Penny wise, pound foolish: How under-investment can stifle profitable growth

How can executives make better use of their limited capital and begin to rebuild the confidence of the investment community? In this article, we recommend four steps that, taken together, can help executives capture these opportunities: First, top managers need to seek a more detailed understanding of the “investment and return” profile for each of their businesses. Second, they must increase their investment selectivity, potentially making fewer bets and focusing on those that are big enough to have a significant impact on the company’s intrinsic value. Third, they should address the costs of keeping capital tied up in low-return businesses and free up underperforming capital for reinvestment. Lastly, they must develop economically sound stories for investors that link current investment strategies with long-term value growth.