Requires CEO adaptation
The gentle word for intellectual reconstruction
CEO may not admit it, but it is increasingly becoming challenging to manage business performance.
A solution may be closer than what is imagined in the way capital is allocated.
Allocation of capital (line 2) is a function of CEO understanding of how markets/customers are being influenced, tech trends and mental models of how the business works (line 1)
Progressively capital allocation has to shift to intangible assets (technology, digital marketing, and people) (line 3 and 4)
These are all costs of a Profit & Loss account.
Can a CEO (and CFO) allocate capital budgets (increase costs) without a business model of return?
Late Prof. Clayton Christensen described in his seminal work (disruptive innovation) incumbent firms being unable to react.
In the digital age, it is more than path dependence and failure to predict.
CEOs need to:
Define new-age metrics to measure business performance
Reconstruct accounting reports to reflect digital reality
Make marketing and customer engagement an operational asset
Build a capability to allocate capital to intangible productive assets.