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Success or struggle: ROA as a true measure of business performance
Report 3 in the 2013 Shift Index series
Companies are broken, but many don’t know it because most short-term measures remain positive. The sustained and significant decline in performance, however, shows that many companies haven’t yet figured out how to harness technology or knowledge flows to be successful in an increasingly turbulent world.
Read the 2013 Shift Index series foreword by Steve Denning.
Executive summary: Success or struggle: ROA as a true measure of business performance
The news today paints an upbeat picture on many fronts. Corporations report record profits. The economy has recovered at a steady pace of 1.8–2.4 percent over the last three years. Stock market rallies restored major indices to prior levels and beyond. Housing prices have stabilized and begun to increase. Manufacturing activity is showing signs of expansion. All aggregate signs point to positive outcomes for now.
Yet, other metrics tell a different story, one of increasing pressures and stress for companies, executives, and employees. An increasing topple rate indicates that US companies are struggling to maintain their leadership positions as revenues and market share prove vulnerable. Over the past four years, Chapter 11 business bankruptcies have been at a level not seen since the mid-1990s. High-profile bankruptcies, such as Linen n’ Things and Blockbuster, and the automobile industry crisis in 2008 highlight the potential for seemingly successful companies to suffer rapid, irrecoverable downturns. Even without the financial meltdown of 2008, the last several decades of rapid technological change and increasing global economic liberalization have put increasing pressure on traditional business models. These pressures are felt by executives charged with pursuing profitable growth and workers who must stay relevant as technology and business models change.
The cumulative effects of the long-term changes driven by digital technology and public policy shifts are reflected in the economy-wide, secular decline in return on assets (ROA) over the last 47 years. As companies struggle to find and capture attractive opportunities relative to the assets they have, the typical response has been to become ever-more focused on the short-term, perpetuating a decline in long-term value.
Shift Index Organizational Self-Assessment tutorial
Our 2013 Shift Index findings indicate that US firm performance has declined over the past four decades. In such an environment, organizations need the ability to adapt as rapidly as the world is changing around them, continuously learning from each challenge. Understand how well your organization is ready for the Big Shift by taking this 20-minute tutorial.