The Link Between Strategy Execution and Capital Allocation

Abstract

Allocating financial resources is a quintessential part of strategy execution. Firms have different capital needs based on factors such as competitive position, ownership structure, and the firm’s current stage in the business lifecycle. Regardless of their present circumstances, all firms have a strategy, whether intended or emergent. In most cases, the strategy process yields tangible objectives that management and other stakeholders use as a measure of strategy execution.

This qualitative thesis explores how the allocation of financial resources is relevant to the firm’s quest to achieve its goals. The research design is an exploratory multiple case study, which includes four cases. Each firm is publicly traded and part of the Nasdaq Helsinki Small Cap subset. Document analysis is the primary data collection method, while descriptive, prescriptive, and diagnostic analysis are used for data analysis. The research period begins in 2018 and continues to the present day.

The study produces two key findings. Firstly, it shows that capital allocation policy tends to be optimized for the specific metrics that management follows. Therefore, financial targets can be viewed as a proxy for management focus. This finding highlights the importance of choosing optimal metrics. Another key finding of the study is that goal setting is often approached negligently. Several instances show that firms include inconsistent targets, presumably to increase the likelihood of achieving some of them. This finding has clear managerial implications. It is better to have fewer consistent objectives than a collection of wishes that cannot realistically co-occur.