The result: a decade of negative returns for shareholders and a permanently changed landscape for executive decision making. Throughout this time, changing public policies fueled increasing global competition. Shortly thereafter, the oil shocks of the early 1970s created another massive disruption. This period of technological change began in 1965-a few years before the invention of the microprocessor. ROA also is less vulnerable to the kind of short-term gaming that can occur on income statements since many assets, such as property, plant, and equipment, and intangibles, involve long-term asset decisions that are more difficult to tamper with in the short term. Commonly used metrics such as return on equity or returns to shareholders are vulnerable to financial engineering, especially through debt leverage, which can obscure the fundamentals of a business. It captures the fundamentals of business performance in a holistic way, looking at both income statement performance and the assets required to run a business. ROA is not a perfect measure, but it is the most effective, broadly available financial measure to assess company performance. The long-term trajectory of ROA, rather than a snapshot in any given quarter or year, reveals how effective a company is, over time, at harnessing business opportunities in a highly uncertain environment. Companies lack a clear vision or the ability and commitment to execute a long-term strategy. The decline signals companies’ decreasing ability to find and capture attractive opportunities relative to the assets they have. Combined, these factors reflect what we call the Big Shift in the global business environment.įor more information, please go to This story is embodied in the economy-wide, secular decline in return on assets (ROA) over the last 47 years. These metrics fall into three areas: 1) the developments in the technological and political foundations underlying market changes, 2) the flows of capital, information, and talent changing the business landscape, and 3) the impacts of these changes on competition, volatility, and performance across industries. The Shift Index tracks 25 metrics across more than 40 years. We developed the Shift Index to help executives understand and take advantage of the long-term forces of change shaping the US economy. The cumulative effects of long-term changes, driven by digital technology and public policy shifts, which are transforming the global business economy comprise an era we call the Big Shift. These pressures are felt by executives charged with pursuing profitable growth and workers who must stay relevant as technology and business models change. 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. 6 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. 5 Over the past four years, Chapter 11 business bankruptcies have been at a level not seen since the mid-1990s. An increasing topple rate indicates that US companies are struggling to maintain their leadership positions as revenues and market share prove vulnerable. Yet, other metrics tell a different story, one of increasing pressures and stress for companies, executives, and employees. Subscribe to receive insights from the Center for the EdgeĬreate a custom PDF or download Deloitte Review, issue 22 What we think now: Read an update from John Hagel as featured in Deloitte Review, issue 22
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