World Grain - June 2013 - 6

from the editor-in-chief

A new measure
of business success

lyde M. Christensen, a professor
of business at the Harvard Business School and a highly regarded
scholar for his focus on analyzing corporate strengths, has been cautioning of late
about excessive reliance by companies on
measures of business success that might no
longer be appropriate. Considering that Mr.
Christensen at one time was an outspoken
advocate of using gauges like RONA (return
on net assets), ROCE (return on capital employed) and IRR (internal rate of return), his
newfound doubts about their utility has great
implications. That is especially the case for
an industry like grain-based foods that has
typically compared returns from the capital
employed to judge how well individual enterprises are doing. What has changed, according to Mr. Christensen, is the abundant
availability of capital whereas the once popular measures became prominent at a time of
capital scarcity. In the latter situation, measuring success against scarce capital made
more sense than doing that today when capital is considered easily available.
Instead of trying to expand returns on an
abundant asset like capital, it is Mr. Christensen’s recommendation that both business and government should wake up to the
likelihood that they have been following the
wrong rules. He even warns that necessary
investments are not being made solely because of concerns that such moves would

Chairman
Charles Sosland
Publisher/Managing Director Mark Cornwell
Director of Advertising Sales
Dan Flavin
EDiTORiAl STAFF
Editor-in-Chief
Editor
Managing Editor
World-grain.com Editor
European Editor
China Consultant
Designer

Morton I. Sosland
Arvin Donley
Meyer Sosland
Susan Reidy
Chris Lyddon
Fengcheng Wang
Ryan Alcantara

drive down RONA, ROCA and IRR.
“We are trying to solve the wrong problem,” he asserts by emphasizing the need for
efficiency in the use of capital when the focus ought to be on finding innovations that
will create new growth opportunities.
That new focus, he emphasizes, is as important to companies as it is to how the government addresses present-day economic
problems. Training people to pursue capital efficiency is wrongheaded in the same way that
it is misguided to train old and new employees
in “yesterday’s skills.” He points to the real
scarcity of workers trained to come up with
“empowering innovations,” rather than workers with skills that are not needed presently.
His suggestions for solving this problem
will ring true in a capital-intensive industry
like flour milling. Saying that “we can use
capital with abandon now,” he presses the
need for educational reforms that will focus
on increasing returns from these endeavors.
He says, “Optimizing return on capital will
generate less growth than optimizing return
on education.” He also makes specific recommendations for tax reform, including rewarding long-term investors.
Perhaps most controversial, at least for
an industry like grain milling, in Mr. Christensen’s ideas is his plea for less attention
to investing in innovations meant to improve efficiency. Instead, he urges that the
focus should be on investing in ideas and

concepts that will create new jobs. Noting
that the pursuit of efficiency gains was long
taught as nearly sacred at business schools
like Harvard, he comments that “times have
changed” to the point that this approach no
longer makes the sense it once did.
Understanding that opinion from the
viewpoint of grain-based foods means that
the long pursuit of efficiency, symbolized by
boosting the flour extraction rate, does not
currently offer the same rewards as efforts
to boost innovation or in coming up with approaches to milling and the products made
by milling that will be truly innovative.
Millers may look with some pride as to their
efficiency gains that have seen the national
average extraction rate for flour boosted significantly in the past decade. The question
Mr. Christensen raises is whether it would
not have been better to come up with some
innovative use for milling technology or for
flour that would lead to major investing in innovations that would also have added many
new jobs. The industry has not seen enough
of this approach to its capital investing. Perhaps it’s someone like Mr. Christensen who
will drive change in the direction he believes
is needed. Few millers would dismiss the
gains possible from the innovation and empowerment he envisions.

PubliShing STAFF
Vice-Chairman
L. Joshua Sosland
President and Publishing Director
Mark Sabo
Vice-President and
Chief Financial Officer
Melanie Hepperly
Audience Development Director
Don Keating
Director of On-line
Advertising and Promotions
Carrie Fluegge
Promotions Manager
Lon Davis
Director of e-business
Jon Hall
Advertising Manager
Nora Wages
Advertising Materials
Coordinator
Debbie Maniez
Digital Systems Analyst
Marj Potts
Circulation Manager
Judith Arnone

WORLD GRAIN (ISSN 0745-8991) Volume 31, issue 6,

Morton I. Sosland
Editor-in-chief

is published monthly by Sosland Publishing Co.,
4800 Main Street, Suite 100, Kansas City, MO 64112 U.S.
Periodicals postage paid at Kansas City, MO 64108 U.S. and
additional mailing offices. Canada Post International Publications
Mail (Canada Distribution) Sales Agreement Number 40612608.
Send returns (Canada) to Pitney Bowes International, P.O. Box
25542, London, ON, N6C 6B2. Printed in the USA.
POSTMASTER: Send address changes to WORLD GRAIN,
PO Box 324, Congers, NY 10920-0324. © Sosland Publishing
Co. All rights reserved. Reproduction of the whole or any
part of the contents without written permission is prohibited.
WORLD GRAIN assumes no responsibility for the validity of
claims in items reported. Sosland Publishing Co. is a division of
Sosland Companies. Inc.
Editorial and advertising inquiries should be directed to our
world headquarters at 4800 Main St., Suite 100,
Kansas City, Missouri 64112 U.S. Tel: 1-816-756-1000,
Fax: 1-816-756-0494 or E-mail worldgrain@sosland.com.
Requests for reprints of articles should be sent to
reprints@sosland.com or call 1-816-756-1000.

June 2013 / World Grain / www.World-Grain.com

http://www.World-Grain.com http://www.World-Grain.com

World Grain - June 2013

Table of Contents for the Digital Edition of World Grain - June 2013