The Most Useful Capital Allocation Survey I Read This Quarter Was About Creativity
Note: This image contains AI-generated elements.
The most useful capital allocation survey I read this quarter was about creativity.
Accenture's creative unit, Accenture Song, polled 1,725 executives. 81% say their organizations can generate creative ideas. Only 16% very frequently turn those ideas into initiatives that drive growth.
The ideas exist. Few get funded. AI has made the alternative cheap: the same business, run with fewer people.
Malina Ngai is CEO of Hong Kong health and beauty retailer AS Watson. On September 8 she warned: AI that improves today's processes gets you "a better version of yesterday." Two failure modes follow. She named the first. 1. Savings kept as profit because nobody chose anything else. 2. Savings reinvested with no return target.
Oracle cut full-time headcount from about 162,000 to 141,000 in the fiscal year ended May 31. Its 10-K names AI deployment as one cause. But the same year it raised capital spending 162% to $55.7 billion, above its $32.0 billion of operating cash flow. It also issued $43.0 billion of senior notes. In the quarter reported September 10, it sold $20 billion of new shares through an at-the-market program. Cloud infrastructure revenue was up 121%.
Oracle has passed half the test: destination named, return unnamed in either filing.
We score three dimensions before the savings arrive. 1. The CEO's capital allocation record. 2. Whether pay rewards new revenue or only margin. 3. Whether an executive below the CEO can argue for a new bet without being called "difficult." On Oracle, the first is in the filings. The other two take the work. That work decides position size: hold through negative $23.7 billion of free cash flow, or exit.
Earnings season is here. I expect most CEOs reporting AI-linked savings to name where the money goes and stop.
How many will name what they will earn from this?
🔗 Source: CEOs Warn Against Falling Into AI's Efficiency Trap: The Biggest Risk Is 'a Better Version of Yesterday'
