Different types of investment
Investments can be categorized into three main types: by nature, by destination, and strategic investments.
1. Investments by Nature
These investments are classified similarly to accounting categories:
• Tangible investments: Physical assets such as factories and buildings.
• Intangible investments: Assets like trademarks, goodwill, R&D, and advertising campaigns. Their share in total corporate investments is steadily increasing.
• Equity investments: Financial assets such as shares in other companies.
2. Investments by Destination
Grouped according to their objectives:
• Replacement investments: Replace worn-out or obsolete equipment to maintain production capacity.
• Modernization investments: Upgrade equipment by incorporating new technologies (e.g., an airline replacing propeller planes with supersonic jets).
• Productivity investments: Reduce unit costs, often combined with replacement or modernization investments.
• Capacity investments: Increase production capabilities.
• Safety investments: Reduce workplace accidents and comply with new regulations.
• Innovation investments: Acquire new technologies to develop new products or improve efficiency.
3. Strategic Investments
These investments aim to strengthen market position:
• Offensive investments: Expand market share and strengthen positioning (e.g., acquiring a competitor).
• Defensive investments: Maintain competitiveness (e.g., acquiring patents or integrating a key subcontractor).
• Diversification investments: Expand into multiple business sectors.
Overlapping Investment Categories
In practice, these categories are not rigidly defined. Companies often use investment analysis matrices, combining criteria such as business domains (production, R&D, sales) with asset types (real estate, IT). Additionally, investment levels vary based on the company’s life cycle and market maturity:
• High investment for young companies in fast-growing markets.
• Lower investment for established companies in mature markets.
The investment process is lengthy, often spanning several years from initial studies to the end of the investment’s lifecycle. Multiple departments are involved, and decision-making teams may differ from those implementing the investment. Due to significant financial commitments, a structured and formalized process is essential, consisting of four key phases:
1. Development Phase
• Companies must foster innovation and an entrepreneurial mindset to generate new investment ideas.
• A pre-selection phase follows, where projects are assessed based on strategic alignment, feasibility, and intuition. A management committee ensures all business functions are considered before moving forward.
2. Selection Phase
A detailed study of the shortlisted projects is conducted along five axes:
• Market and Commercial Study: Evaluates the potential revenue and market impact of new products or acquisitions.
• Technical and Industrial Feasibility Study: Ensures the product can be manufactured at scale.
• Impact Study: Assesses consequences on existing products, staffing, and operations (e.g., cannibalization of existing sales).
• Financial Study: Compares initial investment costs with projected revenues to determine profitability.
• Risk Study: Analyzes uncertainties related to costs, projections, and the potential impact of not investing.
The selection process must be efficient to capitalize on market opportunities, and the finance department consolidates all findings into a formal investment plan.
3. Authorization Phase
• Investments require formal approval from all relevant stakeholders through a summary document outlining key figures and strategic justifications.
• If an investment was not originally budgeted, an exceptional authorization procedure may be necessary.
4. Monitoring Phase
• The investment is continuously tracked against projections.
• Any discrepancies prompt corrective actions and help refine future investment planning and decision-making.
This structured approach ensures investments align with company strategy, financial feasibility, and long-term growth objectives.
