Research Assignment, Strategy Obtain from your library a copy of following article: Clayton
M. Christensen, Stephen P. Kaufman, and Willy C. Shih, "Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things," Harvard Business Review, January 2008, pp. 98-105. The article focuses on bias against innovation that is attributable to the misuse of certain financial tools. In fact, they conclude (p. 104) that "managers in established corporations use analytical meth- ods that make innovation investments extremely difficult to justify."
Required: After reading the above-referenced article, answer the following questions:
1. According to the authors of the article, how does the use of DCF tools by managers in practice bias against innovation? What solution do the authors propose to counter this problem?
2. Define the terms fixed costs and sunk costs. According to the authors of this article, what is the bias against innovation that is created by how some decision makers view such costs? What remedies do the authors recommend for dealing with this problem?
3. The authors suggest that bias in the evaluation of innovation projects is caused, as well, by an overem- phasis on (short-term) earnings per share statistics. What is the essence of this argument? What do the authors propose as a recommendation for addressing this problem?