Quotes About Business

Clayton M. Christensen

Clayton M. Christensen

business. One particularly common one is RONA, or Return on Net Assets. In manufacturing businesses, this is calculated by dividing a company's income by its net assets. Hence, a company can be judged as being more profitable either by adding income to the numerator, or by reducing the assets in the denominator. Driving the numerator up is harder, because it entails selling more products. Driving the denominator down is often easier—because you can just opt to outsource.

managers may think they control the flow of resources in their firms, in the end it is really customers and investors who dictate how money will be spent because companies with investment patterns that don't satisfy their customers and investors don't survive.

Experts' forecasts will always be wrong. It is simply impossible to predict with any useful degree of precision how disruptive products will be used or how large their markets will be. An important corollary is that, because markets for disruptive technologies are unpredictable, companies' initial strategies for entering these markets will generally be wrong.

The leading firms in the established technology remain financially strong until the disruptive technology is, in fact, in the midst of their mainstream market.

If history is any guide, companies that keep disruptive technologies bottled up in their labs, working to improve them until they suit mainstream markets, will not be nearly as successful as firms that find markets that embrace the attributes of disruptive technologies as they initially stand.

They are always motivated to go up-market, and almost never motivated to defend the new or low-end markets that the disruptors find attractive. We call this phenomenon asymmetric motivation. It is the core of the innovator's dilemma, and the beginning of the innovator's solution.

innovator's dilemma: Should we invest to protect the least profitable end of our business, so that we can retain our least loyal, most price-sensitive customers? Or should we invest to strengthen our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products?

Professor Amar Bhide showed in his Origin and Evolution of New Business that 93 percent of all companies that ultimately become successful had to abandon their original strategy—because the original plan proved not to be viable.

The past is a good predictor of the future only when conditions in the future resemble conditions in the past. And what works for a firm in one context might not work for another firm in a different context.

Study after study, however, concludes that about 90 percent of all publicly traded companies have proved themselves unable to sustain for more than a few years a growth trajectory that creates above-average shareholder returns.

In a small, independent organization, these small wins will generate energy and enthusiasm. In the mainstream, they would generate skepticism about whether we should even be in the business. I want my organization's customers to answer the question of whether we should be in the business. I don't want to spend my precious managerial energy constantly defending our existence to efficiency analysts in the mainstream.

To succeed predictably, disruptors must be good theorists. As they shape their growth business to be disruptive, they must align every critical process and decision to fit the disruptive circumstance.

they reached as far upmarket as they could in each new product generation, until their drives packed the capacity to appeal to the value networks above them. It is this upward mobility that makes disruptive technologies so dangerous to established firms—and so attractive to entrants.

Companies make attractive money when they solve the hardest problems.

It is in disruptive innovations, where we know least about the market, that there are such strong first-mover advantages. This is the innovator's dilemma.

In dealing with disruptive technologies leading to new markets, however, market researchers and business planners have consistently dismal records.

Why is it that the big, established companies that have so much capital find these initiatives to be so costly? And why do the small entrants with much less capital find them to be straightforward? The answer is in the theory of marginal versus full costs.

on—the value network framework would predict that firms similar to Quantum and Seagate are not likely to build market-leading positions in flash memory. This is not because the technology is too difficult or their organizational structures impede effective development, but because their resources will become absorbed in fighting for and defending larger chunks of business in the mainstream disk drive value networks in which they currently make their money.

Rita G. McGrath and Ian C. MacMillan, "Discovery-Driven Planning," Harvard Business Review, July–August, 1995, 4–12.

So I proposed to give the people scientific government…a business administration. An administration that would have run the government exactly as a successful businessman runs his business. The people would have resented it if I had told them they didn't know how to run their affairs. There was only one way to do it…gain control and force it down their throats.

This kind of business (murder) required detachment. The trick was to do it almost casually, as you might flick on the radio, or swat a mosquito.

Arthur's program of discounting diamonds throughout his vast chain of