Technology isn't always profitable

Jo Owen's Hardcore Management sets out to show that productivity may not boost the bottom line. Here is an extract from the book:

Jo Owen's Hardcore Management sets out to show that productivity may not boost the bottom line. Here is an extract from the book:

"Technology and productivity improvements do not assure profit improvements. The millennium bubble in share prices was driven by a belief in a specious new economic paradigm. Whenever brokers start touting a new economic paradigm, sell.

"This suggested that new technology and the internet would drive a golden era of rising growth and profits. There was one fatal flaw. Endlessly rising profits can only be sustained if we had also witnessed the end of competition and capitalism.

"Capitalism will encourage investment where there are profits to be made and more competition will be attracted. Profits will tend to be competed away in favour of customers, rather than being retained by shareholders.

"There were two other fatal flaws. Much of the new technology did not lead to productivity or profit improvement. And the business models of the new paradigm were based on technology, not on the customer, the market or making a profit.

"In a competitive world, productivity and technology benefits will not all flow to the shareholder in the form of increased profits. Productivity improvement is the minimum requirement for staying competitive, rather than for reaching a nirvana of unlimited profits.

"Why did so many investors believe in the new economic paradigm and the end of competition, and why do so many managers still assume that productivity improvements will result in increased profitability, rather than being competed away? With hindsight, we can see the folly of the market, but do not recognise that we are indulging in the same folly in our own business plans."

Hardcore Management by Jo Owen is published in May by Kogan Page. ISBN 07494 39246

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