Strategy Driven

JULY 13, 2011

Supplementing profits with ROIC and revenue growth is a step in the right direction to ensure that the profits a business earns are actually creating value, not simply over-consuming capital that another company could better deploy. However, profits, ROIC, and revenue growth are backward looking.

ROIC 62

ROIC Balanced Scorecard Metrics McKinsey 62

Harvard Business Review

FEBRUARY 7, 2011

Take, for instance, a group of companies that currently have high returns on invested capital (ROIC). If you follow that group over time, you would see their ROICs revert back toward the cost of capital. This means that an extreme outcome, good or bad, will be followed by an outcome that has an expected value closer to the mean.

Skills 18

Skills ROIC Sports Cost of Capital 18

Harvard Business Review

AUGUST 27, 2015

companies’ return on invested capital (ROIC), and compare it with economy-wide ROIC estimates constructed by Deloitte. Economywide ROIC has trended downward since the 1980s, falling from above 6% in the mid-1960s to 5% in 1980, then to 3% in 1990, and to only a bit more than 1% by 2010. An increasing number of U.S.

ROIC 8

ROIC McKinsey Company GDP 8

Harvard Business Review

MARCH 7, 2013

Like Return on Invested Capital (ROIC), which reflects what a company earns, how much capital it needs to earn it and the ratio between the two, ROIT reveals what the company earns, how much it has to spend on its talent to earn it, and what the ratio is between the two.

ROIC 10

ROIC Airlines Chief Executive Officer Metrics 10

Harvard Business Review

DECEMBER 8, 2011

Moreover, when Porter defines strategy, he is really talking about what constitutes a good strategy — one that will result in a higher ROIC than the industry average. It's the positioning you choose that will result in achieving the goal; the actions are the path you take to realize the positioning. Mistake #5.

Strategy 15

Strategy Porter ROIC Competitive Advantage 15

Harvard Business Review

APRIL 16, 2015

The results can be impressive: if your firm’s return on invested capital is 8% and you have an 8% cost of capital, a 1% improvement in ROIC will increase firm value by 19%. There are just two ways to increase ROIC: improve operating profit (by increasing revenues or cutting costs) or invest capital more wisely.

CEO 8

CEO ROIC Cost of Capital Merton 8

Harvard Business Review

MAY 24, 2017

A veritable alphabet soup (ROA, RONA, ROIC, ROCE, IRR, MVA, APV, and the like) exists to measure our financial capital. But today’s great CEOs need to be equally great at managing human capital. How can we manage human capital better? Measure it. As the adage goes, you can’t manage what you can’t measure.

Human Capital 15

Human Capital Management Company ROCE 15