CAPITAL-BUDGETING SYSTEMS AND CAPABILITIES INVESTMENTS IN UNITED-STATES COMPANIES AFTER THE WORLD-WAR-2

The authors of this article argue that companies' high cost of capital or short investment horizons do not explain the decline in global com petitiveness 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 inves ted vigorously-but in the wrong things. The authors define a set of de sirable capabilities and, using case studies, describe both the proble ms of the recent past and the requirements for successful investment i n the future.