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Voice of Business: A businessman’s view of where to invest
May 07, 2014 | 1208 views | 0 0 comments | 43 43 recommendations | email to a friend | print

BY JIM SMITH

 “Our economy is like a perpetual motion machine, a self-sustaining process,” taught noted businessman, educator, and author Clayton Christensen at the recent Governor’s Annual Economic Summit. 

Christensen is a professor in the Harvard Business School and is noted internationally for his work on “disruptive innovation.”

His presentation focused on “why is it taking so long for us to come out of this last, deep recession?” 

He pointed out that a few decades ago it took labor about six months to bounce back following a recession, but that job recovery has gradually become slower and slower, until now it will most likely take 60 months. 

Economists today talk about a “jobless recovery,” but he says that just doesn’t make sense.  His review of what has changed was fascinating and intuitive. 

In summary, Christensen points out that  America has gone from developing “market-creating innovations” (new inventions, new ideas) to a culture that focuses on “sustaining innovations” that simply take existing products and make improvements to them in order to make them more effective or less expensive.  Improving existing products doesn’t add new jobs, it simply shifts them from the old version of the product to the new version of the product.

For example, when cellular phones were invented they created their own demand and created thousands of jobs – technology, management, sales, service, etc.  But now when they upgrade their existing phones the number of jobs created is relatively small since all they do is move their technical staff, their sales force, and service techs from the old phone to the new phone.  Industry’s failure to focus on “market-creating innovations” has led to a jobless recovery.

Christensen’s point is that this has led to an economy that is awash with cash, but with no place to invest it.  The Fed used to stimulate the economy by injecting more cash.  But that isn’t working today because there is already too much cash in the system.  His counsel to government is to enact fiscal policies, place controls on spending, and break the log jam that is preventing the economy from investing in innovation.

So where does he think we should be investing in today’s businesses?  He encourages business leaders to “ignore what is cheap and abundant (capital) and focus on what is scarce and costly (people.)” 

For example, he said that Amazon, a leader in the business world today, has stopped focusing on reporting success in financial terms only, but now talks about “people improvements.” 

“Investing in people today is the best guaranty of a bright future.  Investing in people is not a cost, it is an investment.” 

That investment may be in the form of educational opportunities, it may be in creating an environment that encourages innovation and does not punish failed attempts to create new ideas or processes, or it may be in simply focusing on our work environment.

Historically, businesses have frequently held the assumption that employees were interchangeable, that if one person left the company he/she could be easily replaced.  But the cost of that assumption was high in terms of training, lost sales, disruption of processes, and low morale.  Today’s wise business leader knows that “people are the key” to success.

I encourage you to pick up any of Clayton Christensen’s books and study his innovative ideas.  If you are like me, you will find the concepts he teaches simple but intuitive.  Our business leaders need to find new ways to think and to invest in order to thrive in tomorrow’s world.

 

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