Capital Budgeting and RFID
In 1954, Joel Dean wrote Measuring the Productivity of Capital for the Harvard Business Review. Some of his remarks were quite prescient and may still be relevant to capital budgeting processes at present. Speaking about the relationship between corporate strategy and capital budgeting decisions, Dean suggests that while a “company’s goal is profits,” a bit of latitude can be taken to include other worthy organizational pursuits—ostensibly those espoused in an organization’s overall strategy. This seems a far cry from today’s corporate culture that puts profits above all else. With corporations ultimately responsible to their share owners for maximizing share owner equity, many firms may forgo capital investments which would support their corporate strategy and perhaps maximize a much longer-term profitability in lieu of shorter-term profit gains.
RFID implementation may certainly fit into this lateral component of capital budgeting. While short-term IRR and NPV may not appear to justify enterprise-wide implementation, a longer-term ancillary-benefit assesment may lead to a different conclusion. This is particulary true in light of the difficulty capturing accurate costs and cash flows with technology that is designed to reduce direct labor costs. That being said, Dean cautions quite aptly: “some projects are [considered] so pivotal for the long-run welfare of the enterprise that they possess high strategic value which overrides mere economic considerations and lifts their evaluation into a mystic realm beyond the ken of economic and financial analysis.”
Throughout the capital budgeting process, I would suggest taking a bit of latitude—certainly within perspective of the current business climate—and considering those projects which may yield long-term fruition of organizational objectives.
