New Myths

4 July 2011

Cost vs. Investment

So I’ve been thinking lately – what happens when maintenance costs increase at a consistent, unchecked rate? After all, the general consensus, is that over time, costs increase in successful businesses as greater capabilities and capacity are required. Now the observant reader will opine that if the business is increasing in success, shouldn’t the profits be reinvested? I’ll acknowledge that as a possibility, but would argue that its rarely, if ever, at a level where it is proportional to the increase in cost – particularly if inflationary pressures are taken into account. Now the interesting part is what happens if the above is all valid – as illustrated off to the side – you eventually experience a period where maintenance is so great, that it begins to impact the funding allocated to new efforts.

I’ve been reading a number of “strategy” books lately and there’s an idea that sticks out with regards to all this – if you’reĀ forced to spend money on maintenance, then your thinking on initiatives becomes more tactical – the business begins to assume that innovation can’t take place and stops planning for it. The result is a self-fufilling prophecy that eventually leads to an eventual downturn in the business that worsens the situation further.

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