The money never found out
Half past nine on a Thursday in March. A hotel out on the highway, just past Pilar, a borrowed projector, coffee in thermos flasks. Eleven people: the leadership of a cleaning products factory with 230 employees and forty years of selling to the wholesale trade. Slide 4 says, in 44-point type:
We are pivoting to the digital channel.
The commercial director explains it in eleven minutes: the consumer has changed, the wholesaler eats the margin.
"If we do not sell to the end customer ourselves, in two years the people who buy from us today will."
Nobody argues. The owner nods twice. Somebody takes a photograph of the slide with their phone.
July. Another room —the CFO's office, no projector—, four people and a spreadsheet open on the big screen. Next year's capital budget is being closed. The digital channel gets 6.2%.
Last year it got 6.1%. The year before, 6.3%.
Nobody lied, nobody broke a rule and nobody noticed. The strategy changed on slide 4. The money never found out.
(The scene is a composite reconstruction. From here on, everything carrying a number is measured and has a source.)
The myth holding up that morning is almost never said out loud, but it sets the calendar for most companies: strategy is decided at the offsite. It is not. The offsite produces intentions. The real strategy is produced by the budgeting process, which runs in another quarter, with another owner, and without having read slide 4.
So there are two strategies going by the same name. The declared one, which is the one in the document, and the banked one, which is the one you read in the statements. The second is the only one that does anything to the business. Money is the only one that gets a vote.
This is not what we looked at in The profitable company that ran out of cash: that one was about funding the working cycle. Here something else gets decided, and at another table: which unit takes which share of the capital.
In the first part of this series the problem was neither above nor below: it was off to the side. Every area was doing its part, and what failed was what had to cross from one to another: the lateral commitments. Tightening vertical alignment made exactly that worse. One question was left open, and it is the one anybody who has read this far would ask: if it is not more follow-up, what is it? The most uncomfortable answer is also the easiest to audit, because it leaves an accounting trail.
Next year's budget is already almost written
That budgets are inherited is easy to say. What follows is by how much, and the how much is worse than it sounds.
Three researchers measured it. They took 1,616 US listed companies operating in at least two distinct businesses, followed them over fifteen years and compared, unit by unit and year against year, how much capital each one received. The two numbers move almost together: 0.92, on a scale where one would mean "it is exactly the same number" and zero would mean "they have nothing to do with each other".
A 0.92 does not describe a tendency. It describes a tracing.
One limit before going on: these are companies listed in a developed market. What travels is the mechanism —budgets are inherited—, not the height of the number.
It is not that the budget does not change. It changes every year, and sometimes by a lot. What was measured is the amount each unit receives, not its share of the total; but an amount that gets traced year against year leaves little room for the share to move. The company that says it is pivoting and the company that says it is consolidating have budgets that resemble last year's exactly equally well.
The consequence reads itself, and it is worse than the number. If the best predictor of a company's allocation is its own previous allocation, then that company's effective strategy was not written by the committee: it was written by habit. A budget that indexes itself is not a decision. It is a memory.
That allocation rules write the strategy is not a new idea. A Stanford researcher reconstructed how Intel exited the memory business, the business the company had been born in: it was the internal selection environment that began shifting manufacturing capacity toward microprocessors before corporate strategy officially changed. Management ended up ratifying an exit the allocation rules had already decided on their own.
What a 0.92 says and what it does not say. A correlation measures how much two numbers move together, on a scale running from −1 to 1; what matters here is the positive stretch. Zero is "they have nothing to do with each other". One is "it is the same number". A 0.92 says that, on average and across those 1,616 companies, knowing what a unit got last year is enough to guess reasonably well what it will get this year. What it does not say, and it is worth saying before somebody repeats it wrongly in a meeting: it does not say that 92% of the budget is frozen. That would be a different measurement, and it is not published. Two more clarifications about the source, which this firm always makes and above all when the data point suits it. The first: the measurement of the 1,616 companies comes from a consultancy and did not go through peer review. The second: the performance figure that comes with it —companies that reallocate actively earn more— does have a peer-reviewed version, published by one of the same authors in an academic journal, and it comes with two brakes the consulting version does not mention. They are in the section that follows, and they are half the argument.
One can answer that this is not inertia but prudence: that the big units are big because they work, and that moving funds away from them would be a whim. It is a sensible objection, any owner with a trade behind him makes it, and it has a test available: if the stillness were prudence, moving the money should not pay better. It pays.
The ones who move the money
The same researchers measured what happens to the companies that do move the money. They split the sample into thirds. The third that reallocated most moved 56% of its capital between units over the fifteen years, and generated on average 30% a year more total shareholder return —dividends plus share price appreciation— than the slowest third.
30% more is not thirty points more. The two publications that report the figure word it the same way —a total shareholder return "30% higher" than that of companies slow to move funds—, and that construction is relative, not a difference in points: if the slow third returned 10% a year, the active one returned around 13%, not 40%. Neither publication spells this out, and neither publishes the return of each third, so the gap in points cannot be reconstructed from outside.
The figure circulates: the authors of the survey of almost eight thousand managers that held up Part 1 quote it with the same number, though without naming the study. It is one measurement, reported twice.
Now the brake, which is the more useful half. There is a version of this argument that went through peer review —several thousand firms, eighteen years, one of the same authors— and it brings two precisions the consulting version does not mention. The first: the researchers say in so many words that they cannot prove causality, and conclude cautiously that most companies would benefit from reallocating more capital internally. The second matters more here: the positive correlation stops holding in cases of extreme reallocation. Moving a lot is not linearly better.
So this is not an invitation to shake the budget out every year, but to have a part of it move by decision rather than by inheritance. What part is a number no study fixes: the board fixes it, before the budget starts, and it is the first of the four pieces at the end.
All of the above describes a company where money cannot be taken away from anybody. But anybody who has worked inside one knows that money for some things always turns up.
The same disease, seen from the other side
That same survey of almost eight thousand managers has a data point that turns the diagnosis around. 51% of middle managers believe they could secure significant resources to pursue an attractive opportunity that falls outside their company's strategic objectives. One in two.
Read it slowly, because it does not say what it seems to. It does not say the company is stuck. It says the company moves money all the time, and that what it lacks is a criterion telling it where. It is the same disease as the previous section seen from the other side: what is frozen is the formal allocation, and what is loose is the informal one. A unit cannot get one point more of its share of capex —the investment budget, the one that buys machines and systems—, and at the same time a manager with political weight secures funds for something that appears in no plan.
When those same managers are asked about speed, the picture closes: fewer than a third believe their company reallocates funds to the right places fast enough.
Three different questions about the same company. All three are answered no.
All three come from the same survey of 7,600 managers at 262 companies across thirty industries (Sull, D., Homkes, R. and Sull, C., Harvard Business Review, March 2015). A third of those companies are based in emerging markets, with an average of 6,000 employees and median sales of USD 430 million. The context does include the reader's; the scale does not: these are companies far larger than the Argentine median. What travels is the pattern, not the size.
What is missing is the owner's question, the only one that really orders a board meeting: what does this cost?
Where the 37% goes
There is an old, good measurement. In the autumn of 2004, the consultancy Marakon Associates, together with the research unit of The Economist, asked senior executives at 197 large companies around the world how much of the financial performance their strategies promised actually ended up happening. The average answer was 63%: for every hundred pesos promised, sixty-three arrive. It is not an accounting measurement; it is what those executives rated.
That is why the value of the study is not the number: it is the ranking. The same executives were asked to rank the eleven failures through which the rest is lost. The first of the eleven is not about understanding or about willingness: it is resources that are not where and when they are needed. Badly communicated strategy comes after. Lack of clarity about what has to be done, after that.
The 37% that does not arrive is not lost in the boardroom. It is lost at the joint with the budget.
If the largest leak is resources, the next question is what you touch to fix it. And here instinct has a problem.
The two levers nobody pulls first
When execution does not get going, two things get done, almost always in that order. There is a reorganization —the org chart moves, reporting lines change, a new management post is created— and the bonuses get touched. Both feel like weighty decisions, because they are visible and because they cost political capital.
On that there is the largest measurement in the field: close to five years of surveys of more than 125,000 employees, across around a thousand organizations in more than fifty countries. The researchers identified seventeen traits that distinguish companies that execute well, ranked them by importance and grouped them into four building blocks: decision rights, information, structure and motivators.
The result is exactly the reverse of instinct. Clarifying decision rights and making information flow turned out to be far more powerful than redesigning the structure or adjusting incentives. The two levers pulled first are the two weakest of the four.
"Decision rights" sounds like corporate governance jargon and it is not. It is the list of what each person decides without asking permission and what they do not, written down, above all for the decisions that touch more than one area. In fact, trait number one of the seventeen —the most common attribute of companies that execute well— is that everyone has a good idea of the decisions and actions for which they are responsible.
We have already written about the structure a company has outgrown. This is the problem no org-chart redesign fixes, and this measurement explains why: structure is one of the two levers the measurement places below, not the first.
None of this says that cascaded objectives or dashboards are surplus to requirements. It says something more precise and more useful: they solve the vertical axis, the top-down one, which in most companies was already healthy. Nobody should buy them expecting them to fix the lateral one, which is not.
All of this was measured abroad, in companies where last year's number and this year's can be compared head-on. Here there is one more layer, and it covers exactly what needed to be seen.
What inflation covers up
In an economy where everything rises in nominal terms every year, inertia becomes invisible. The budget looks as though it had been decided, because every number changed. It was not decided: it was indexed. A board can spend three hours discussing a spreadsheet in which every line grew and walk out convinced it allocated capital, when all it did was pass an index through.
Out of that comes the cheapest tool in this article, and it is in none of the studies cited: measure reallocation in share, not in money. What portion of capex each unit takes, what portion of headcount —the people on its payroll— and what portion of the committee's agenda. Share is the only thing that reveals whether there was a decision, because it is the only thing that does not move on its own when prices move.
There is one more uncomfortable leg to this. In the Argentine company capex is rationed by cash, not by strategy, so the real reallocation ends up being done by the financial constraint: the company's effective strategy is being written, unknowingly and without anybody having asked them to, by whoever decides which purchase order gets released this month.
And reallocating is not only money: it is people. From the same survey, almost half say that in their company people are almost never moved between units. A budget is reallocated in an afternoon. A team is not.
The unit that carries the family name
What is left is the 22% —those who say their company exits declining businesses in time—, which is the figure that produces the most silence in a family company. Exiting a declining business in time is, on paper, a portfolio decision. In practice, the unit that does not perform is usually the founding one, the one that carries the family name, and closing it is not a business conversation: it is a family conversation.
That is why the percentage to be released is fixed beforehand, cold and with no names: once the conversation is opened with the unit sitting in front of you, it can no longer be had.
What remains, then, is the only thing that matters on Monday: how to join a plan to a budget without adding one more meeting.
The joint
There are four pieces. None of them is a new meeting and none needs a budget; all four cost political capital, which is the only expensive thing here.
One: the percentage that gets released. A portion of capex and of headcount that is not inherited: it is released every year and reallocated, no exceptions. The board fixes it before the budgeting process starts, not during. It is the only piece that attacks the inheritance head-on. No study publishes the right number: the only anchor available is the top third of the 1,616 —56% of capital moved over fifteen years— and the brake in the evidence, which pushes the other way. A part is released, not everything.
Since on Monday you have to write down a number and not a philosophical range, here is ours, declared for what it is. 32sur criterion, with no measurement behind it: between 5 and 10% of the budget is released every year, no exceptions. Of capex and of headcount, both. No study backs that band: what backs it is practice. And you raise it only once the quarterly review —piece four— has shown that the committee knows how to hand money back; before that, raising it only enlarges the argument nobody yet knows how to have.
Two: who decides what crosses. The written list of the decisions that touch more than one area, with a name beside each one. It is one sheet: the cheapest of the four levers, and one of the two the measurement places above structure and incentives.
Three: the horizontal board. Who owes what to whom across areas, with a date and in plain view of everyone. It is not one more dashboard of indicators: it is a register of lateral commitments, with a single rule —the information another area needs in order to decide has to arrive without being asked for.
Four: the review that hands money back. Once a quarter, with a single question at the top of the agenda: what moves. Without this piece, the first one lasts exactly one year.
The same budgeting process, two ways of running it.
| The question being asked | A budget that indexes | A budget that decides |
|---|---|---|
| Where does each number start from? | From last year's number, plus an adjustment | From zero for the portion that was released; the rest is continuity, and it is declared as such |
| In what unit is it looked at? | In pesos | In share: what portion of capex and of headcount each unit takes |
| Who decides what crosses areas? | It gets settled in the meeting, by whoever pushes hardest | It is written down beforehand, with a name beside it |
| What information travels between areas? | Whatever each person asks for when it is already too late | Whatever the other area needs in order to decide, unasked |
| What happens to the unit that does not perform? | It is asked for an improvement plan and keeps its budget | It hands part of it back, and where that part goes is said out loud |
| When is it reviewed? | Once a year, when nothing can be moved any more | Once a quarter, with a single question at the top |
None of the six rows on the right asks for one more meeting. They ask that the ones already in the calendar have a different agenda.
Questions for Monday
The first three need you to open nothing and ask nobody anything.
Three you already have, two that ask outside, two that get done and one left open
- Name the unit in your company that this year took a share of the budget clearly different from last year's. If none comes to mind in ten seconds, you already have the result of this article.
- Priority number one in your strategic plan: what percentage of the capital budget does it have assigned today? If you do not know it by heart, that number is not being used to decide.
- What business, line or initiative stopped existing in your company in the last five years? Not "was resized": stopped existing.
The next two require asking somebody else something, and the value is in the difference between the two answers:
- Ask your CFO what percentage of next year's budget is genuinely under discussion and what percentage is continuity. Ask the management committee the same question. The two numbers never match.
- Pick the three most important decisions that cross areas in your company. Ask the two managers involved in each one, separately, who decides. If any of them produces two different answers, you have found the list the section on the joint is talking about.
And two that are not read: they get done. They cost one afternoon and three old year-ends:
- Build a share table for the last three years: what portion of capex and what portion of headcount each unit took. In percentage, not in pesos. It is the only way to see whether there were decisions or there was indexation.
- With that table on the table, fix the percentage to be released next year and write down who decides where it goes. If you have nothing to argue the number with, start at this firm's floor —between 5 and 10%— and raise it once the quarterly review has worked once. Before the next offsite, not after.
And one left open in Part 1, because its answer is money:
- Take the last delivery that arrived late without anybody missing a target of their own and put a price on it: how much revenue per week was left sitting there waiting. That number is the only one that turns a coordination problem into a budget line, and it is what you argue the released percentage with.
Slide 4 was not wrong. The digital channel was, in all likelihood, the right decision: that is why the room applauded and why nobody argued. The offsite did its job well.
What was missing happened four months later, in the CFO's office, and it was not a bad decision: it was the absence of a decision. Nobody had to defend the 6.2%. Nobody had to explain why the unit that was going to carry the growth was receiving the same as when it was going to carry nothing. The number was not approved: it was inherited. And the money, which is the only one that gets a vote, voted for last year.
The two parts of this series describe the same missing joint. In the first, what did not cross from one area to another were the commitments. In this one, what does not cross from the plan to the budget is the money. In both cases the diagnosis is the same and it is not about effort: the paper and the plant talk to each other once a year, in a hotel out on the highway, and after that each one goes back to its own filing cabinet.
You do not need a better offsite. You need the joint to exist: a percentage that gets released, a sheet that says who decides, a board that crosses and a review that hands money back.
Which unit in your company handed money back this year?
The deliverable is two sheets. The first: each unit's share of capex and of headcount over the last three years, in percentage and not in pesos — that is where you see, beyond argument, how many decisions there were. The second: the percentage to be released next year, with the name of whoever decides where it goes and the date of the review that controls it. Within ninety days, your company enters the budgeting process with part of the money genuinely in dispute, which is the operational definition of having a strategy. The first step is one afternoon with your CFO and the last three year-ends. 32sur works that afternoon and the ones that follow: let's talk.
References
- Hall, S., Lovallo, D. and Musters, R., "How to put your money where your strategy is", McKinsey Quarterly, March 2012 — the backbone number of this article. On Compustat data covering 1,616 US listed companies operating in at least two four-digit SIC codes, measured over fifteen years, the average year-against-year correlation of the amount of capital each business unit receives and deploys is 0.92; the authors read it as strategic inertia. They also report that the top third of the sample —the one that reallocated most actively, moving on average 56% of its capital between units over the fifteen years— earned on average 30% a year more total shareholder return than the bottom third. The figure is annual, not cumulative, and the article says so. It is a relative 30% and not thirty percentage points: the two publications that report the data point word it as a return "30% higher" than that of companies slow to move funds, which is a relative comparison; neither spells this out in those words nor publishes the level of return of each third, so the gap in points is not reconstructible from outside and this article does not assert it. It is consulting research, not peer reviewed. The 30% figure is also quoted by Sull, Homkes and Sull in the body of their 2015 Harvard Business Review article (reference 3), with the same number and attributed to "a McKinsey study", without naming authors or year: it is the same measurement reported twice, not two independent measurements.
- Lovallo, D., Brown, A. L., Teece, D. J. and Bardolet, D., "Resource re-allocation capabilities in internal capital markets: The value of overcoming inertia", Strategic Management Journal, 41(8), August 2020, pp. 1365-1380 (DOI 10.1002/smj.3157) — the peer-reviewed version of the argument above, by one of the same authors. Across several thousand firms over eighteen years, the reallocation measure is positively correlated with firm performance, except in cases of extreme reallocation. The authors are explicit that they cannot prove causality and conclude cautiously that, in most cases, firms would benefit from greater internal reallocation of capital. The two precisions —the non-linearity and the absence of causality— are the ones the consulting version does not mention, and this article publishes them.
- Sull, D., Homkes, R. and Sull, C., "Why Strategy Execution Unravels—and What to Do About It", Harvard Business Review, 93(3), March 2015, pp. 57-66 (reprint R1503C) — the perception column of this article and of Part 1 of the series. Survey of 7,600 managers at 262 companies across thirty industries; large companies, with 6,000 employees on average and median sales of USD 430 million; around thirty respondents per company; a third of the companies in the sample are based in emerging markets. Data used here, all from the resources block and from the exhibit Where Execution Breaks Down: 51% of middle managers believe they could secure significant resources to pursue attractive opportunities falling outside their strategic objectives; fewer than a third believe their organization reallocates funds to the right places fast enough; 20% say their organization moves people well between units (47% report that people are almost never moved and 33% that they are moved in a way that disrupts other units); 22% say their organization exits declining businesses in time; and 11% believe all strategic priorities have the financial and human resources they need, a figure the authors themselves call shocking. A point of hygiene: the article's opening claim that two thirds to three quarters of large organizations struggle to implement their strategies appears with no citation to a specific study, and for that reason it is not used here.
- Mankins, M. C. and Steele, R., "Turning Great Strategy into Great Performance", Harvard Business Review, 83(7-8), July-August 2005, pp. 65-72 — the waterfall of leaks. Marakon Associates survey with the Economist Intelligence Unit, autumn 2004, of senior executives at 197 companies worldwide with sales above USD 500 million: companies deliver on average 63% of the financial performance their strategies promise. Breakdown of the remaining 37%, in order: inadequate or unavailable resources 7.5; badly communicated strategy 5.2; actions not clearly defined 4.5; unclear accountabilities 4.1; silos and culture 3.7; inadequate monitoring 3.0; inadequate consequences or rewards 3.0; poor senior leadership 2.6; uncommitted leadership 1.9; strategy not approved 0.7; other 0.7. A precision the paper itself prints in the caption of its exhibit and almost nobody reproduces: these are losses implied by the importance ratings managers gave each failure, not measured value, and the authors warn they may not be representative of every company or every strategy. This article reproduces the full waterfall with its figures, and asks it for the ranking order, not for an accounting magnitude. Not used is the data point that fewer than 15% of companies compare results against prior years' plans: the article itself introduces it with "in our experience", which is declared consulting experience and not survey data.
- Neilson, G. L., Martin, K. L. and Powers, E., "The Secrets to Successful Strategy Execution", Harvard Business Review, 86(6), June 2008, pp. 60-70 — the prescriptive half of this article. Close to five years of surveys of more than 125,000 employees at around a thousand organizations in more than fifty countries, using Booz & Company's Org DNA Profiler. They identify seventeen traits ranked by importance and four building blocks —decision rights, information, structure and motivators— and conclude that clarifying decision rights and making information flow are far more powerful levers than redesigning the structure or adjusting incentives. Trait number one, the most common attribute of companies that execute well, is that everyone has a good idea of the decisions and actions for which he or she is responsible. It is consulting research with a self-selected online sample, not peer reviewed: it is cited as an order of priorities, not as a measurement of effect. The full text sits behind a paywall; the research base, the four blocks, their hierarchy and the wording of trait number one were verified by triangulating three independent, agreeing sources, and for that reason this article does not list the seventeen traits.
- Burgelman, R. A., "Fading Memories: A Process Theory of Strategic Business Exit in Dynamic Environments", Administrative Science Quarterly, 39(1), March 1994, pp. 24-56 — the classic case in the section "Next year's budget is already almost written". A comparative study of Intel's evolution across two memory businesses and the microprocessor business. The finding used here, in the wording of the paper's own abstract: the firm's internal selection environment played a key role in the exit process, because it shifted the allocation of scarce manufacturing capacity from the memory business to the microprocessor business before top management officially changed the corporate strategy. Verified against the publication record at the Stanford Graduate School of Business, which reproduces the abstract and the bibliographic data; the full text was not read, and for that reason this article does not describe the specific allocation rule Intel used, nor put a timeframe on that lag.
- Holm, C. G., Kringelum, L. and Anand, A., "Creating effective strategy implementation: a systematic review of managerial and organizational levers", Review of Managerial Science, 2025 (DOI 10.1007/s11846-025-00880-3), open access — the state of the art on the subject. Consulted to frame the article and not cited in the body: the review does not supply a data point the reader can use on Monday. A systematic review of 160 papers that characterizes strategy implementation as an under-researched black box compared with formulation, and organizes the available evidence into managerial and organizational levers, the latter including structures, internal processes and resources.
All sources were read in their primary published version, with the exceptions declared in references 5 and 6. Last checked: August 2026.