Capital Excellence vs Finance Excellence – who owns the capital tied up in a business?
The obvious answer might be Finance. After all, capital is measured financially, appears on the balance sheet and ultimately affects cash flow and returns. But most of that capital was never created by a Finance decision.
Inventory, receivables, capacity and other capital requirements emerge from decisions made throughout the business – sometimes deliberately, sometimes as an unintended consequence of how the commercial and operational system works.
With regards to the question: Capital Excellence vs Finance Excellence, this creates an important distinction.
Confusing the two can turn a cross-functional management challenge into a Finance problem.
Distinguishing them raises a more useful question: if Capital Excellence does not belong to Finance, who owns it – and what should Finance’s role actually be?
Before discussing the role of Finance, it is useful to briefly introduce the Business Excellence Trigon and the thinking behind it.
Commercial and Operational Excellence are well-established management disciplines, supported by established methodologies, performance metrics, incentive structures and relatively clear organisational anchors. Capital Excellence is far less established as a distinct management discipline.
This creates something of a paradox. Capital is one of the fundamental resources required to operate and grow a business, and operating working capital alone can represent a substantial investment.
Yet while major capital investments are typically subject to explicit business cases, hurdle rates and governance, operating capital can accumulate through thousands of commercial and operational decisions without being subjected to the same management scrutiny.
The Business Excellence Trigon therefore introduces Capital Excellence as the missing third management discipline, complementing Commercial and Operational Excellence.
While Commercial Excellence focuses on creating and capturing value in the market, and Operational Excellence on fulfilling that demand efficiently, Capital Excellence focuses on how effectively capital is deployed and utilised to enable and sustain value creation.
Explore the framework: See how the Business Excellence Trigon connects Commercial, Operational and Capital Excellence to sustainable value creation → Explore the Business Excellence Trigon
The Trigon highlights the relationship between these three dimensions and the importance of managing them as one interconnected system rather than in isolation.
Decisions that appear rational within one part of the business can create unintended consequences elsewhere:
See why local optimisation can destroy value: Explore how improvements in one function can undermine performance elsewhere — and why business outcomes must be managed as a system → Read: When Good Local Optimisation Creates Bad Business Outcomes
The intersections of the Trigon – Margin, Efficiency and Effectiveness – therefore provide three lenses through which business decisions and targets can be challenged.
Effectiveness is often the least explicitly considered of the three. Businesses routinely measure whether an activity is profitable and whether it is performed efficiently, but less often ask whether scarce resources and capital are being deployed against the best available use.
A decision can therefore look attractive on both margin and efficiency while still producing a suboptimal outcome for the business as a whole.
The objective is not to replace functional metrics, but to ensure that improvement within one area does not come at the expense of the wider business system.
This interconnectedness also exposes an important difference between Capital Excellence and the other two dimensions.
Commercial and Operational Excellence have relatively obvious organisational anchors.
In other words, capital requirements are created across the business, often at the interfaces between functions. Unlike major investments, they frequently arise as a consequence – sometimes unintended – of commercial and operational decisions rather than from an explicit decision to deploy capital.
Yet their consequences ultimately become visible in financial measures: inventory, receivables, payables, cash flow, capital employed and returns. This creates an organisational paradox: The functions that create the capital requirement are often not the function that ultimately measures it.
With no obvious functional owner, responsibility for capital efficiency can therefore gravitate towards Finance. Finance sees and measures the economic consequences, despite controlling relatively few of the underlying commercial and operational drivers.
This may help explain both why Capital Excellence has received less attention as a distinct management discipline and why working capital and capital-efficiency initiatives so often become perceived as Finance topics.
But measuring the outcome is not the same as owning the drivers. And assigning Capital Excellence to Finance does not solve the underlying ownership problem.
To understand why, we first need to be clear about what Capital Excellence actually means.
Capital Excellence is not about minimizing capital. It is about having the right capital, in the right places, for the right purpose.
Capital is scarce, and its requirement cannot be considered independently of other business resources. Capacity, people, inventory, assets and commercial terms interact: changing how one resource is deployed can increase, substitute for or release capital elsewhere in the system.
Capital Excellence therefore asks whether the resources committed across the business are appropriate for the value they enable, the strategic objectives they support and the risks they manage.
This includes both fixed and variable capital. A new production line, additional warehouse capacity, inventory held to support customer service, extended customer payment terms or resources required by operational complexity all represent different ways in which a business commits capital and resources to support its commercial and operational model.
Importantly, less capital is not necessarily better.
The question is therefore not simply whether capital can be removed. It is whether the purpose, economics and wider business consequences justify its deployment.
Capital Excellence asks: Why does the business require this capital, what purpose does it serve, what alternatives does its deployment displace, and could the same or better overall outcome be achieved by deploying our capital and resources differently?
This distinction is fundamental: the objective is not minimum capital. It is the right capital for the business the company is trying to operate.
How much working capital should your business actually require? The Operating Working Capital Setpoint defines the level of working capital a business should structurally require given its commercial and operational conditions → Explore the OWC Setpoint: Finding the Sweet Spot between Cash, Growth & Resilience
Capital Excellence extends beyond working capital to the broader deployment of capital and resources across the business.
However, operating working capital provides a particularly useful lens through which to examine it. Inventory, receivables and payables are shaped by decisions made across Commercial and Operational functions, while their consequences ultimately become visible in capital employed and cash flow.
Given the focus of Working Capital Hub, the remainder of this article therefore uses operating working capital as a primary example of Capital Excellence in practice, while the underlying principles apply more broadly to capital deployment across the business.
New to operating working capital? Explore how inventory, receivables and payables combine to determine the capital tied up in day-to-day operations → What Is Operating Working Capital? Definition, Formula & Business Application
As discussed, the capital tied up in a business does not exist independently of how that business is run. It is shaped by choices around customers, products, terms, sourcing, production, capacity, inventory and many other commercial and operational factors – often without capital being the primary consideration behind those choices.
This also helps explain why responsibility so readily shifts towards Finance. With capital spanning multiple functions and no single natural owner. Finance becomes the default custodian of an outcome largely created elsewhere in the business.
But custodianship should not be confused with ownership. This is where the distinction between Finance Excellence and Capital Excellence becomes important.
Finance Excellence focuses on the capabilities required to manage the financial dimension of the business effectively – including planning, reporting, analysis, control and decision support.
Capital Excellence, by contrast, is a business-wide management discipline. Its outcomes may ultimately be expressed financially, but its underlying drivers extend across Commercial and Operational Excellence and are influenced by decisions made throughout the organisation.
| Finance Excellence | Capital Excellence | |
|---|---|---|
| What is it? | Excellence in the capabilities and performance of the Finance function | A business-wide management discipline |
| Primary focus | Financial management, transparency, planning, control and decision support | Effective deployment and utilisation of capital |
| Core question | Do we have the financial capabilities and insight required to manage the business effectively? | Is the capital deployed across the business appropriate for the value it enables and the risks it manages? |
| Scope | Finance function and its support to the wider business | Cross-functional, with drivers across the business |
| Ownership | Finance function | Executive management, with accountability for underlying drivers across functions |
| Role in Trigon | An enabling capability across the Trigon | One of the three dimensions of Business Excellence |
This distinction is fundamental to how the Business Excellence Trigon should be understood.
Finance Excellence does not represent the financial third of the Trigon. Capital Excellence does.
Finance Excellence sits differently. Its capabilities support management across Commercial, Operational and Capital Excellence rather than belonging to any one of them.
Finance Excellence helps management steer across all three dimensions of the Business Excellence Trigon. This does not mean giving all three dimensions equal emphasis at all times.
Strategic priorities and business conditions will determine where greater focus is required. Balance means making conscious trade-offs between Growth, Profitability and Cash Flow in line with the strategic priorities of the business.
While management sets the strategic agenda, Finance plays an important role in translating its imperatives into economic signals, targets and decision criteria that can be embedded into the processes where business decisions are made.
This helps ensure that strategic priorities are reflected in day-to-day decisions across the business, rather than remaining high-level financial objectives.
Finance therefore does more than measure the outcome. It helps connect strategy to economic consequences, and economic consequences to the commercial and operational decisions that create them.
Capital Excellence is inherently cross-functional. But solving that problem by simply assigning it to another function would recreate the same problem under a different organisational label.
The answer is therefore not to eliminate functional ownership.
Commercial functions should continue to own commercial decisions, Operations operational decisions, Procurement sourcing decisions and Finance financial processes. Functional ownership provides expertise, clarity and accountability.
What needs to change is where that accountability ends.
Don’t eliminate functional ownership. Broaden functional accountability.
Executive management ultimately owns the system. Functions own the decisions and drivers they control, but their accountability must extend to the consequences those decisions create elsewhere in the system.
This distinction matters. The problem is not that businesses are organised into functions. Functional structures provide necessary expertise and clear responsibilities. The problem starts when those organisational boundaries also become the boundaries of performance management and optimisation.
Organise by function. Manage for the system.
Capital Excellence fills an important gap between how businesses manage commercial performance, operational performance and the capital required to support both.
Finance has a critical role in making those economics visible and translating management’s strategic priorities into signals that guide decisions across the business. But that does not make Capital Excellence a Finance discipline.
Finance Excellence is an enabler of Business Excellence. Capital Excellence is one of its dimensions.
Recognising that distinction changes the question from “How can Finance improve capital efficiency?” to “How should the business operate and make decisions to deploy capital more effectively?”
Alexander Flach is a working capital and supply chain practitioner with more than 20 years of topic-related experience, spanning management consulting, operational leadership and independent advisory. His work focuses on connecting finance, supply chain and operations to improve cash flow, profitability and growth. He holds a full-time MBA from the Stockholm School of Economics and is a certified Lean and Six Sigma practitioner.
Editorial note
AI tools are used to support the editorial process – challenging arguments, improving structure and refining language. The ideas, frameworks, analysis and conclusions remain those of the author.
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