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

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  • Baldwin, Carliss Y.
  • Clark, Kim B.

Abstract

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.

Suggested Citation

  • Baldwin, Carliss Y. & Clark, Kim B., 1994. "Capital-Budgeting Systems and Capabilities Investments in U.S. Companies after the Second World War," Business History Review, Cambridge University Press, vol. 68(1), pages 73-109, April.
    • Handle: RePEc:cup:buhirw:v:68:y:1994:i:01:p:73-109_07
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    Cited by:

    1. Bauke Visser, 1999. "Endogenous local interaction and multi-product firms," Journal of Evolutionary Economics, Springer, vol. 9(2), pages 243-263.
    2. D J Jin & R R Stough, 1998. "Learning and Learning Capability in the Fordist and Post-Fordist Age: An Integrative Framework," Environment and Planning A, , vol. 30(7), pages 1255-1278, July.
    3. Miller, Peter & O'Leary, Ted, 2007. "Mediating instruments and making markets: Capital budgeting, science and the economy," Accounting, Organizations and Society, Elsevier, vol. 32(7-8), pages 701-734.
    4. Navya Pandit & Constantin Prox & Carliss Y. Baldwin, 2022. "Studying modular design: an interview with Carliss Y. Baldwin," Journal of Organization Design, Springer;Organizational Design Community, vol. 11(2), pages 77-85, June.
    5. Kawabata, Nozomu, 2003. "Competitive Strategy of the Japanese Integrated Steel Firms in Mature Stage," MPRA Paper 42097, University Library of Munich, Germany.
    6. Ernst, Dieter, 1997. "From Partial to Systemic Globalization: International Production Networks in the Electronics Industry," UCAIS Berkeley Roundtable on the International Economy, Working Paper Series qt7326w69k, UCAIS Berkeley Roundtable on the International Economy, UC Berkeley.
    7. spyros vassilakis, 2002. "managing design complexity," Industrial Organization 0207003, University Library of Munich, Germany.
    8. Weinstein Olivier, 2013. "The Shareholder Model of the Corporation, Between Mythology and Reality," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(1), pages 43-60, January.
    9. Segelod, Esbjorn, 2000. "Investments and investment processes in professional service groups," International Journal of Production Economics, Elsevier, vol. 67(2), pages 135-154, September.
    10. Sandahl, Gert & Sjogren, Stefan, 2003. "Capital budgeting methods among Sweden's largest groups of companies. The state of the art and a comparison with earlier studies," International Journal of Production Economics, Elsevier, vol. 84(1), pages 51-69, April.
    11. Natalya Vinokurova & Rahul Kapoor, 2020. "Converting inventions into innovations in large firms: How inventors at Xerox navigated the innovation process to commercialize their ideas," Strategic Management Journal, Wiley Blackwell, vol. 41(13), pages 2372-2399, December.
    12. Patricio Del Sol & Pankaj Ghemawat, 1999. "Strategic Valuation of Investment Under Competition," Interfaces, INFORMS, vol. 29(6), pages 42-56, December.
    13. Segelod, Esbjorn, 2000. "A comparison of managers perceptions of short-termism in Sweden and the U.S," International Journal of Production Economics, Elsevier, vol. 63(3), pages 243-254, January.
    14. Sanidas, E., 2002. "Organizational Innovations of Firms from the 1850s in the USA and Japan," Economics Working Papers wp02-06, School of Economics, University of Wollongong, NSW, Australia.
    15. Segelod, Esbjorn, 1998. "A note on the survey of project evaluation techniques in major corporations," International Journal of Production Economics, Elsevier, vol. 54(2), pages 207-213, January.

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