Resource reallocation isn’t just a bold strategic move on its own; it’s also an essential enabler of the other strategic moves.
Companies that reallocate more than 50 percent of their capital expenditures among business units over ten years create 50 percent more value than companies that reallocate more slowly. The benefit of this approach might seem obvious, yet a third of companies reallocate a mere 1 percent of their capital from year to year.
Furthermore, research using our CEO database found that the top decile of high performing CEOs are 35 percent more likely to dynamically reallocate capital than average performers.
To ensure that resources are swiftly reallocated to where they will deliver the most value rather than spread thinly across businesses and operations, excellent CEOs institute an ongoing (not annual) stage-gate process. Such a process takes a granular view, makes comparisons using quantitative metrics, prompts when to stop funding and when to continue it, and is backed by the CEO’s personal resolve to continually optimize the company’s allocation of resources.
Source: McKinsey - The mindsets and practices of excellent CEOs