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Exclusive: Jim Collins on ‘Thriving In Chaos’

Chief Executive

We went back and ran an analysis on the cash-to-assets ratio of companies that did really well in these kinds of environments, even when they were small. We found that the discipline to have a very high cash-to-assets ratio showed up early in their history. And if we do that, we can’t help but grow revenues per fixed cost.

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The Challenges GM Is Facing, and the Reasoning Behind Its Plant Closures

Harvard Business Review

Capital-intensive factories have a high-fixed-cost, low-variable-cost operating model. If you greatly reduce the production volume, the cars that do come out have to absorb more of the fixed costs, and that eventually sends the product into a profitability death spiral. Given the shift in immediate U.S.

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Understanding Financial Leverage

Harvard Business Review

The second is that the asset underlying the leverage holds its value. As leverage accentuates the profit when asset values rise, it decimates return when values fall. Regardless, a financing component adds another fixed cost. However, there are two conditions necessary for financial leverage to actually become power.

Assets 15
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Five Rules for Innovating in a Shaky Economy

Harvard Business Review

Management has made promises to senior executives about what a project will achieve, and fixed costs have built up because they looked prudent in comparison to planned revenues. Good portfolio plans will balance the types of risks assets are exposed to, and they may have holdings with different levels of liquidity.

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Joint Ventures Reduce the Risk of Major Capital Investments

Harvard Business Review

In many industries, the capital required to build an asset of minimum efficient scale is growing. For instance, the cost of building and equipping a leading-edge semiconductor fab has climbed to $7 billion, as the technology required to make more advanced chips is getting more complex. Model 2: Asset capacity pooling.

Assets 12
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Is Rooftop Solar Finally Good Enough to Disrupt the Grid?

Harvard Business Review

The costly and complex operations of transporting energy have made utilities natural monopolies, while regulatory barriers and the high fixed costs of building and maintaining regional electrical grid infrastructure have also kept much competition at bay.

Energy 15
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How Drucker Thought About Complexity

Harvard Business Review

Evidence of this pressure is starkly captured in the return on assets (ROA) for all public companies in the US since 1965. They have systematically and significantly eroded barriers to entry and movement on a global scale. The result is relentlessly mounting performance pressure.