Wednesday, April 8, 2009

Defending Against Creative Destruction

In this article published at the Huffington Post, Christensen makes the point that managers must defend the perimeters of their business, especially the low end. The really hard part of disruption is when the disrupting competitor can come in the market at the price point of free. It is hard to compete with free. Free allows one to dominate a niche without threat of new entrants. See what Google does and Craig's List.

This article is worth the read and pondering time.

(Lovin' that Diigo helps me annotate my reading.)


Clayton M. Christensen: The Past and Future of General Motors

creative destruction. Manage the low end to defend against disruption. Innovate constantly and quickly.

  • How did GM, Chrysler, and Ford get in this mess? It is the result of a competitive attack called disruption, which began in the auto industry in the 1960s. When an entrant competitor attacks the low end of any market, the rational reaction of the incumbent firms is to abandon rather than defend it -- because the low end is the least profitable of their possible investments. Rather, the pursuit of profits causes the incumbent leaders to move up-market, towards bigger, better and more profitable products
    • and when they can enter the market with "free" like Craig's list, you are really in trouble. comment by jamiereverb
  • Lest the journalists who assembled the newspaper in which you're reading this believe they are immune from this phenomenon, their newspaper's advertising revenues are being disrupted by Google and Craigslist -- and on-line news is disrupting its readership numbers. Disruption is how Canon attacked Xerox; how Wal-Mart and Target bested the department stores; how Southwest drove so many major airlines into bankruptcy; how Sony defeated RCA, and how Apple crippled Sony.
    • and how charters and virtual learning will upend schooling comment by jamiereverb
  • Disruption is the causal mechanism behind the "creative destruction" that Schumpeter saw so pervasively at work in capitalist economies.
    • It's when growth stops because you're being disrupted that managing becomes really, really hard, and as a result most disrupted companies simply disappear.
      • Detroit with the Ghost of Christmas Future

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