What Are We Missing?

Published on April 2, 2001

In reading the book Maestro (the story of Fed Chairman Alan Greenspan written by Bob Woodward), it was interesting to learn of the dilemma facing the Fed in trying to figure out why the economy was acting in certain ways. The biggest concern was over corporate profits. In the old models, prices would rise and hence profits would most of the time also increase. But in the economy of the 90’s, prices did not rise, labor costs did not go down, but yet profits still increased. What caused this anomaly? Increased Productivity!

It appears that technology has dramatically increased the productivity output of each worker and thus enabled companies to increase profits without increasing their prices or reducing their labor costs. The funny thing was the models the Fed always counted on did not measure or take into account productivity gains.

How accurate are the models you are using in your business today? Are they taking into account all of the changes
inherent in your market place? Or are there things happening that you cannot account for? If so, it might be the time to change the models you use to measure your success.

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