The Strategic Capital Allocation Commitment:
Aligning capital availability
with strategic opportunity to drive long-term value
Nothing is more important to the health and performance of a company than the way it manages capital. Core to this: strategic discipline – regardless of the size of a project or its timeline. It's why companies should have a "strategic capital allocation commitment" like this.
We commit to ...
Taking a long-run view to increase corporate growth and profitability v. short-term hyper-focus on Wall Street analysts
Ensuring that capital can flow from "mature" portions of the business to "emerging" opportunities with higher potential
Having an "activist" philosophy for both multi-year planning and re-deployment of capital to optimize assets across business units and enable agile in-fiscal-year adjustments
Adapting a forward-looking investment mindset that puts ROI front and center as the primary metric for material projects v. backward-looking "accounting expense mentality"
Accepting that the job of strategic capital allocation, like competition in the marketplace itself, is never done; it requires commitment, collaboration and an eye on the prize: creating long-term value
Acknowledging that there are no shortcuts as you aim to rise through the four stages of Capex development: process automation, project insight and financial context; at its "peak" is strategic capital allocation
Leaders today need to master a new skill: capital allocation.
Investing
A recognition that sound investment in your productive asset base is first and foremost about delivering future benefits.
Spending
A backward-looking accounting mindset that is most concerned about expense control.
Continuous
Having the processes and discipline to make sound long-term plans with the flexibility to re-allocate capital dynamically as conditions change.
Episodic
Overly rigid decision making process limited by lack of visibility into real-time data resulting in decisions only being made at set times and wide intervals.
Realistic
Project budgets and ROI projections based on sound, standardized calculations and leavened by referecne class historical data.
Rose-colored
Unvetted cost and ROI estimates derived from inherent optimism and human tendency to underestimate potential complications and overruns.
Planned
Approval of projects that form a coherent long-term strategy to maximize the cash flow generation capacity of business and its enterprise value.
One-offs
Approving Capex requests using a static “hurdle rate” ROI lens that lacks broader contextual awareness and strategic insight.
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