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A Refresher on Internal Rate of Return

Harvard Business Review

Any time you propose a capital expenditure, you can be sure senior leaders will want to know what the return on investment (ROI) is. There are a variety of methods you can use to calculate ROI — net present value , payback, breakeven — and internal rate of return , or IRR.


Minority-Owned Private-Equity Firms Drive Higher Rates of Return

Women on Business

NEWS AND INSIGHTS UPDATE: A study by the National Association of Investment Companies (NAIC) found that the funds managed by its member firms (79% of which are owned by minorities and 69% of which have women or minorities in at least half of the investment roles) had a median net internal rate of return of 15% from 1998-2011. rate of return for the U.S.

Put a Little Air in the Balloon

Great Leadership By Dan

I heard the following simple but powerful little lesson from a Fortune 500 executive last week: As a leader, if you want to create a culture of innovation, you need to create an environment where all employees feel encouraged to bring new ideas forward.

Seven Ways Leaders Impact Training’s Return on Investment

Kevin Eikenberry

People often talk increasing the return on investment for training, and generally, most people point to others to be responsible for that return, or measure that return. The reality is that there are three groups and one other factor that have significant impact on that rate of return, and they work together like the four [.].

Self-awareness (plus action) Translates to the Bottom-line

Great Leadership By Dan

This post was recently published in SmartBlog on Leadership : According to a new study by the Korn-Ferry Institute, “knowing thyself” isn’t just a nice-to-to; self-awareness flows directly to a firm’s bottom-line I’ve been sharing this information with my network and it’s generating a lot of interest. A blind spot is defined as a skill that the professional counted among his or her strengths, when coworkers cited that same skill as one of the professional’s weaknesses.

A Refresher on Payback Method

Harvard Business Review

There are a variety of ways to calculate a return on investment (ROI) — net present value , internal rate of return , breakeven — but the simplest is payback period. This is the major limitation of the payback method.

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.

Most Industries Are Nowhere Close to Realizing the Potential of Analytics

Harvard Business Review

Back in 2011, the McKinsey Global Institute published a report on the transformational potential of big data—and it would take a supercomputer to process all of the articles that have appeared since then urging companies to get on board before some digital disruptor renders them obsolete. And yet for all the hype, most industries have still not come close to realizing the full potential of data and analytics.

What Private Equity Investors Think They Do for the Companies They Buy

Harvard Business Review

PE firms typically buy controlling shares of private or public firms, often funded by debt, with the hope of later taking them public or selling them to another company in order to turn a profit. We also ask questions about the organization of the private equity firms themselves.

The Fortune 500 Can’t Go Along with a Rollback on Climate Policy

Harvard Business Review

out of the Paris agreement. It is very possible that global cooperation to fight climate change will collapse as a result of the Trump presidency. And yet by my rough estimate nearly every firm in the Fortune 500 has acknowledged the reality of climate change, as have thousands of other companies. Many have developed programs designed to address it, while simultaneously generating significant returns for shareholders.

Don’t Take Money from VCs Until You’ve Asked 4 Questions

Harvard Business Review

Most entrepreneurs, if they had full visibility into the performance of each VC firm, would choose to partner with a top performer. Instead of looking at fund returns to judge VCs, many entrepreneurs treat a firm’s brand or logos as a proxy for performance.

Requiring Companies to Disclose Climate Risks Helps Everyone

Harvard Business Review

Over 20 years ago, Harvard Business School professor Michael Porter introduced the Porter hypothesis , which posits that environmental regulation can benefit companies by nudging them to explore their current production methods and eliminate costly waste that they have been blissfully unaware of. Nobel laureate Herbert Simon’s model of bounded rationality in decision making explains how this could work.

What to Measure If You’re Mission Driven

Harvard Business Review

Most of what an organization chooses to measure, and to do, must hinge on this question. I recently had the opportunity to learn from what, in design-speak, we might call an “edge case” of this: the question of what measures should guide the management of a church.

How to Give a Robot a Job Review

Harvard Business Review

Microsoft’s recent Tay debacle is a perfect example of what happens when you don’t take machine learning “training” seriously enough. “This goes to the heart of intelligent systems design,” asserts Jerry Kaplan, author of Humans Need Not Apply.

Capitalism’s Future Is Already Here

Harvard Business Review

On September 13, 1970, The New York Times published an article by Milton Friedman castigating any managers of businesses who were “spending someone else’s money for a general social interest” – in other words, requiring customers to pay more, employees to be paid less, or owners to accept smaller profits so that the firm could exhibit some amount of social responsibility beyond the requirements of the law. Very quickly, shareholder value became the gospel of capitalism.

Let's Be Realistic About Measuring Impact

Harvard Business Review

Claims about making a difference are no longer sufficient; evidence of how much difference you're making is now required. I studied three organizations at the vanguard of performance measurement: Acumen Fund , Robin Hood Foundation , and Millennium Challenge Corporation (MCC).

How the Next Generation Is Approaching Society’s Biggest Problems

Harvard Business Review

First, private citizens, particularly younger people, are choosing different types of career paths. Second, changes in technology have dramatically lowered the cost of experimentation and create unprecedented transparency into problems, solutions, and results. Take the story of Salman Khan and the eponymous Khan Academy. The same is true of everyone on his team. Distributing content over the Internet is also inexpensive, while reaching a potential audience of billions.

Even for Companies, the U.S. Is Split Between Haves and Have-Nots

Harvard Business Review

The worldwide trend of rising economic inequality applies not only to individuals. companies’ return on invested capital (ROIC), and compare it with economy-wide ROIC estimates constructed by Deloitte. The comparison is imprecise, of course, but nevertheless suggestive.

How Facebook Uses Empathy to Keep User Data Safe

Harvard Business Review

The ways those people interact with technology and each other can completely change the effectiveness of your security strategy. So security products and tools must take into account the human context of the problems they’re solving — and that requires empathy.

Promote Healthy Behaviors

Eric Jacobson

According to the American Heart Association , research shows that employers that spend on health promotion and chronic disease prevention programs achieve a rate of return on investment ranging from $3 to $15 for each dollar invested with savings realized within 12 to 18 months.

The Reason Air Travel Is Terrible and So Few Airlines Are Profitable

Harvard Business Review

There is an answer, and it has to do with the dynamics of disruption. One of the most powerful corporate growth mechanisms – and at the heart of disruption theory — is moving upmarket. After all, in 2015 Nucor recycled 17 million tons of scrap.

Venture Capitalists Get Paid Well to Lose Money

Harvard Business Review

2013 had all the signs of being a comeback year for venture capital. The industry realized its highest returns since the Internet boom. The industry’s persistent inability to outperform public equities is a disappointment to investors, and a very real threat to the sustainability of the VC industry as we know it. The ongoing poor performance of venture capital firms should be an obvious problem for institutional investors. What is the optimum level of VC commit?

Retirement Planning Needs a Better UX

Harvard Business Review

” You might have missed this story — or at least assumed that designing a fiduciary standard is the fraught work of policy makers. The details of the proposed new rules are sure to raise questions about things like fee disclosures and conflicts of interest.

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. Hoping to alleviate their concerns, this article also provides concrete examples of how sustainability benefits the bottom line. Traditional business models aim to create value for shareholders, often at the expense of other stakeholders. Climate change, water scarcity, and poor labor conditions in much of the world increase the risk.

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.

Two Forces Moving Business Closer to Climate Action

Harvard Business Review

At the same time, the cost of renewable energy has dropped very far, very fast. It’s a perfect storm bringing us to two important tipping points: one of belief and commitment to action, and one of economics. First, though, a few of the highlights from the business community: In June, former U.S. One exciting offshoot of We Mean Business, called RE100 launched as well, with Swiss Re, Mars, IKEA, and others making the bold commitment to use 100% renewable energy.


American CEOs Should Stop Complaining About Uncertainty

Harvard Business Review

This month, the chief executive officers of America's biggest companies went on a media blitz to decry the uncertainty caused by the fiscal cliff. I departed Washington in the midst of these rumblings to attend a forum of Africa's leading CEOs. Mo Ibrahim, founding CEO of Celtel.

When Business Models Trump Technology

Harvard Business Review

helped to develop the principle of shifting from low-frequency, high-volume irrigation to high-frequency, low-volume irrigation", the system known as drip irrigation. Netafim now controls over one-third of the market for this seemingly commoditized micro-irrigation equipment market.

An HBR Refresher on Breakeven Quantity

Harvard Business Review

Can you justify the price tag of the ad you want to buy or the marketing campaign you’re hoping to launch next quarter? If the company doesn’t sell the equivalent of the BEQ as a result of the investment, then it’s losing money and it won’t recoup its costs.

Your Judgment of Risk Is Compromised

Harvard Business Review

A key aspect of risk intelligence is recognizing the limits to your knowledge. People's judgment of risks is deeply compromised by psychological biases. Since then, numerous studies have found evidence of the bias at racetracks and other sports betting markets all around the world.

Some Thoughts on Investing from My Recent Interview

Curious Cat

In the first few years of this blog I posted occasionally, but still much more than the last few years, on investing and economics. I was recently interviewed about investing strategies and thoughts and decided to share that with the readers of this blog. The stocks in the portfolio for the entire period are: Google, Amazon, Toyota, Intel, Pfizer… We got out of the “Too Big to Fail” crisis, but have not addressed the core problems – and likely have made them much worse.

Could a Four-Year-Old Do What Carl Icahn Does?

Harvard Business Review

I have my own version of this. Every time investor Carl Icahn makes headlines with another of his activist campaigns, I wonder, “Could my four-year-old do that?”. I do have a 15-year-old who could not in a million years be bothered to send Apple’s Tim Cook a letter urging him to “meaningfully accelerate and increase the magnitude of share repurchases.” Yet the simplicity and almost child-like nature of Icahn’s approach still begs examination.

Should Companies Retain "Strategic" Cash?

Harvard Business Review

To enhance financial flexibility, companies have been retaining unprecedented amounts of cash on their balance sheets, calling it "strategic" cash to distinguish it from the "operating" cash that is needed to run the business. This raises the question of whether retaining strategic cash makes economic sense and should be viewed as a legitimate corporate finance tool in today's environment. Much of the strategic cash is typically held outside the United States.

Customer Service: Department vs. Attitude

Leading Strategies

It is about looking beyond the moment of the sale. The fact is, without customers, the organization will cease to exist – regardless of type. Whether for-profit or non-profit, secular or religious, customers are the essence of the business. What is the rate of return customers?


Walmart Broadens ROI for Green Power

Harvard Business Review

I've followed the greening of the retail giant fairly closely for years, so I wasn't expecting a lot of new information from Bedore, Walmart's Senior Director of Business Strategy and Sustainability. But amidst a seemingly scripted set of responses on Walmart's supply chain and operational greening efforts, the discussion took an interesting turn. When addressing the company's aspirational goal of using 100% renewable energy, Bedore said two noteworthy things.

The Disruption of Venture Capital

Harvard Business Review

It had been over five years since the Nasdaq peaked in March 2000, and it was becoming apparent that VC firms were having trouble deploying the tens of billions of dollars they raised during the boom years. Graham argued that the proliferation of money combined with the decreasing costs to start a business were making the VC job more difficult, prophesying significant changes for the industry.

Morning Advantage: Can Markets Cure Cancer?

Harvard Business Review

Most of the money tied to cancer research comes from the federal government via the National Institutes of Health, and like many programs facing financial scrutiny, the NIH’s budget is on the verge of being trimmed. One cancer trial costs about $200 million and has fairly low odds of success. But if you do lots of research and conduct many trials at the same time, your odds of success are greater. businesses, fill 16 percent of seats on U.S.

Failure Isn't Enough

Harvard Business Review

The notion that innovation and failure go hand-in-hand has become popular of late. In his soon-to-be published book, Adapt , Tim Harford recounts the story of Mario Capecchi who leveraged safe NIH projects to fund a highly speculative attempt to make specific changes to the DNA of mice.

Sacrifice Is Overrated

Harvard Business Review

My role models for serving the greater good are not the people who walk around in sack cloth and ashes but industrialists like Gustavus Swift, who developed the refrigerated boxcar, which dramatically reduced life-threatening food-borne illness; the drug companies that continue to innovate new forms of protease inhibitors that keep my HIV-positive friends alive; and my friend who's risking his savings to start an ice cream business, which will employ a dozen people.