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Fundamentals of strategy and value creation

Think back to the titans of late 19th- and early 20th-century industry, and you are likely to think of empire builders: John D. Rockefeller, Andrew Carnegie, and John Pierpont (J. P.) Morgan. High on the list of America’s greatest tycoons during those years and afterward was Henrietta (Hetty) Howland Robinson Green.

Green built an immense fortune, billions of today’s dollars, by shrewd investing. She zeroed in on cash flow. She also kept her nerve, stayed ahead of rivals, and profited immensely during downturns and crises, such as the Great Panic of 1907. Yet she didn’t make her money by chasing bigness—at least not for bigness’s sake. “There is a price on everything I have,” she said. “When that price is offered, I sell.”

Core principles of disciplined value creation—knowing an asset’s intrinsic value, understanding a company’s competitive advantage, and not fearing to take bold steps—continue to hold true. Companies that allocate and continually reallocate capital to areas in which they hold a competitive advantage demonstrably outperform companies that stand still. Businesses that aren’t afraid to grow but understand that growth makes sense only when it doesn’t destroy value stand a better chance of creating more value for the long term. Their leaders are alert to broader business trends and strive to anticipate them. But the leaders don’t fall for flavors of the month, set about to build empires, or forget that companies that grow and earn returns above their cost of capital in a sustainable way create the most value.

That’s been proven across eras, from Green’s time to now. But then, fundamentals of strategy and finance have always been about the long term.

In this section

Article - McKinsey Quarterly

How to put your money where your strategy is

– Most companies allocate the same resources to the same business units year after year. That makes it difficult to realize strategic goals and undermines performance. Here's how to overcome resource-allocation inertia.

Balancing ROIC and growth to build value

– Companies find growth enticing, but a strong return on invested capital is more sustainable.
Article - McKinsey Quarterly

Strategy to beat the odds

– If you internalize the real odds of strategy, you can tame its social side and make big moves.

Making capital structure support strategy

– A company’s ratio of debt to equity should support its business strategy, not help it pursue tax breaks. Here’s how to get the balance right.

How executives can help sustain value creation for the long term

– Joint research from FCLTGlobal and McKinsey highlights the behaviors that can help corporate leaders and board directors sidestep pressures and stay focused on the long term.

Why ‘digital’ is no different when it comes to valuation

– Whether tech-enabled or old-school, proposed projects and initiatives need to be assessed according to the cash flows they generate. The trick is getting the base case right.
Book Excerpt - McKinsey Quarterly

Do fundamentals—or emotions—drive the stock market?

– Emotions can drive market behavior in a few short-lived situations. But fundamentals still rule.

The real business of business

– Shareholder-oriented capitalism is still the best path to broad economic prosperity, as long as companies focus on the long term.

McKinsey on Finance 20th anniversary

Lessons and challenges


Reflections on 20 years of McKinsey on Finance—and three challenges ahead

– Revolutionary innovations, brilliant ideas, and climate imperatives will change everything—except the fundamentals of finance and economics.

Charting growth


Looking back: What does the ‘long term’ really mean?

– Stock markets can be volatile, and some years they decline. But the ups far outnumber the downs—and returns are in line with two centuries of performance.