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Capital-Budgeting Systems and Capabilities Investments in U.S. Companies after the Second World War

Published online by Cambridge University Press:  13 December 2011

Carliss Y. Baldwin  and
Kim B. Clark
Carliss Y. Baldwin
Affiliation:
Carliss Y. Baldwin is William L. White Professor of Business Administration and teaches in the Finance area at theHarvard UniversityGraduate School of Business Administration.
Kim B. Clark
Affiliation:
Kim B. Clark is the Harry E. Figgie, Jr., Professor of Business Administration and chairman of the Technology and Operations Management area at theHarvard UniversityGraduate School of Business Administration.
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Extract

The authors of this article argue that companies' high cost of capital or short investment horizons do not explain the decline in global competitiveness of many U.S. industries in the 1970s and 1980s. Instead, they find the source of malaise in the capital-budgeting and financial-planning systems that arose after the Second World War. Although they allowed managers in large companies to evaluate some aspects of their business efficiently and comprehensively, these systems also obscured the value of investment in organizational capabilities, because such investments were hard to quantify—indeed, even to describe—within the financial models in widespread use. As a result, companies often invested vigorously—but in the wrong things. The authors define a set of desirable capabilities and, using case studies, describe both the problems of the recent past and the requirements for successful investment in the future.

Type
Articles
Information
Business History Review , Volume 68 , Issue 1: Competitiveness and Capital Investment: The Restructuring of U.S. Industry, 1960–1990 , Spring 1994 , pp. 73 - 109
Copyright
Copyright © The President and Fellows of Harvard College 1994

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References

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