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Return on Assets Stymies Innovation

By August 16, 2022September 7th, 2022No Comments

ROA can be the death of innovation. ROA creates strong incentives to maximize sales based on previous cost structures in the company. This causes companies to reduce the denominator by shrinking their assets, which in turn causes them to eliminate company capability, increase outsourcing, and threaten long-term success of the company. Companies that do this are rewarded in the short term with higher ROA, but handicapped in the long run with limited internal competencies.

Think of it this way: As a leader, you need to rebuild your ship at sea, not sell boat plank by plank.

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