International Business Machines Corp. (IBM), News Corp (NWS): Let’s Not Rely on This Outdated Metric

Former executive Irving Wladawsky-Berger writes on another example of creating value versus capturing value internally at International Business Machines Corp. (NYSE:IBM):

The bulk of the value of Linux to International Business Machines Corp. (NYSE:IBM) was created by this small team of Linux developers, but most of the value was subsequently captured by the product and service businesses which saw incremental revenue by supporting Linux.

We treated the Internet and Linux as platforms for innovation across the whole company. And, while much of the value was created by the small teams focused on developing the new initiatives, the bulk of the value was captured by the existing International Business Machines Corp. (NYSE:IBM) units. In the early years of the initiatives, they saw incremental revenues from supporting the new capabilities with their existing offerings. And, over time, they came up with all kinds of new products and services based on the growing marketplace presence of the Internet and Linux.

The debate over using GDP has been around as long as the measure itself, but with more of the economy based on digital goods and services, the calls for a redefined measure are mounting. Our economic policies target GDP growth, so we should have an understanding of just what GDP may be missing. Because any economic activity that’s not accounted for slips past taxes, solving for a new measure could help sustain reasonable government budgets. And because GDP may undervalue innovation, a new measure could inspire more breakthrough ideas that may not have contributed to the current definition of economic growth.

The article Let’s Not Rely on This Outdated Metric originally appeared on Fool.com and is written by Dan Newman.

Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook and International Business Machines (NYSE:IBM).

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