Long-Term Survival and Growth
Clayton M. Christensen is a professor of business administration at the Harvard Business School. He is the bestselling author of five books, including his seminal work, The Innovator's Dilemma, which received the Global Business Book Award for the best business book of the year, and most recently, The Innovator's Prescription, which examines how to fix our healthcare system. Christensen serves on several public and privately traded boards and is the founder of a successful consulting company and an investment management firm. He holds a B.A. with highest honors in economics from Brigham Young University and an M.Phil. in applied econometrics and the economics of less-developed countries from Oxford University, where he studied as a Rhodes Scholar; he received an MBA with high distinction from the Harvard Business School in 1979, graduating as a George F. Baker Scholar, and was awarded his DBA from the Harvard Business School in 1992.
Question: Why do most businesses fail?
Christensen: They lack business model innovation. A business model itself really does have a finite life, and when the managers of that group focus all their resources on sustaining innovations that are commercialized within that business model and don’t catch these disruptive ones that make things more affordable and simple, almost always that’s the cause of failure. Every disruption, disruptive innovation is a huge growth opportunity long before it becomes a threat. And so, the real question is how can I be sure that I catch these new growth opportunities so that when it ultimately becomes a threat, it’s a very natural thing for me to shut the old down because the new has become so large. Here’s a good way top visualize it. At the beginning of every industry’s modern history, because the technology is so complicated and expensive, it centralizes the industry. So, let me stay with computing because we’ve talked about that a bit. When I was in college, I carried my slide rule everywhere, and whenever I landed into a problem of computation, I pulled out the slide rule and calculated the answer. The advent of the mainframe computer centralized computing, so we had to take our problem to the solution in the form of a stack of [punch] cards and give it to an expert who then ran the job for us. We could compute in a much more powerful way than was ever possible before but, man, was it expensive and inconvenient. And so, that expense and inconvenience, in every industry’s history, then sets in motion a set of innovations that decentralized the solution again. And so, the advent of what we call the mini computer, which were big boxes and sold for $250,000, decentralized computing a little bit. As the mainframes were in the finance and data processing department, the mini computer put it in the engineering department. And then, the personal computer put it in the home and the office. The notebook put it in our briefcase, and now the handheld puts it in our purse and our pocket. Every one of those waves of decentralizing the industry, bringing the solution back to the problem rather than forcing you to take the problem to the solution, created a huge new wave of growth. And because the ones in the original core business, because the decentralized solution doesn’t appeal to their customers or their economic model, they got killed. But you just have to watch whenever there’s an opportunity to decentralize, catch that wave with a new business model.
The Harvard Business School professor on the right way to accelerate growth.
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