[eBook Code] Value Creation Principles (eBook Code, 1st)

Preface and Overview xv

I A Firm’s Role in Society

1 Overview of the Pragmatic Theory of the Firm 3

The Nucleus of the Pragmatic Theory of the Firm 4

The Evolution of Thinking about the Theory of the Firm 7

Kindred Spirits for the Pragmatic Theory of the Firm 10

Innovation and Economic Growth 16

The Purpose of the Firm 24

The Pragmatic Theory of the Firm 30

2 Knowledge Building and Firm Performance 33

The Knowledge-Building Path to Improved Performance 34

The Knowledge-Building Loop 35

Human Behavior, Culture, and Firm Performance 44

Elegant, Parsimonious, and Reliable Theories 48

3 Work, Innovation, and Resource Allocation 53

Lean Thinking—“No Problem is a Problem” 55

The Theory of Constraints 60

Ontological/Phenomenological Model 64

Innovation 69

Resource Allocation 71

The Key Constraint in Sustaining a Knowledge-Building Culture 75

II The Pragmatic Theory of the Firm Connects Innovation and Valuation

4 Life-Cycle Performance and Firm Risk 81

The Firm’s Competitive Life Cycle 84

A Paranoid Optimist Restructures Nokia 90

A Case Study of Innovation—Amazon 93

The Life-Cycle Valuation Model 96

What Does a Stock Price Say about a Firm’s Future Investments? 99

Forward-Looking, Market-Implied Discount Rate 101

The Roots of Modern Finance 103

Firm Risk Offers a Different Mindset 106

Summary of Key Ideas 110

A Research Methodology for Advancing the Life-Cycle Framework 111

Better Estimates of the investor Discount Rate 116

5 Intangible Assets, Brands, and Shareholder Returns 121

The New Economy and Connectivity-Enabled Business

Models 123

Empirical Evidence about Intangible Assets 126

Brands Impact a Firm’s Market Value 129

A Conceptual Roadmap for Handling Intangible Assets 133

Integrated Reports, Life-Cycle Reviews, and Intangibles 139

Expect More Than Coffee—Starbucks 143

Costco Starts by Caring for Its Employees 145

Ringing Doorbells and Changing Times—Avon 148

Why Did Illumina Outperform the Stock Market 18-Fold from 2004 to 2014? 150

The Efficient Market Hypothesis and the Factor Zoo 153

Excess Shareholder Returns and Three Levels of Cause-and-Effect Logic 157

Useful Ideas for Investors, Managements, and Academic Researchers 164

Investors 164

Managements 166

Academic Researchers 167

System Principles and Effective Language 168

III Value Creation

6 Life-Cycle Position, Adaptability, and Organizational Structure 181

Life-Cycle Guideposts 182

Focused Execution of an Innovative Business Model—Netflix 183

Innovation in the Operating Room—Intuitive Surgical 188

Nothing Runs Like a Deere 191

Smith Corona and NCR 194

The ABCs of Organizational Structure 198

Organizational Experimentation at the Haier Group 204

Value Creators Drive Dynamism in China 209

7 Achieving Progress Through Knowledge Building and Value Creation 213

The New Economy and the Pragmatic Theory of the Firm 214

Life-Cycle Track Records are a Scorecard and a Learning Tool 222

Politics and the Greater Good 224

Progress Studies 230

About the Author 239

Index 241