Strategic capital investment decision-making: A role for emergent analysis tools?: A study of practice in large UK manufacturing companies

Abstract

The complexity surrounding strategic capital investments present challenges to managers charged with evaluating these projects. In particular over-reliance on financial appraisal tools is thought to bias decision-makers against undertaking strategic projects that are crucial to the development of business capability and innovation. In response to this concern, several emergent analysis tools have been advanced as means to integrate strategic and financial analyses of capital investment projects. This paper examines the use of both conventional financial analysis tools and selected emergent analysis approaches in the capital investment decision-making of large UK manufacturing companies. The findings update previous studies on the use of financial analysis tools, but also examine how their use varies between strategic and non-strategic investment projects and the extent to which emergent analysis tools are impacting decision-making practice. Little evidence emerges of integration between strategic and financial analysis approaches. Financial analysis techniques still dominate the appraisal of all categories of capital investment projects, while risk analysis approaches remain simplistic, even for complex strategic projects. Despite their noted potential for informing strategic investment decisions, the emergent analysis tools barely register in practice. The appraisal of capital projects seems to reflect a ‘simple is best’ philosophy and a commitment to the role of intuition and judgement in assessing how the strategic dimensions of capital investments connect with their financial outcomes.