7. Learn to let go.
One of the most difficult parts of allocating resources is getting out of businesses that have served a company well in the past but are now stagnant or worse. One useful approach is for the investment committee, once a year, to conduct a formal exercise imagining that the company isn’t in any of its businesses and then to ask whether the market fundamentals would make investments in each of them compelling. As a matter of policy, one large energy group makes sure that it disposes of at least 2 percent to 3 percent of its portfolio every year.
8. Make it easier to move the top 100 to 300 people.
Much management talent works in the business units, and rightly so — that’s where companies create value. But many business-unit heads tend to hang on to their star executives, which complicates the people side of resource reallocation. Fighting these natural instincts requires action at the top. Several global CEOs think of their companies’ top ranks as a corporate asset to be applied to opportunities that offer the highest returns. Tactics that facilitate this approach include a corporate review of all top talent, as well as standardizing job titles and role descriptions across the top 200 or so executives and compensating them on the same basis regardless of geographic location. Such ground rules make it easier for the top team to mix, match, and move top talent.
9. Don’t forget about time.
Even without moving capital or people, companies can shift management’s emphasis dramatically by taking a clean-sheet approach to the way the top team spends its time. Some companies set a time “budget” for the top team to clarify how much leadership capacity exists to “finance” initiatives and whether management is really focused on the highest strategic priorities. Time can also feature on the resource map.
10. Look back and learn.
Reviewing earlier investment decisions helps companies refine the resource-allocation process. One company responded to such a postmortem review by insisting that no future investment proposal come forward for discussion unless independent technical- and business-evaluation teams had formally signed off on it. The company also required each individual executive on the investment committee to cast a formal vote for or against every specific investment and recorded such votes for posterity.
Michael Birshan is a principal in McKinsey’s London office, Marja Engel is a consultant in the Minneapolis office, and Olivier Sibony is a director in the Paris office.
This article was originally published in McKinsey Quarterly, www.mckinseyquarterly.com. Copyright © McKinsey & Company. All rights reserved. Reprinted by permission.