For example, the return on assets (ROA) of US companies – a general indicator of profitability, – has been progressively falling and is now almost one quarter its 1965 levels. But, labor productivity has been steadily rising, and is now nearly double what it was in 1965. Where have the benefits of these productivity gains gone?
The answer is complex but I thought this got to the heart of the matter:
Extraordinary performance generally comes not from people at the core, but from those at the edge, “ . . . because it is exactly at the edge that the need to get better faster has the most urgency. Incumbents at the core – which is the place where most of the resources, especially people and money, are concentrated, and where old ways of thinking and acting still hold sway – have many fewer incentives to figure out the world, or to discover new ways of doing things, or to find new information. They’re on top, and they’re ready to keep doing what got them there.”
There’s still a lot of money to be made holding up the core… and for me that goes a long way to explaining why it so hard for hierarchies to deal with change.
Hat tip: Tim Kastelle