A friend shared this article with me about a talk Clayton Christensen gave, "How the Pursuit of Profits Kills Innovation and the U.S. Economy".
I couldn't agree more. With all of the analysis done about companies trying to break them down into ratios so that they can be compared apples-apples for investment strategies, the core competencies of a company - what makes it great and allows it to generate value for consumers - are essentially forgotten. As a result, in order to make the market happy every quarter, companies focus on short term profits, selling off the parts of their business that don't have as high margins or are more capital intensive. While this looks good on paper, the qualitative benefits of those functions (the ability to innovate and own your process) are lost, dooming the practitioner to long-term existence in mediocrity.
I don't know that these measures should be eliminated, but they shouldn't be allowed to overtake the organization.
Really interesting article! I also wonder how this would affect companies whose business is more inherently mixed between the "real market" and the "business market" like those in private equity.
ReplyDeleteAlso, there was another interesting article referenced at the bottom of the one you posted that offers some suggestions for how to decrease emphasis on the measures by decreasing emphasis on meeting shareholder expectations altogether. The author suggests legal changes that would re-focus executives on creating delight:
http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/
This is nice place to share the view with each other. Keep the flow going on.
ReplyDeleteWork Station Cranes