Align Investment to Strategy, See Results
All spend isn’t equal and we don’t just mean operating- versus capital-expense classification.
Business school has intentionally confused most folks. Focusing, for accounting purposes, on ‘operating’ versus ‘capital’ expense, which are both deeply embedded in good accounting practices.
Instead, what needs to be talked about is ‘expense’ versus ‘investment.’
- Expense: most fundamental costs that are required (think base levels of the Maslow hierarchy)
- Invest: making the risky choice when given the option between a status-quo expenditure and an alternative that bears risk yet promises better, faster, cheaper opportunity
Expenses are known, and lack any real risk. These are the utility-layers within an organization; that core body of business activity that must occur consistently and effectively (though not efficiently, by definition). This is the backbone of activity that investors expect you to perform: Do what you did last year, keep your head down, and get your 2.5-percent raise.
Investments are about taking calculated risks. Applying judgement and discretion when faced with uncertainty.
Organizations need to think about how they actively manage and monitor resources.
Especially in times of heightened anxiety and distress, it’s important to distinguish between BAU (keeping the lights on) work, and incremental growth and improvement efforts (investments). Project portfolio management strategies must acknowledge and maintain transparency to prioritize resources accordingly.
Investors put their money into a company with the express financial goals to either (a) generate current income in the form of debt payments or dividends, or (b) seek future appreciation in the value of an investment. Understanding your business model is part of the fiduciary duty of executive leaders, and is imperative when committing to investors.
ON STRATEGIC INVESTMENTS: EXPERIMENT, ASSESS, ADJUST
Frustrated leaders often lament that they don’t see progress or results from their teams. They pour in resources, but see no difference in performance or throughput of results.
These same leaders then too often refuse to do the requisite planning to see the progress and results from their teams---whoops! PLAN-DO-CHECK-ACT becomes DO-DO-DO-DO.
Being "agile" or nimble isn't about changing your mind, its’ about investing in planning, and consistent course correction. It’s about consistently thinking about strategy, or about how to grow the business and then planning to make action happen.
You can’t keep spending like you did last year and then hope for a different result. To change your future, you need to understand where your opportunities are, and adjust accordingly.