The idea is to find the level of detail that makes visible trade-offs between activities and initiatives a layer or two below the business-unit level.
Make a map
Circulate external data such as analyst reports on the growth outlook for your markets to counter “anchoring” bias in your allocation decisions.
Re-anchor
Promote big-picture thinking by giving
the investment committee poker chips
and asking them to “place bets” on projects they believe worthy of funding.
Go unorthodox
What’s the correlation between resources
you allocate to parts of your business this year vs previous years? Chances are it’s above 90 percent.
Start tracking
Dive deeper
Article - McKinsey Quarterly
Avoiding the quicksand: Ten techniques for more agile corporate resource allocation
Dive deeper
How can a company reallocate resources to where they’ll do the most good? Focus on your strategy-making process before considering the following points.
Fund it
Dive deeper
Strategy to beat the odds
Article - McKinsey Quarterly
Dive deeper
McKinsey finds two primary reasons
why inertia reigns when it comes to resource reallocation.
Stuck places
The ‘social side’
of strategy
Cognitive
biases
Executives who win fewer resources than last year worry they’ll be seen as weak, so they fight to keep their funding, even if a reduction to their division would benefit the company
as a whole.
Companies plan this year’s budget allocation with an anchoring bias on
last year’s budget, even as loss aversion reduces appetite for risk and willingness to reallocate resources.
Companies that reallocate more resources generate greater returns.
Clear correlation
Dive deeper
How to put your money where your strategy is
Article - McKinsey Quarterly
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10.2
8.9
7.8
Growth in total returns to shareholders,
CAGR, 1990−2005, %
High
Medium
Companies’ degree of capital reallocation
Low
So why do companies make only modest shifts when reallocating capital behind new business opportunities—as did
two-thirds of those in our sample?
Measly
0
0.7
2005
1998
1991
0.8
0.9
1.0
high
medium
low
Companies’ capital reallocation
Correlation index
Year-over-year change in business units’ capital expenditures, (the closer to 1.0,
the less change in capital reallocation)
Dive deeper
How to put your money where your strategy is
Article - McKinsey Quarterly
Dive deeper
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You’ve got yourself a high-performing business.
So why is it starving for resources?
Funding follies
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How to put your money where your strategy is
