The activities and fundamental issues faced by many businesses are often reminiscent of actions and psychological issues faced by people. It is not surprising, considering that these very same people run these businesses. In particular, it is important to look at the tendency of business owners, once faced with stagnation, to invest into projects and equipment that only create an illusion of progress, while not bringing any positive returns. These expensive corporate toys, be it an unnecessary new software, an expensive domain name, or a new furniture, have a noticeable negative net present value (NPV) and it is evident from the very start that no real benefits would be ever derived from them.
The reason why these corporate toys are purchased in the first place is because they make it appear that business is growing, that management is doing something of great value and that the company is developing. This often happens as a result of management's inability to further develop their business, lack of direction and meaning. The purchases of these corporate toys are nothing but a psychological mechanism, by which managers shows their legitimacy and control of the situation.
These items would not be harmless if they would not carry an expensive price tag and would not direct the attention of the management and employees in a wrong direction. The funds and resources spent on these costly engagements often come from other more important areas of the business. As a result, these other areas such as cost-effective marketing campaigns, equipment upgrades or employee salaries, are being underfunded. This leads to further business stagnation and an eventual decline.
This behaviour is somewhat reminiscent of the way individuals, lacking life's direction or meaning, indulge in meaningless pursuit of consumer trends, surrounding themselves with unnecessary things, 'toys' that have no real value and do not contribute to one's happiness and self-worth in the long-term. This behaviour is an escape. It takes courage and self-awareness to realize that an individual or a business have reached a point of stagnation. However, once this realization is achieved, the situation is effectively at its bottom and the situation should improve thereafter.
Even if management is unable to conceive a new business strategy, at the very least, they should not waste resources on unnecessary purchases. If a simple net present value (NPV) and/or payback calculation is carried out on every more or less important cash outflow, then companies would be in far better shape to face stagnation or uncertainty. Make this a rule: Every important cash outflow needs to be justified with concrete numbers. For example, installing a new costly software upgrade should not be done just because others do it but only if there are concrete financial benefits to it, such as improvement in labour productivity, etc. It may sound simple enough but it is astonishing how many small and medium businesses have no straight-forward evaluation procedures in place and still operate on a gut feeling of their management, often flawed during the times of uncertainty.
The financial discipline would not by itself propel a company into the next stage in development but it would insure that the business survives while management formulates a new strategy. The impulse purchases of expensive corporate toys and rushed business decisions in the time of uncertainty would not occur as often if companies would simply implement straightforward NPV and payback evaluations for their important purchases.