Capital decay definition
/What is Capital Decay?
Capital decay is an organization's sales that are lost due to the obsolescence of its business practices or technology. This is a particular concern for organizations that are locked into older business models; if they do not innovate to keep up with their newer competitors, they run the risk of losing substantial amounts of business, or even of going bankrupt. Capital decay is a major problem in industries where product cycles are short or the barriers to entry are low; in these situations, customers are likely to take their purchases elsewhere, leading to an ongoing decline in sales. Once sales decline below a firm’s breakeven point, it is no longer viable and will likely go out of business.
How to Avoid Capital Decay
The best ways to avoid capital decay are to foster a culture of innovation within a business, as well as to constantly invest more funds in the firm, replacing less efficient equipment.