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The story about Robert and his colleagues continues. Follow them in their endeavor to improve long-term cash flow by fundamentally changing the way their company prioritizes when spending capexes.

(The Characters in this fable are fictitious; any resemblance to real people or facts within the Corporation is pure coincidence only)

Robert started his second lap around the artificial lake just outside the offices, walking and sipping on a decaf coffee. This morning he had been through a number of meetings with the “usual suspects” when it comes to management and strategy consultants. All of the tools and processes that they had discussed regarding improving the allocation of capital between sites, machines, acquisitions, and dividends did not seem to address the fundamental question – what to do differently? Not just more of, or improvements on, the same – but fundamentally different.

Robert could not stop thinking about the series of articles he had read on the plane, “The Capex Process-the tail wags the dog”. He had read them all, several times, just weeks before that conversation in the car with Mary. Those articles had inspired him when answering Mary’s question, “What should we do differently?” Since then he had also used a little tool that he had found on the internet to try to answer the last question Mary had asked in the car-how much would it be worth to fundamentally and sustainably improve the effect of investments and capexes? The group spent around 400 million USD on capexes every year. The authors of “The tail wags the dog” claimed that any company should expect a minimum improvement in capex efficiency of 10% when tying the capex process to a whole business asset strategy. Testimonials claimed much higher percentages. Robert himself sincerely believed that, if successful, a 20% efficiency improvement was possible. It would not necessarily mean a 20% reduction; it would just mean a different, sometimes very different, view on how to allocate capital and resources over time. Twenty percent would mean 80 million USD every year in lost cash flow due to less than optimal decision making on capex. Or more than 300,000 USD per working day! There was no question in Robert’s mind that there was real value in trying to take control of the capex process from a longer-term and holistic point of view…and the “usual suspects” would be of little help. Time to go to the source. Robert determined to call the authors of the series of articles he’d read and ask for help.

The senior consultant Robert contacted had made a real impression on Mary and Robert. If before their meeting they had little doubt about the need to change the whole regime regarding capex allocation, they were now absolutely convinced. And they knew where to start. Not with the capex process, but with the long-term asset strategy.

When Robert returned from his walk, Mary called him into her office and said, “Robert, I want you to look into that list of requirements on an Asset Strategy Tool that the guy talked about. Do we agree? Are they the only ones providing such a tool? Can we do it ourselves? How would we work with such a tool and how would we change our processes?

Ok – I am on it.

And don’t linger…we are losing three hundred grand every single day!”

To be continued.

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You are wasting capexes – but you don’t have to…