This week we lost a great operations management scholar, Clay Christensen, who passed away in a battle with leukemia. Christensen was a respected scholar at the Harvard Business School, and was well known for his work “The Innovator’s Dilemna”.
Christensen noted that there were three types of innovation:
Disruptive, which transform complicated, expensive products into affordable, accessible ones. Disruptive innovations create jobs, but tie up capital.
Sustaining, which make good products better. Sustaining innovations are neutral relative to both jobs and capital.
Efficiency, which make products that already exist in the market cheaper. Efficiency innovations reduce jobs, but emancipate capital.
In early 2013 I sat in on a lecture given by Clay to a number of senior supply chain executives at a gathering at the new 7 World Trade Center in New York. Sitting on a clear day with a 360 view of Ground Zero and the New York skyline, Clay shared with us some of his thoughts on the role of innovation and what he called the “Church of New Finance” in the economic downturn the US was struggling to get out of during this period. He pointed out that this is the longest comeback from any economic recession for some time, and that we continued to struggle with employment.
An explanation offered by Christensen was what he coined“The Church of New Finance,” in which business school professors act as the high priests that indoctrinate their MBAs into a belief system of complex, ratio-based financial metrics as the only correct system of measurement.
The Church of New Finance has created a paradox in which the financial economy prospers with good balance sheets and income statements, while the real economy in terms of jobs creation languishes. There was currently $1 trillion of capital available, which remained unused. When faced with short-term measures of profitability, companies won’t invest for the long term in disruptive innovations, which would create jobs growth. Instead, they prefer to invest in sustaining and efficiency innovation which drive short-term gains based on financial internal rate of return metrics, but in fact don’t drive a lot of growth for important innovations that fuel the greater economy. This got me thinking…..with all of this capital sitting around unused, companies should be seeking long-term partners for disruptive innovation. And to do this, don’t you need a partner you can trust, especially when it comes to developing joint technologies with shared intellectual property?
Christensen adhered to the paradigm that scarce and costly economic resources should be husbanded, while abundant, cheap resources can and should be used. Unlike prior eras, capital is now abundant and cheap. It needs to be circulated, not hoarded. The supply chain’s roleis to generate capital through efficiency and sustaining innovations, which can be invested in disruptive innovations. But, supply chain can also innovate and create disruptive technologies that have enterprisewide benefit.
Clay was not only a brilliant academic, he was also a really humble, nice guy. This came across in his presentation, and in his writing. In a 2010 article and lecture, “How Will You Measure Your Life?,” later expanded into a book, he advised business-school students to devote part of their time to creating a strategy for living a good life. Having a clear purpose mattered more than mastering core competence and disruptive innovations, he said. “When I pass on and have my interview with God, he is not going to say, ‘Oh my gosh, Clay Christensen, you were a famous professor at H.B.S.,’” Dr. Christensen told the Journal in a 2016 interview. “He’s going to say…‘Can we just talk about the individual people you helped become better people?…Can we talk about what you did to help [your children] become wonderful people?’”
Clayton Christen will be missed. He left with us a shining example of a life well-lived.