But building the capability required far more than investing in technology. Cisco developed new supply chain capabilities and created a dedicated sales force to serve hyperscale customers. The investment ultimately crossed R&D, supply chain, sales and other parts of the enterprise.

That broader capability produced two strategic advantages. Cisco could differentiate itself through a co-designed stack stretching from silicon to software, while simultaneously opening a new business serving hyperscaler customers. Years later, the investment also positioned Cisco to address growing demand associated with the AI infrastructure buildout.

The lesson is that an enterprise capability rarely belongs to one department. Building it requires leaders to connect resources across the organization around a strategic outcome.

Evaluate strategic capabilities like an investment portfolio

Once leaders shift their focus from departments to capabilities, capital allocation starts to look more like portfolio management.

Jokel says Cisco looks for market opportunities that aren't being adequately served and considers how those opportunities fit with the company's existing strengths. A new capability might complement Cisco's product portfolio, create additional value for existing customers or produce a competitive advantage that becomes more durable because of the combination of capabilities Cisco can bring to market.

Once an opportunity is identified, the next decision is how to pursue it: Build, buy, partner and/or invest.

Cross-functional investments also need to be evaluated differently. Rather than asking individual functions to justify their portion of the investment, Jokel recommends examining the end-to-end business model and creating a pro forma P&L as though the initiative were a standalone entity.

That allows executives to evaluate the opportunity based on the value of the entire capability rather than the economics of individual departments.

Use milestones to decide when strategic investments deserve more funding

That doesn't mean every capability investment should receive unlimited patience or funding. Companies still have a responsibility to deliver quarterly and annual performance. But an exclusive focus on near-term results can come at the expense of durable long-term growth.

The answer, Jokel suggests, is maintaining a portfolio of bets.

Organizations need to continue investing in the businesses responsible for today's performance while simultaneously incubating initiatives capable of driving tomorrow's growth. Not every bet will succeed. But what matters is establishing clear milestones that determine whether an initiative deserves the next tranche of funding.

Those measures may initially look different from conventional ROI. A multi-year R&D initiative might be evaluated against development milestones. An early-stage product launch might be measured by adoption or other evidence of market traction. Eventually, however, the investment must be assessed against its original multi-year business case.

This approach gives promising capabilities time to mature without allowing struggling initiatives to survive indefinitely.

AI is making fixed annual budgets harder to maintain

If capability-based investing was already challenging the traditional budget model, AI is accelerating the pressure.

"The biggest difference is the pace of change is accelerating," Jokel says. Roadmaps at AI-forward technology companies can now be measured in weeks or months rather than quarters or years, making it increasingly difficult for a fixed annual plan to anticipate every investment requirement.

AI itself is also becoming a material expense as organizations move from experimentation to deployment at scale. Jokel describes the shift memorably: "We've moved from the era of 'tokenmaxxing' to 'tokenomics.'"

The implication extends beyond AI. Organizations need mechanisms for revisiting product roadmaps, investments, sales incentives and goals more frequently as conditions change.

"The traditional annual planning cycle does not allow sufficient agility to pivot if market or company conditions change mid-year," Jokel says.

Cross-functional capabilities require shared goals and accountability

Changing where money goes isn't enough. Capability-based investment also requires changing how leaders work.

Silos are a natural consequence of organizational growth, Jokel says, and overcoming them requires deliberate leadership. Shared goals and metrics can help executives optimize for enterprise outcomes instead of individual departmental performance.

Reporting structures can matter as well. Cisco, for example, unified its product organization under Chief Product Officer Jeetu Patel, a move Jokel says has helped accelerate the integration of its portfolio into a more unified platform.

The underlying principle is straightforward: If leaders are rewarded exclusively for departmental success, they will naturally optimize for their departments. Enterprise capabilities require enterprise accountability.

Budgets should show where the company is placing its strategic bets

For CEOs preparing for the next planning cycle, the shift toward capabilities doesn't mean chasing every emerging technology or fashionable investment. Jokel recommends beginning with something more fundamental: Understanding what the company already does uniquely well.

"What are you uniquely good at compared to the competition?" he asks. "Build on that and find new growth opportunities that align to the core capabilities of your company."

Strategy itself must also become continuous. Markets change, customers develop new priorities, competitors move and technologies create both opportunities and threats. Strategy leaders therefore need to help executives ‘see around corners’ rather than treating strategy as an annual exercise. Ultimately, the budget should make those choices visible.

"A budget should read like a clear set of bets on where you're headed," Jokel says, "with real money behind the capabilities that differentiate you."

That's the shift at the heart of the strategy budget. The question is no longer simply whether every department has enough resources to execute this year's plan. It's whether the enterprise is investing in the capabilities that will allow it to compete tomorrow — and whether it has enough agility to change those bets when tomorrow arrives sooner than expected.