Comment Re:IBM is dying (Score 4, Interesting) 49
Clayton Christensen explains why the basic thinking taught in business schools and promulgated by consultants is killing innovation and the US economy:
Christensen retells the story of how Dell progressively lopped off low-value segments of its PC operation to the Taiwan-based firm ASUSTek - the motherboard, the assembly of the computer, the management of the supply chain and finally the design of the computer. In each case Dell accepted the proposal because in each case its profitability improved: its costs declined and its revenues stayed the same. At the end of the process, however, Dell was little more than a brand, while ASUSTeK can-and does-now offer a cheaper, better computer to Best Buy at lower cost.
Why is this happening? According to Christensen, the phenomenon is being
"driven by the pursuit of profit. That's the causal mechanism for these things... The problem lies with the business schools which are at fault. What we've done in America is to define profitability in terms of percentages. So if you can get the percentage up, it feels like we are more profitable. It causes us to do things to manipulate the percentage....
Thus when a firm calculates the rate of return on a proposal to outsource manufacturing overseas, it typically does not include:
- The cost of the knowledge that is being lost, possibly forever.
- The cost of being unable to innovate in future, because critical knowledge has been lost.
- The consequent cost of its current business being destroyed by competitors emerging who can make a better product at lower cost.
- The missed opportunity of profits that could be made from innovations based on that knowledge that is being lost.