A Refresher on Cost of Capital

Harvard Business Review

You’ve got an idea for a new product line, a way to revamp your inventory management system, or a piece of equipment that will make your work easier. You’ll likely be asked to show that the return on the investment will be better than your company’s cost of capital.

How Passion Can Revolutionize Digital Technology, AND Change The.

Terry Starbucker

This once proud company had taken a bunch of body blows, and was staggering – badly. Its CEO at the time was great at cutting costs and preserving capital, but investors weren’t buying it. That’s about as far away from product as anyone could get.

What If Companies Managed People as Carefully as They Manage Money?

Harvard Business Review

Today’s executives spend a lot of time managing the balance sheet, despite the fact that it doesn’t represent their company’s scarcest resource. Financial capital is relatively abundant and cheap. According to Bain’s Macro Trends Group, the global supply of capital stands at nearly 10 times global GDP. In contrast, today’s scarcest resource is your human capital, as measured by the time, talent and energy of your workforce.

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The Case for Investing More in People

Harvard Business Review

Productivity isn’t everything, but in the long run it is almost everything,” wrote Paul Krugman more than 20 years ago. “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise output per worker.” Productivity in most developed economies has been anemic. During much of this time, it has been shareholders, not workers, who have reaped the benefits of higher productivity.

The Rise of FinTech in Supply Chains

Harvard Business Review

A new type of services company could transform global supply chains: Financial technology companies that act as intermediaries in facilitating transactions between a company and its suppliers. the supplier gets $9,959 of the $10,000).

Is Your Business Biased Against Innovation?

Strategy Driven

Many people do not typically think of metrics and accounting as roadblocks to innovation, yet you call these out as potential problem areas. The logic of NPV is to project cash flows into the future and then discount those flows back into today’s dollars at a given cost of capital. Yet for the small handful of companies that have managed to drive growth consistently – even through tough times – the payoff is great.

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CEOs Don’t Care Enough About Capital Allocation

Harvard Business Review

This failure to even mention return on capital seems perverse. It’s been more than 50 years since Nobel prizewinners Franco Modigliani and Merton Miller identified return on investments as a major component of value creation (and value destruction).

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Strong Dollar, Weak Thinking

Harvard Business Review

The US dollar has appreciated dramatically over the past fifteen months — from a trade-weighted level of 102 in July 2014 to 120 recently. Americans can buy all sorts of foreign goods at an almost 20% discount from a year ago. Babo Schokker.

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What’s Driving Superstar Companies, Industries, and Cities

Harvard Business Review

The debate about superstar firms and superstar effects has been intensifying, partly in response to the rapid growth of global US tech companies. We analyzed nearly 6,000 of the world’s largest public and private firms with annual revenues above $1 billion.

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What U.S. CEOs Should Do with the Money from Corporate Tax Cuts

Harvard Business Review

The size of this windfall is remarkable, and it comes from several sources. It permits immediate expensing of many capital investments. In a world already awash in investable capital , these changes should further widen the spread between after-tax investment returns and capital costs, driving up multiples. One option, of course, is to drive up the stock price by buying back shares, and some CEOs may choose that course. Emma Innocenti/Getty Images.

How to Quantify Sustainability’s Impact on Your Bottom Line

Harvard Business Review

We thus wanted to figure out a way to help executives quantify the financial benefits of reducing their firm’s greenhouse gas (GHG) emissions. We chose Brazil’s beef industry as the location of our case study , both for the size and complexity of the industry and for its impact on the planet. of revenues) and $13 million to $62 million (0.01% to 0.7% of revenues). of the world market, and the second-largest beef producer and consumer.

The Real Reasons Companies Are So Focused on the Short Term

Harvard Business Review

Quarterly profits have only increased 5% since 2012 , but investors’ valuations of those profits (as measured by earnings per share) has increased 59% over the same period. Some argue that profits are stagnant because of short-termism—that decades of focusing on current profits over long-run innovativeness has resulted, now, in companies that are hollowed out. Instead of hiring outside CEOs, hire insiders—or at least CEOs with domain expertise.

We Can’t Study Short-Termism Without the Right Metrics

Harvard Business Review

This can lead to faulty estimations of companies’ myopia. Of these, the last indicator is perhaps the most likely to accurately capture a company’s short-termism. For instance, McKinsey considered a smaller ratio of capital expenditure to depreciation to indicate short-term thinking, because it’s assumed that short-term companies will invest less, and less consistently, than other companies.

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A Refresher on Marketing ROI

Harvard Business Review

I talked with Jill Avery, a senior lecturer at Harvard Business School and coauthor of HBR’s Go To Market Tools , about this concept and what it tells leaders about their spending on marketing. Marketing ROI is exactly what it sounds like: a way of measuring the return on investment from the amount a company spends on marketing. It can be used to assess the return of a specific marketing program, or the firm’s overall marketing mix. Juan Díaz-Faes for HBR.

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Why Traditional M&A Is Becoming Less Important

Harvard Business Review

Mr. Rockefeller’s business strategy was to vertically integrate every aspect of the oil business (exploration, development, logistics, marketing) to assure an ongoing competitive advantage. His vehicles were not just mergers and acquisitions, though there were plenty of both along the way. Rather, they were interlocking series of trusts, partnerships and alliances designed for flexibility and control. The new face of deal making will take a variety of forms.

6 Digital Strategies, and Why Some Work Better than Others

Harvard Business Review

As incumbents fight back with their own digital strategies, our research shows that they often trigger a second wave of competition, closer to the notion of Schumpeterian imitation where incumbents start themselves to innovate, sometimes aggressively, against the threat of entrants slashing yet more revenue and profit growth. The six types of digital strategy.

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The Most Common Mistake People Make In Calculating ROI

Harvard Business Review

Your company is ready to make a big purchase — a fleet of cars, a piece of manufacturing equipment, a new computer system. But before anyone writes a check, you need to calculate the return on investment (ROI) by comparing the expected benefits with the costs.

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A Refresher on Price Elasticity

Harvard Business Review

Setting the right price for your product or service is hard. In fact, determining price is one of the toughest things a marketer has to do, in large part because it has such a big impact on the company’s bottom line.

4 Ways Leaders Can Get More from Their Company’s Innovation Efforts

Harvard Business Review

A recent McKinsey report found that while 84% of corporate executives think innovation is key to achieving growth objectives, only 6% are satisfied with the innovation performance of their firm. While the execution of a conventional strategy lends itself to linear progress and clear benchmarks, innovation often proceeds by S-curves , moving at a slow crawl until it explodes at an exponential rate. Other times, however, one of those elements is missing.

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Finally, Proof That Managing for the Long Term Pays Off

Harvard Business Review

Among the firms we identified as focused on the long term, average revenue and earnings growth were 47% and 36% higher, respectively, by 2014, and market capitalization grew faster as well. In recent years we have learned a lot about the causes of short-termism and its intensifying power. We can all see what appear to be the results of excessive short-termism in the form of record levels of stock buybacks in the U.S. and historic lows in new capital investment.

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When "Creative Destruction" Destroys More than It Creates

Harvard Business Review

When changes in the natural environment accelerate, so do the extinction rates of the Earth's creatures. The same happens in business, and we are clearly entering a period where the extinction of the slow, the inflexible, and the bureaucratic is about to happen in record numbers. A list of the top 20 banks today contains only seven that were on the list a decade ago. Consider these three statistics from our ongoing analysis: Nearly two-thirds of companies now destroy value.

Why the 21st Century Will Belong to Family Businesses

Harvard Business Review

An oft-cited statistic is that only 30% of family businesses make it through the second generation, 10-15% through the third, and 3-5% through the fourth. How many companies of any kind are still around after the equivalent of three or four generations?

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Providing Earnings Guidance? Think Again

Harvard Business Review

As we conclude another earnings season, then, it's a good time to consider the advisability of providing earnings guidance. It's a question that has defied consensus, with valid arguments on both sides of the issue. The arguments center on the value of establishing increased transparency with investors, and include: Higher Stock Price: The advocates for guidance argue that it can result in a higher stock price.

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Desperately Seeking Simplicity

Harvard Business Review

The softly drifting snowflakes that greeted me every morning at the World Economic Forum in Davos this year were an inadequate warm-up for the cold blast of reality I felt in session after session during this five day Congress on the "state of the world.". I heard it in the opening remarks of WEF founder Klaus Schwab who talked about a growing phenomenon of "burn-out" among world leaders with finite energy and time to put against seemingly bottomless complexity.

How Banks Can Compete Against an Army of Fintech Startups

Harvard Business Review

Banking for small and medium-sized enterprises (SMEs) has been astonishingly unaffected by the rise of the Internet. The marketing, underwriting, and servicing of SME loans have largely taken a backseat. Other sectors of retail lending have not fared much better. Recent analysis by Bain and SAP found that only 7% of bank credit products could be handled digitally from end to end. The problem is that about 60% of small businesses want loans below $100,000.

An HBR Refresher on Breakeven Quantity

Harvard Business Review

Marketers often have to make the call on whether a certain marketing investment is worth the cost. Can you justify the price tag of the ad you want to buy or the marketing campaign you’re hoping to launch next quarter? ” The company sells each pair of flip flops for $24.00.

The Comprehensive Business Case for Sustainability

Harvard Business Review

Today’s executives are dealing with a complex and unprecedented brew of social, environmental, market, and technological trends. Yet executives are often reluctant to place sustainability core to their company’s business strategy in the mistaken belief that the costs outweigh the benefits. Hoping to alleviate their concerns, this article also provides concrete examples of how sustainability benefits the bottom line.

What Shareholder Value is Really About

Harvard Business Review

This blog post is part of the HBR Online Forum The CEO's Role in Fixing the System. Most CEOs, as well as some of the other contributors to this forum, appear to have a false sense of what creating shareholder value means. Concepts like "societal value," "shared value," and "customer capitalism" are offered as desirable and more enlightened substitutes. The problem is that the true definition of creating shareholder value seems to have gotten lost.

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Case Study: A Short-Seller Crashes the Party

Harvard Business Review

When the well-known hedge fund manager and short-seller Jeremiah Hughes first put Terranola in the spotlight, issuing ominous warnings about unsold products, a looming patent expiration, and flawed growth projections, the considered judgment of the executive team was to do nothing. “I Terranola’s stock began tanking that afternoon, precipitating a slide that took the Seattle-based company’s reputation, employee morale, and ability to raise capital along with it.

How CMOs Can Get CFOs on Their Side

Harvard Business Review

Marketing is in the midst of an ROI revolution. The arrival of advanced analytics and plentiful data have allowed marketers to demonstrate return on investment with a degree of precision that’s never been possible before. In our experience, companies that adopt this marketing analytics approach can unlock 10–20 percent of their marketing budget to either reinvest in marketing or return to the bottom line.

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