The Executive Board has approved the strategy. Has your CAPEX portfolio taken it on board?

Strategy Execution → Capital Allocation.

BOARDROOM QUESTIONS
The questions your portfolio should be able to answer.

The strategy has been approved.

Growth.

Digitalisation.

Automation.

Resilience.

Sustainability.

New markets.

The Executive Board has defined priorities.

The presentation was approved.

The strategic direction is clear.

Now comes the more difficult part.

Is the capital actually flowing in that direction?

A strategy alone does not change a portfolio

Companies can formulate very precisely the direction in which they wish to develop.

However, strategy only becomes operationally relevant when it leads to decisions.

Which projects are being funded?

What production capacities are being built up?

Which technologies are being introduced?

Which markets are receiving capital?

Which investments are being accelerated?

Which ones are being postponed?

And which ones are deliberately not being implemented?

Capital allocation lies between strategic intent and economic reality.

Show Me Your CAPEX Portfolio. I’ll Show You Your Strategy.

A strategy document may prioritise growth.

But if the available growth capital is predominantly channelled into other areas, the actual portfolio may tell a different story.

A company may declare digitalisation a strategic priority.

But if related projects are regularly sidelined in favour of other investments, digitalisation may remain merely a strategic intention.

A board may prioritise resilience.

Yet if the necessary investments systematically lose out in the competition for CAPEX, this priority will not be fully translated into capital.

A company’s actual strategy is therefore also reflected in how it deploys its scarce capital.

Strategy execution is also capital allocation

Strategy and capital allocation are often handled as separate processes.

Strategy sets the strategic direction.

Finance defines the financial framework.

Business units develop investment projects.

Controlling evaluates and consolidates.

Operations considers resources and implementation.

Ultimately, the projects end up in the CAPEX process.

Each process can function independently.

And yet, a gap can still arise between strategy and the actual investment portfolio.

The crucial question is therefore not merely: Do we have a strategy?

But rather: Is our strategy reflected in the portfolio?

500 million euros can fund five different strategies

Let’s take a company with:

500 million euros in CAPEX.

200 investment projects.

The budget remains unchanged.

The available projects remain unchanged.

But the strategic objectives change.

Strategy 1: Growth

Capacity

expansion, new markets and new products take on greater importance.

Strategy 2: Efficiency

Automation, productivity and cost reduction take centre stage.

Strategy 3: Resilience

Security of supply, critical infrastructure and operational stability are becoming

increasingly

important.

Strategy 4: Transformation

Digitalisation, technology and new skills are being given higher priority.

Strategy 5: Cash

flow

Capital commitment, liquidity and short-term economic contribution are being given greater weight.

The same company.

The same CAPEX budget.

The same projects.

And yet, different strategic objectives can lead to different combinations of projects.

Strategy must be operationalised

A mathematical model may

initially be of little use

with the statement:

‘We want to become more resilient.’

Strategic objectives must therefore be translated into a concrete decision-making framework.

Which criteria represent resilience?

Which investments contribute to this?

What are the minimum requirements?

What resources are available?

Which projects are interdependent?

What financial limits must not be exceeded?

Which conditions are mandatory?

And how should different objectives be weighed against one another?

Only when a strategy is operationalised can its implications for capital allocation be calculated.

Management defines what ‘strategic’ means

This distinction is crucial.

Mathematics does not develop corporate strategy.

An algorithm does not decide whether growth is more important than resilience.

It does not decide whether short-term cash flow is more important than long-term transformation.

And it does not decide what level of risk a company should accept.

That is the task of management.

The board defines objectives, assumptions, criteria and limits.

Mathematical optimisation can then calculate which combination of projects within this defined decision space produces the best result.

Strategy defines the direction.

Capital Allocation translates it into investment decisions.

The portfolio may contradict the strategy

Let’s imagine the Executive Board declares growth to be the most important strategic priority.

However, the existing CAPEX portfolio has historically been built up from individual business unit proposals.

Many projects are profitable.

Many have compelling business cases.

Many are already firmly established within the organisation.

But only a limited proportion of the capital actually supports the new growth strategy.

This can give rise to an interesting phenomenon:

The company has good projects – but the portfolio does not optimally reflect the new strategy.

The problem does not necessarily lie with the projects themselves.

It lies in their combination.

Strategic priorities are competing for the same capital

Growth requires capital.

Digitalisation requires capital.

Resilience requires capital.

Productivity requires capital.

Sustainability requires capital.

Maintenance requires capital.

Regulatory requirements require capital.

And often

,

all these objectives compete for the same budget.

That is

why it is not enough simply to declare several strategic priorities at once.

Capital

allocation forces strategy to make a decision.

If not everything can be funded at the same time, trade-offs must be made explicit.

What is the cost of a strategic priority?

Suppose the board places greater emphasis on growth.

The portfolio is recalculated in line with this new objective.

Some growth projects are added.

Other investments are dropped.

The expected economic value of the portfolio changes.

Resources are allocated differently.

Risks may change.

Capital is allocated differently.

An abstract strategic statement now becomes a concrete capital decision.

Strategy is assigned a price.

And, at the same time, a calculable contribution within the defined model.

The crucial boardroom question

The Executive Board reviews the current CAPEX portfolio.

The CEO asks:

“We have made growth our number one priority. Does our portfolio actually reflect that?”

It should be possible to answer this question.

Not just in qualitative terms.

But based on the projects, criteria, capital flows and constraints that are actually part of the investment decision.

Which projects support the strategic objective?

How much capital is flowing into them?

Which alternatives have been displaced?

Which strategic objectives compete with one another?

And what combination of projects emerges when the strategic priority is changed?

Now the CEO is changing the strategy

The existing portfolio is displayed on the screen.

500 million euros in CAPEX.

200 projects.

The CEO says:

“Growth is being given higher priority.”

The corresponding assumption in the decision-making model is adjusted.

The portfolio is recalculated.

Projects change.

Capital is reallocated.

Trade-offs become apparent.

Then the CFO asks:

“What is happening simultaneously with cash flow and capital tied up?”

New calculation.

The COO asks:

“What happens if our engineering capacity remains unchanged?”

New constraint.

New calculation.

The Executive Board now sees not just a strategy.

It sees its consequences.

Strategy execution becomes a scenario

This allows different strategic directions to be compared with one another.

GROWTH FIRST

EFFICIENCY FIRST

RESILIENCE FIRST

TRANSFORMATION FIRST

BALANCED STRATEGY

Each scenario can result in a different capital allocation.

And each scenario highlights the consequences associated with the respective priority.

This does not automate strategy.

Its effects become more comparable.

This changes the role of the CAPEX process

CAPEX is then no longer merely the financial implementation of projects that have already been submitted.

The investment process becomes an instrument of strategy execution.

It links:

STRATEGY

with

PROJECTS

with

CAPITAL

with

RESOURCES

with

DECISIONS.

This gives the Executive Board an additional perspective:

Which strategy are we actually funding?

Budget utilisation is not the decisive key figure

A company can utilise 100 per cent of its CAPEX budget.

That does not necessarily mean that the capital has been deployed in a strategically optimal manner.

Budget

utilisation answers:

“How much have we invested?”

Strategy Execution asks:

“What have we strategically enabled with this capital?”

That is a far more challenging question.

From strategy presentation to decision model

Strategy is often formulated in presentations.

Investment decisions are often evaluated using tables.

Budgets are managed in financial systems.

Resources are

held in operational systems.

Project

dependencies are sometimes only known within the relevant departments.

The real challenge lies in bringing this information together at the point where the capital decision is made.

A strategic statement must be transformed into a calculable decision-making logic.

CAPEX Live Boardroom Simulation

This is precisely where Live Boardroom Simulation comes into its own.

The Executive Board changes a strategic assumption.

The portfolio is re-optimised under the new conditions.

The consequences become apparent.

Another question arises.

Another assumption changes.

The portfolio is recalculated.

Question. Calculate. Compare. Decide.

This allows strategy and capital allocation to be linked within the same discussion.

StratePlan: From strategic priority to capital allocation

StratePlan links defined economic and strategic criteria to the projects in a CAPEX portfolio.

Budgets, resources, dependencies and other quantifiable conditions can be taken into account within the decision-making model.

If management changes targets, weightings or constraints, the portfolio can be re-optimised under the new conditions.

StratePlan does not determine the strategy.

Management defines the strategic direction.

StratePlan calculates the resulting optimal portfolio allocation within the defined model.

The Executive Board decides.

The Board Approved the Strategy. Did CAPEX Get the Message?

A strategy is only the beginning.

Capital must then follow.

Projects must be selected.

Resources must be allocated.

Trade-offs must be accepted.

And other investments may need to be deliberately left unimplemented.

That is why

,

following a strategic realignment

,

every board should ask a simple question:

“If we were to recalculate our CAPEX portfolio today – would it reflect the same strategy we have just decided on?”

If the answer is not clear-cut, there may still be a capital allocation decision to be made between strategy and implementation.

STRATEGY → CAPITAL ALLOCATION → EXECUTION.

Management sets the direction.

The maths calculates the consequences.

The board decides.

DON’T TRUST US. CALCULATE IT.