A Deadly Temptation

Most executives know that you’re supposed to devote your resources—your money and your top talent—to the most promising new business opportunities. (We’ve pointed it out, too.) But doing so is a lot easier on paper than in practice.

As McKinsey & Co. directors Stephen Hall and Conor Kehoe point out in a new interview, many CEOs are extremely reluctant to reallocate money or people from one thing to another. They face resistance from employees (who don’t want things shaken up) and from investors (who don’t like to see any temporary dips in earnings). Plus, new CEOs often prefer to wait and settle into their roles before undertaking any major reallocation of resources.

Hall and Kehoe’s response: Get over it. Companies that reallocate resources more often outperform their peers, and their average return to shareholders is also better in the long run.

That it’s tough to set new business priorities—and thereby make changes in how resources are parceled out—was something that Peter Drucker wrote about often. “Every organization tends to avoid unpleasantness,” he noted in Managing in Turbulent Times. “And nothing is less pleasant and less popular than to concentrate resources on results, because it always means saying ‘No.’” No to the projects that used to get resources, and no to the people involved with them.

Drucker did advise that when investing in new areas, it’s important to proceed deliberately. “It is just as dangerous, in the early stages of an opportunity, to over-supply money and resources as it is to under-supply them,” Drucker warned in Management: Tasks, Responsibilities, Practices.

But, as with Kehoe and Hall, Drucker’s principal point of caution was that standing still is worst of all. “The temptation in the existing business is always to feed yesterday and to starve tomorrow,” he wrote in Innovation and Entrepreneurship. “It is, of course, a deadly temptation.”

How can a leader realistically overcome all the pressure to hold off on reallocating resources?