BANK OF AMERICA ROUNDTABLE ON BUSINESS UNIT EFFICIENCY VERSUS LEVERAGING CORPORATE COMPETENCIES

Corporate strategist C.K. Prahalad begins by observing that the efficiency achieved by U.S. companies in recent years, brought about in part by EVA and EVA‐like systems, is a necessary condition for wealth creation in the new competitive environment. For this reason, the EVA movement is now spreading to Europe and Asia. But, as Prahalad goes to argue, efficiency is not a sufficient condition for wealth creation; equally important is the quest for profitable growth opportunities. And this raises a potential objection to EVA and indeed all divisional performance measurement systems: They could end up reducing long‐term growth and value by discouraging managers from capturing synergies among business units and leveraging core competencies to the fullest extent possible. Following Prahalad's discussion of the problem of capturing synergies and leveraging cross‐unit capabilities in large, multi‐business companies, moderator David Glassman explores potential solutions with top executives from a number of U.S. and Canadian companies. Among the most promising suggestions are significant managerial stock ownership (as exemplified by a plan used at Baxter International), a cross‐unit auction system for evaluating large infrastructure investments pioneered by Stern Stewart, and, probably indispensable, strong encouragement of business unit collaboration by an active and accessible CEO.