Thursday, January 10, 2013

Clayton Christensen: Danger of marginal cost thinking

One link led me to another, I ended up on Clayton Christensen's lecture at University of Louisville College of Business.  Some might know Christensen through his book The Innovator's Dilemma.

I had no plan to watch the entire video.  I wanted to get a quick headline because I was going through my daily reading routine.  But I could not stop.  The entire video is well worth your time.

His key insight is that the marginal cost driven decision is not the right long-term strategy.  Making decisions based on the snapshot will lead to immediate profit boost.  Yet those quick profits will cost more in hindsight because of not thinking about the overall cost.

I am particularly struck by his examples of risky marginal cost thinking, starting from 53 minutes into the lecture.  Christensen talks about how he had to struggle to avoid making an exception from his core value.  When he played in a basketball team, he had to sit out a final four championship game because of his religious belief.  In spite of his coach and teammates' plea, he stood on his principle and said no.

One could argue that young Christensen was inflexible, did not know how to adapt, and was not a team player who sacrificed himself for greater good.  But in his view, it was a matter of principle.  He made a promise with himself and God, and he did not want to let it go.

If you start to explain your behavior as a result of extraneous circumstances, he argues that it will happen again and again.  Why?  Because our lives are one extraneous circumstance after another.

Excuse to break our own promise always lurks around the corner.  Keep your value.  Play to win the long game.

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