Penny Wise, Pound Foolish: How Under-investment Can Stifle Profitable Growth

Originally published in June 2003.

After a two- to three-year dry spell, management teams are starting to see promising opportunities for profitable growth. Yet many executives are reluctant to make the "big bets" necessary to exploit these opportunities.

Their reluctance is understandable. Battle-scarred investors have been hesitant to provide capital after the collapse of the equity markets and the economic slowdown that began in the late 1990s. Likewise, they remain skeptical of management’s earnings forecasts and proposals touting new growth opportunities. Executives, meanwhile, are wary of investing in future-oriented projects for fear that shareholders will not fairly value the expected returns. The result is a vicious cycle, leaving companies without capital and investors without investments.