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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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Solving the Internet's Congestion Problem

Harvard Business Review

Congestion, rather than raw usage, is the key driver of this phenomenon; given that the Internet Service Provider network is largely a fixed-cost asset. Like any fixed-cost asset, such as the Interstate highway system in the U.S., Do we need a new set of incentives that can help manage the internet's growth?

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Five Rules for Innovating in a Shaky Economy

Harvard Business Review

However many big projects become inflexible, travelling on rails to a fixed destination. 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.

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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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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. As the effects began to play out in the ''70s and ''80s, Drucker wrote extensively about the need for management practices to change. The Mongrel Discipline of Management , by David K.

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How to Know If a Spin-Off Will Succeed

Harvard Business Review

For example, a divested business may inherit assets and capabilities that have been starved of investment by its former parent. Conversely, the business may be an “unpolished diamond” that was neglected by its former management for too long and whose value is just waiting to be unlocked.

Assets 11
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How Industry Giants Can Create Corporate Breakthroughs

Harvard Business Review

But in reality most companies, particularly those that manage to last for any reasonable period of time, do day-to-day innovation extremely well. It''s not like large companies never manage to do it. Most large corporations will admit to struggling with innovation. Your television picture quality is significantly better.