'The safest road to Hell is the gradual one—the gentle slope, soft underfoot, without sudden turnings, without milestones, without signposts.' C. S. Lewis
I've been reading some Clay Christensen stuff recently. Revisiting some old stuff, digesting some new things. One of the latter was How Will You Measure Your Life, a very personal take on how to lead a fulfilling life that was written after he experienced a heart attack, advanced-stage cancer and a stroke in three successive years. The book incorporates thinking from a whole range of business theories and looks for the personal (as well as the business) application. Good theory, says Clay, is important since it helps us categorize, explain, and perhaps most importantly, to predict. Whilst reading it I made a lot of highlights on my Kindle so I thought it might be good to capture some of my key takeouts in a short series of posts over the next week or so.
Let's start with marginal thinking, on which I thought he had a good take. An executive in an established company, he says, will have two alternatives when making an investment decision - either to incur the full cost of setting up something completely new, or to leverage what already exists so that you only need to incur the marginal cost and revenue. The marginal-cost argument will almost always outweigh the full cost one. But for a new entrant in the market the only choice is the full cost alternative ('Because they are new to the scene, in fact, the full cost is the marginal cost').
The problem with marginal thinking however, is that it typically comes with lots of baggage. The established company is basing the investment decision based on the perspective of its existing operations and may decide not to invest if the marginal upside is not worth the marginal cost of doing it. The trap with this however, is that whilst it is easy to see immediate costs of investing, it is much harder to accurately see the costs of not investing. Whilst the company still has a perfectly acceptable existing product, the upside of investment may well be considered too small, but this assumes things will remain as they are and fails to take into account a future in which someone else brings the new product to market. This can lead to a series of relatively minor investment decisions, the consequences of which may not become apparent for some time but which ultimately and in totality may doom the company to failure.
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