Capital allocation is one of the most important decisions any business leader makes. The way you invest resources today shapes your company’s growth, resilience, and long-term value. Yet, many organisations struggle to prioritise the right projects, balance risk, and adapt to changing market conditions. At White Space Strategy, we help clients—from global manufacturers to fast-growing B2B firms—optimise their capital allocation for maximum growth.

The first step in optimising capital allocation is to gather a comprehensive list of growth options. This means going beyond the obvious and drawing on insights from across your business. Internal teams can be a good source of ideas, as they understand both current operations and emerging opportunities, but validating hypotheses with the market and checking in with competitors can sense-check established thinking and add new ideas. Encourage open discussions and use structured analysis to identify both existing and potential new markets. By casting a wide net, you ensure that all viable options are considered before any investment decisions are made.

Once you have your list of options, it’s essential to evaluate them using a consistent financial measure. Most of our clients use metrics like Return on Average Capital Employed (ROACE) or Internal Rate of Return (IRR). The key is to pick a consistent time period for your investment analysis, so you can compare projects on a like-for-like basis. This approach helps you avoid bias and ensures that decisions are based on objective data, not gut feel.

For example, DS Smith, a leading packaging manufacturer, uses ROACE to assess all major capital projects. This allows them to compare investments in new plants, equipment upgrades, and market expansion on a single scale, making it easier to prioritise projects that will deliver the greatest value.

Financial returns are only part of the picture. It’s equally important to assess the risks and timing associated with each option. Consider factors such as market volatility, regulatory changes, and supply chain disruptions. Scenario planning can be a powerful tool here. By modelling different market conditions, you can see how each investment might perform under a range of possible futures.

Smurfit Westrock, for example, regularly uses scenario planning to stress-test their capital allocation decisions. By considering both best-case and worst-case scenarios, they ensure that their investments are robust and adaptable, even in uncertain markets.

While financial metrics and risk assessments are critical, they don’t tell the whole story. You also need to consider how each option fits with your company’s strategic direction and non-financial goals. This might include alignment with sustainability targets, brand positioning, or the potential to open up new customer segments.

Diploma Plc, a diversified industrial group, layers strategic fit and non-financial benefits on top of financial analysis when making capital allocation decisions. This ensures that investments not only deliver strong returns, but also support the company’s broader ambitions, such as entering new markets or enhancing their ESG profile.

After evaluating your options, it’s time to make a decision. Select the projects that offer the best combination of financial return, risk profile, and strategic fit. But the process doesn’t end there. Ongoing monitoring is essential to ensure that your investments continue to deliver value as market conditions evolve. Track the trends most likely to impact capital performance, such as changes in customer demand, technology shifts, or regulatory updates. Be prepared to adjust your strategy if the data suggests a better path forward.

• DS Smith: Used ROACE to prioritise investments in sustainable packaging, enabling them to lead the market as demand for eco-friendly solutions surged .
• Smurfit Westrock: Employed scenario planning to adapt capital allocation during periods of supply chain disruption, maintaining growth while competitors struggled .
• Diploma Plc: Balanced financial returns with strategic goals, investing in acquisitions that expanded their product range and geographic reach .
• Unilever: Publicly shares its capital allocation framework, which balances returns, risk, and sustainability, helping the company maintain strong growth and resilience .

Optimising capital allocation is not a one-off exercise. It requires a structured process, consistent evaluation, and ongoing monitoring. Start by collecting a wide range of growth options from across your business. Use consistent financial measures to compare projects, assess risk and timing with scenario planning, and layer on strategic fit and non-financial benefits. Make informed decisions, and keep a close eye on the trends that could impact your investments.

If you need support with optimising your capital allocation, White Space Strategy is here to help. We specialise in market entry strategy, opportunity identification, competitor analysis, and more. Get in touch to discuss how we can support your next move.