own financial resources belong to the company on the basis of property rights and are part of its capital. The share of these assets largely determines market success and stability since, having an opportunity to rely on its budget, the organization remains independent in front of potential creditors. Borrowed financial resources represent financial obligations and are subject to return within a certain period of time. In addition, one should note that financial resources attracted on a long-term basis (the totality of own and long-term borrowed capital) are the main object of strategic control over the formation of the organization’s financial resources. Short-term assets generated by companies for a period of up to one year are used, as a rule, to meet temporary investment needs (Ahmad, 2020). Thus, when taking into account these factors, organizations can plan their financial activities in accordance with objective factors that determine not only the sustainability of the budget but also additional obligations.

Main Objectives of the Corporate Strategy for the Formation of Financial Resources

The main goal of the corporate strategy for the formation of financial resources is to meet the needs of the organization to generate the necessary assets that ensure the development of its business activities from a strategic perspective. According to Wadström (2018), this purpose implies fulfilling several significant objectives. Firstly, this includes ensuring a positive dynamics of growth in the volume of financial resources from internal sources of the organization. This is achieved during operational activities, when through competent work, profit is accumulated, for instance, due to the efforts of staff or a reasonable innovation policy (Feng et al., 2021). Secondly, another objective is ensuring positive dynamics of assets growth from external sources of the organization. This may include subsidiaries, charitable foundations, and other sources that serve as channels for the enrichment of the firm and provide a stable income (Parente et al., 2018). Finally, optimizing the capital structure of the organization in terms of risk-adjusted cost is another valuable task to implement. Protecting assets from any threat is a mandatory objective to strive for so that to secure the allocation of financial resources.

Given this goal and objectives, the process of the formation of financial resources is based on several principles. Eliseeva et al. (2020) highlight the key ones and assess the underlying implications and benefits of introducing the organization’s corporate strategy. Adhering to these aspects of the business process can help strengthen the firm’s financial background and ensure long-term growth through efficient and sustainable profit generation tactics.

Considering the prospects for the development of economic activities through long-term planning of the volume and structure of financial sources is an important principle. According to Trotsenko et al. (2018), this practice is an adequate step to take due to the need to provide a clear vision of the company’s future and its prospects, which is particularly essential in a competitive market and under unstable customer demand. Allocating the part of resources intended for investment is another principle to follow in the asset management system (Trotsenko et al., 2018). The total need for investment resources is based on the calculations of the volume of investments that ensure the implementation of the corporate strategy. Finally, building the optimal structure for the formation of available funds from the standpoint of financial security is a mandatory practice in modern companies (Trotsenko et al., 2018; Ahmed & Afza, 2019). This activity is aimed at ensuring financial balance in the process of strategic development and is designed to create a background for the safe distribution of assets both inside the business and outside it through investments.

Implementing these principles is the main content of the strategic management of organizational financial resources. While making a conclusion about the basic activities to undertake to control assets, Lin et al. (2018) state that the strategy of generating financial resources, being the most important area of ​​the overall corporate financial strategy, is aimed at accomplishing the main goals by attracting the required volume of assets from various sources. This approach is in line with modern business planning principles and does not violate any fiscal or other regulations.


The safe allocation of financial resources is largely achieved due to the correct tactical scheme chosen, and establishing a corporate strategy based on the assessment of internal and external income channels is a significant business task. The conducted literature review has made it possible to identify the key activities to perform and implement such a strategy. In addition, individual financial policies are considered, as well as their characteristics that are critical to consider when building a reliable and secure process for controlling available capital. The types of financial resources used by companies are reviewed in accordance with the basic classification, and the features of each of the categories are listed. The objectives of asset allocation have revealed the key steps to take and provide a stable and secure background for generating profits and investing funds.


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