Guest article by Tor W. Andreassen.
A financial focus turns companies into machines for short-term profits. Shareholder returns are prioritized over sustainable value creation. Examples like General Electric, Boeing, and Nokia show that this approach rarely leads to lasting success. Instead, it serves as a warning sign.
When financial goals are placed first, the role of companies changes. While this may provide short-term gains, it undermines the foundation for sustainable value creation. Companies that prioritize shareholders and speculative investments over innovation and societal responsibility risk collapse. Enron and WorldCom are well-known examples. As John Kay notes in The Corporation in the 21st Century, the fate of General Electric and Boeing demonstrates that financial orientation often fails.
Financial Focus: What the Research Shows
Studies back up this observation. Lerner, Sørensen, and Strömberg (2008) reveal that financial orientation often leads to cuts in research and development, especially after private equity takeovers. However, Amess, Stiebale, and Wright (2015) find that under certain conditions, private equity investments can strengthen innovation. The outcomes depend on the context and the leadership approach.
Boeing: From Innovation to Financial Focus
Boeing provides a striking example of how a financial focus can undermine innovation. Once an innovation powerhouse renowned for quality and iconic aircraft like the 747 Jumbo Jet, Boeing shifted its focus to shareholder returns and cost-cutting after merging with McDonnell Douglas in 1997. Leaders trained in General Electric’s “management school” introduced Jack Welch’s philosophy of short-term profitability.
This shift led to cuts in R&D budgets and extensive outsourcing. As Zhang (2020) points out, financial orientation often diverts resources from productive investments to financial activities. In Boeing’s case, this proved disastrous. Safety reviews were deprioritized to meet aggressive financial goals. The 737 MAX crisis, which claimed 346 lives, exposed weakened quality and lost trust.
Norwegian Examples: Kværner and Tandberg Data
Similar trends are evident in Norway. In the 1990s, Kværner, a leader in industrial engineering, pursued aggressive acquisitions and high debt. Its focus on financial goals came at the expense of core areas and innovation. The result was financial difficulties that required restructuring and selling off key divisions.
Tandberg Data, a pioneer in data storage, followed a similar path. In the 2000s, the company prioritized short-term financial results over future investments. Failure to adapt to market changes led to bankruptcy in 2009. Norway lost a key player in a forward-looking industry.
A Global Challenge
Internationally, research has documented how private equity (PE) influences companies. Popov and Roosenboom (2008) find that PE financing can stimulate innovation in developed markets. However, Gao and Xie (2022) show that a financial focus can hinder technological innovation by altering capital structures.
The table below highlights companies that shifted from innovation and operational focus to short-term financial orientation, with severe consequences:
| Company | Shift Period | Leadership | Innovation/Operational Success | Impact of Financial Focus |
| General Electric | Late 1990s – Early 2000s | Jack Welch | Technology innovation and industrial leadership | Increased short-term returns; collapse after 2008 |
| Boeing | Early 2000s | Harry Stonecipher | Strong safety and quality culture | Reduced focus on safety and quality; 737 MAX crisis |
| Nokia | Early 2000s | Jorma Ollila | Leader in mobile innovation | Lost competitiveness to Apple and Samsung |
| Heinz | 2013 | Bernardo Hees (3G Capital) | Effective global brand with strong innovation | Merged with Kraft; cost-cutting hurt competitiveness |
| J.Crew | Early 2010s | Mickey Drexler (under TPG Capital) | Successful brand with focus on design and loyalty | Overleveraged by PE; bankruptcy in 2020 |
| Mulberry | Early 2010s | Godfrey Davis | Leader in luxury goods | Strategic mistakes; focus on cost-cutting hurt brand |
| Kværner | 1990s | Erik Tonset & Kjell Almskog | Leader in industrial engineering | High debt and weak innovation; restructuring |
| Tandberg Data | 2000s | Arne A. Vedø | Innovative in data storage | Market failure; bankruptcy in 2009 |
| Whataburger | 2019 (acquired by BDT Capital Partners) | Preston Atkinson and Tom Dobson | Focused on quality and local community | Standardization, expansion, loss of core values, customer attrition |
| TGI Fridays | 2014 | Sentinel Capital Partners and TriArtisan Capital Partners | Popular international restaurant chain | Financial difficulties; bankruptcy protection in 2024; closure of several restaurants globally |
| Toys R Us | 2005 (acquired by Bain Capital, KKR, and Vornado Realty Trust) | Bain and KKRteams | Stable growth as a publicly listed company | Bankruptcy in 2017 after struggling with high debt |
Leadership is Key
These examples reveal a clear trend: A leader’s focus and mindset determine a company’s future. To succeed in the long term, leadership must prioritize quality, innovation, and value creation over short-term financial goals. The short-sighted financial focus seen at Boeing and GE is not a sustainable solution.
Long-term success is about building trust, fostering sustainability, and driving innovation. The choice lies with leaders bold enough to prioritize wisely.
References
– Lerner, J., Sørensen, M., & Strömberg, P. (2008). Private Equity and Long-Run Investment: The Case of Innovation. The Journal of Finance, 63(4), 445–478.
– Amess, K., Stiebale, J., & Wright, M. (2015). The Impact of Private Equity on Firms’ Innovation Activity.Research Policy, 44(1), 1–11.
– Popov, A., & Roosenboom, P. (2008). Does Private Equity Investment Spur Innovation? Evidence from Europe. European Central Bank Working Paper Series.
– Gao, X., & Xie, X. (2022). Enterprise Financialization and Technological Innovation: Mechanism and Empirical Evidence. Journal of Post Keynesian Economics, 45(3), 121–140.
Tor W. Andreassen
Professor of Innovation at NHH Norwegian School of Economics
Director for the research center Digital Innovation for Sustainable Growth
Visiting Professor at Cambridge University
Image credit: StellrWeb.
