that goal, but it is one of several components.nAn imperfect understanding of the bottom line amongnmiddle management is inherently dangerous. Overemphasisnon the profit goal narrows corporate strategies and sometimesneven works against national goals, such as full employment,ncontrolling inflation, and growth. If profit is thenprimary goal, as it usually is in American business, a businessntries to produce what the market can absorb at prices thatnguarantee the requisite profit established, or to produce thenproduct at the cheapest possible price for labor. In othernbusiness cultures, in Japan, for example, the goal might be tonemploy as many people as possible and to keep themnemployed — to maintain productivity at the expense ofnprofit. Different decisions would thus be made about pricingnlevels, production goals, and capital (equipment and technology)npurchases. Generally, in the United States, thenquicker the profit goal is expected to be met, the less risk isninvolved; the longer the firm must wait for its return onninvestment, the riskier is the investment. An overly cautiousnfirm, with sophisticated financial controls, might elect tonmake only short-term investment with low capital risk; ornunder extreme circumstances, to defer investment decisionsnentirely. We witnessed a great deal of this sort of cautionarynspirit in the 1980’s, with a consequent loss of leadership innkey industries to the Europeans and Japanese.nBusinesses in which middle managers have a narrownunderstanding of the term “bottom line” are businesses withnpotential trouble. Middle managers may react to increasednemphasis on investment decisions with concern about profit,npure and simple. They may begin to restrict themselves tonchoices with limited perceived risk. They may take longer tonmake decisions, de facto foregoing opportunities in extremencircumstances and in highly competitive environmentsnsimply losing out to more aggressive firms. The line of leastnresistance will be the project that looks like other projectsnproposed. As this kind of thinking becomes endemic tonbroad sectors of American business, we massively lose out toncompanies and countries with a different understanding ofnmanagement requirements.nA related danger is concurrent with the first. Innovationnhas become increasingly difficult in bottom line orientednenvironments. A safe choice has a measurable precedent.nAn innovative act, by definition, rarely has a precedent. Nonone can predict with certainty what something new will costnor what it will yield. All the analysis in the wodd will notnchange the fact that, in the end, a human being must decide,ngo or no go. But that decision becomes increasingly difficultnas real or imagined risk increases and as the absolute cost ofnpersuading others becomes greater and more time consuming.nAs individuals are negatively rewarded for innovativenproposals, they turn to more predictable efforts that looknreassuringly familiar, arouse fewer questions, and make lifeneasier. As the cost of being innovative becomes too high,ninnovative people may either leave a difficult environmentnor cease being innovative. This in part may have explainednthe enormous increase in the I980’s in new businesses innwhich there is more interest in growth than profit per se, andnwhere accountability is clearer and hence decision-makingnseems less risky.nBottom line thinking is characteristic of larger companies.nSmaller companies are often preoccupied with survivalnissues such as cash flow and distribution of resources rathernthan profitability and market share, except in the mostnimmediate sense. Smaller companies trade off scientificnaspects of business planning, including financial management,nin return for maximizing use of the creativity andninnovation they possess in their human resources. Manynsmall companies have originated from the ideas of annindividual or a group of innovators who were uncomfortablenwithin the context of a larger business. Larger companiesnhave tended to trade off unfettered individual creativity,neven brilliance, for safe, predictable results, by focusing onncontrol elements such as bottom line justification. As theynhave lost the ability to respond quickly, they have succeedednin producing more predictable results. Large companiesncannot put too much faith in particular individuals; too oftennmanagement has only the vaguest sense of who is responsiblenfor what results. To protect the company from mistakennassumptions about whose decisions management can trustnand whose it can’t, management employs overall, evenhandedncaution: every employee must meet certain establishednguidelines designed to protect the company’s bottomnline goal. If a product or a marketing suggestion can’t benshown to have demonstrable benefit, the suggestion can’t bentaken.nSmaller companies use the inhibitions of larger firms tontheir own advantage. In the past decade economic researchnhas shown that smaller enterprises (employing twenty ornfewer individuals) have been those that create new jobs andninnovations. Between 1969 and 1986, nearly two-thirds ofnnew jobs were generated by businesses with twenty or fewernemployees. Commerce Department data shows that youngnhigh-technology companies had the highest job growth andnsales growth. While this is somewhat removed frohi thensubject of the bottom line, if in fact risk-taking and return onninvestment are inversely correlated, then one can see hownrisky vague metaphors can be for the health of the businessnfirm.nA primary characteristic of smaller companies is informalnor flexible structures of decision-making. Usually a smallnnumber of individuals are involved in decision-making, andnthe evidence required to take a decision is flexible andndepends on the project being proposed. Projects may benpursued beyond the bounds of economic rahonality; that is.nThe language of the bottom hne signifiesnthe dominance of a utiUtarian ethic thatnperceives business survival in narrow termsnunconnected to the national commonwealth.nif common sense dictates that more resources should beninvested in a project before it is abandoned, they will beninvested. Decisions to cut off work on a project are rarelyndependent on fixed rules.nThe emphasis on bottom line decision-making in establishedncompanies, which have obligations to impersonalnnnAPRIL 1991/29n