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This touches on the issue of why companies have amassed such huge reserves and seem unwilling or unable to spend them. Clayton Christensen (of Innovators Dilemm
by casca 13y ago
This touches on the issue of why companies have amassed such huge reserves and seem unwilling or unable to spend them. Clayton Christensen (of Innovators Dilemma fame) gave an interesting talk at the RSA last month[1] where he described a possible reason for this. Unfortunately only the audio is up but they do often have video so perhaps that'll be there soon as the slides were very important.
The high-level summary is that in order for companies to develop market-creating changes, they need to be willing to make long-term investments with high probabilities of failure. This hasn't happened because the incentives of the management of the company are to provide short-term results which means they choose to only deliver incremental improvements or cost-savings as it has a greater improvement in the short-term on share prices and their remuneration.
He went into far more detail - listen if this sounds interesting to you.
[1] http://www.thersa.org/events/audio-and-past-events/2013/the-capitalists-dilemma http://www.thersa.org/events/audio-and-past-events/2013/the-...
- npalli 13y agoClay's nytimes article summarizes the points that he makes in the talk. http://www.nytimes.com/2012/11/04/business/a-capitalists-dilemma-whoever-becomes-president.html?pagewanted=all&_r=0 http://www.nytimes.com/2012/11/04/business/a-capitalists-dil...
- cylinder 13y agoThey aren't in a capital intensive business. Does this mean they have to throw away their money on frivolous investments? Having a ton of cash does not change the economics of any single investment. Every investment decision is based on the individual parameters and expected outcomes and circumstances surrounding it. You don't think, "Hey, this is a shitty investment, but we have a ton of cash, so if this one sucks, who cares!" So let's say Apple sees value in acquiring eBay (ridiculous, but it's the hypothetical put forward by OP). They take a look at eBay. Nothing about the acquisition changes because Apple happens to have a lot of cash, except for maybe the cost of the purchase, which in current interest rate environments is almost negligible (they can borrow extremely cheaply as evidenced by their latest massive bond sale). Say Apple wants to build a revolutionary new TV. That is not a huge capital investment. They just keep paying their engineers and designers, perhaps hire a few more. The cost of this labor is not even worth mentioning. The manufacturing is contracted, they don't have to buy a bunch of machinery. In fact, they can announce the product and get a million pre-orders before shipping and pay for the whole thing in an instant.