IBM only invested in microcomputers to humiliate a disfavored executive who predicted that the company could sell 5,000 units -- I may be wrong about the number but it was ridiculously small.
IBM did put a great deal in pure science, but as the company aged, it was only slightly less agile than XEROX in taking advantage of its home grown science.
The oil companies, Jensen's favorite example, refused to invest in renewables.
John M. Legge wrote:
> Doug Henwood wrote:
>
> >
> >I say there, and I'll say again, that Jensen is really onto something in
> >his argument about free cash flow - that mature corporations throw off more
> >cash than they can reinvest at a "satisfactory" rate of profit.
> >
>
> I don't think that Jensen has "discovered" anything (but if you give
> reference with date I can be sure). Simple statics prove the point: during
> investment phase cash flow is negative as plant is constructed, equipment
> bought, products designed and market established. Once firm/industry
> matures then cash flow turns positive.
>
> a) if there was no prospect of positive cash flow after investment phase
> was complete, then investment would not have been made in first place
> b) funds for investment can only come out of cash surplus generated by
> mature companies
>
> Too much concentration of long run equilibrium clearly rots the mind.
>
> JML
-- Michael Perelman Economics Department California State University Chico, CA 95929
Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu