The Capitalist's Dilemma

Clayton M. Christensen; Derek C. M. van Bever

Article | Harvard Business Review | June 2014

The Capitalist's Dilemma

by Clayton M. Christensen and Derek C. M. van Bever

Abstract

Sixty months after the 2008 recession ended, the economy was still sputtering, producing disappointing growth and job numbers. Corporations seemed stuck: Despite low interest rates, they were sitting on massive piles of cash and failing to invest in new initiatives. In this article, a leading innovation expert and his HBS colleague explore the reasons for this sluggishness. The crux of the problem, they say, is that investments in different types of innovation have different effects on growth but are all evaluated using the same (flawed) metrics. "Performance-improving innovations," which replace old products with better models, and "efficiency innovations," which lower costs, don't produce many jobs. (Indeed, efficiency innovations eliminate them.) "Market-creating innovations," which transform products so radically they create a new class of consumer, do generate jobs for their originators and for the economy. But the assessment metrics that financial markets—and companies—use always show efficiency and performance-improving innovations to be better opportunities. This is the capitalist's dilemma: Doing the right thing for long-term prosperity is the wrong thing for investors, according to the tools that guide investments. Those tools, however, are based on an unexamined assumption: that capital is scarce, and that performance should be assessed by how efficiently companies use it. The truth is, capital is no longer scarce, and our tools need to catch up to that reality.

Keywords: Capital; capital investments; Creating markets; economic growth; Evaluating business investments; innovation; Emerging Markets; Investment; Economic Growth; Capital; Innovation and Invention;

Format: Print

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Citation:

Christensen, Clayton M., and Derek C. M. van Bever. "The Capitalist's Dilemma." Harvard Business Review 92, no. 6 (June 2014): 60–68.

Unlike traditional market segmentations that are based on a correlation of product sales or service with the attributes of the purchaser (such as age, gender, income level, and education level), jobs-based segmentation seeks to understand the causal roots of purchase—when a buyer needs to "hire" a product or service to get a "job" done. This note details the thought process and the methodology behind a jobs-based segmentation and provides numerous examples. It highlights three levels in the architecture of a job: 1) What is the fundamental job or problem the customer is facing? This includes political, functional, emotional, and social dimensions; 2) What are the experiences in purchase and use that, if all provided, would sum up to nailing the job perfectly? (The "hiring criteria"); and 3) What do we need to integrate, and how must we knit those things together, so that we can provide these experiences?

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The Capitalist's Dilemma

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