Capital Reallocation Review

When to use

Use whenever a company has multiple business units, product lines, or major initiatives competing for capital and needs an objective view of where to invest, hold, or exit — and especially when the annual budgeting process is actually just incremental adjustment of last year's numbers rather than a genuine reallocation decision. McKinsey's long-running capital reallocation research (tracking thousands of companies over decades) found that companies in the top quintile of capital reallocation intensity delivered meaningfully higher total shareholder returns than companies in the bottom quintile — and that most companies reallocate far less than they think they do.

What it does

Scores each business unit on a weighted, multi-factor industry attractiveness axis and a weighted, multi-factor competitive strength axis (the GE-McKinsey 9-box method), computes a zone recommendation per unit via the bundled calculator, and separately measures the company's actual reallocation intensity — how much capital genuinely moved between units over the past 3-5 years — against the attractiveness/strength findings, surfacing the gap between where capital should go and where it's actually going.

Method

1. Define attractiveness factors and weights: market growth, market size, profitability, competitive intensity (inverted) are a solid default — agree weights with the decision-maker before scoring, not after.
2. Define strength factors and weights: relative market share, margin versus peers, brand strength, capability fit to the parent's core competencies.
3. Score every business unit 1-10 on every factor with evidence behind each score.
4. Run the bundled calculator (scripts/portfolio_matrix.py) to get weighted attractiveness/strength, 9-box zone placement per unit, and the share of total revenue sitting in each zone.
5. Measure actual reallocation intensity: pull capital/budget allocation by business unit for each of the past 3-5 years and compute what percentage of total capital has genuinely shifted between units year over year (not organic growth within a unit — actual reallocation of the budget base). McKinsey's research uses this as the single clearest predictor of whether a "portfolio strategy" is real or just a slide.
6. Compare reallocation intensity to peer benchmarks where available — companies in the top quintile of McKinsey's studies typically reallocated a materially larger share of capital annually than median performers; a company reallocating in the low single digits per year is very likely under-reallocating relative to what the evidence supports.
7. Overlay the 9-box zones onto the reallocation history: are invest/grow units actually receiving more capital year over year, and are harvest/divest units actually shrinking? If the zones and the money flow disagree, that's the central finding — a strategy that exists on a slide but isn't showing up in the budget.
8. Recommend a specific reallocation move: name the amount and the from/to units, tied directly to the 9-box zones, sized against what the reallocation-intensity benchmark suggests is achievable without destabilizing the business.