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The wisdom of Clay Christensen

February 4, 2020, 10:43 AM UTC

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Good morning.

Clay Christensen’s 1997 book, The Innovator’s Dilemma, is the most influential business book of the last three decades. It imprinted on every good business leader’s mind the possibility that, even if they did everything “right,” they could find their company facing fatal disruption from a low-cost competitor. “Disrupt yourself” became a modern business mantra as a result.

Christensen died on Jan. 23 at the age of 67, due to complications of a long battle with leukemia. His last interview with Karen Dillon, his long-time collaborator, is being published this morning by MIT Sloan Management Review. CEO Daily got an early peek. Excerpts here:

On his concern about U.S. productivity and growth:

“I absolutely worry about this. In…The Prosperity Paradox, we describe three types of innovation…’sustaining innovations,’ which… is the process of making good products better…’efficiency innovation,’ which is when a company tries to do more with less…and ‘market-creating innovations,’ meaning they build a new market for new customers.’ [The last category] are the source of growth in any economy… My sense is that we in the United States, like many other developed countries, are investing far too much energy in efficiency and sustaining innovations, and not enough in market-creating innovations.”

On the limits of Big Data:

“Big data…tends to gloss over or ignore anomalies… [It] tends to be far more focused on correlation rather than causation, and as such ignores examples where something doesn’t follow what tends to happen on average. It’s only by exploring anomalies that we can develop a deeper understanding of causation.”

On share buybacks:

“Buybacks are not inherently wrong, but at an extreme they indicate an inability of a firm (and perhaps an entire economic system) to identify market-creating opportunities.”

On why companies still haven’t solved the innovator’s dilemma … even though his book came out 23 years ago:

“Companies certainly know more about disruption than they did in 1995, but I still speak and write to executives who haven’t grasped the implications of the theory. The forces that combine to cause disruption are like gravity…they are constant and always at work within and around them. It takes very skilled and very astute leaders to be navigating disruption on a daily base.”

“In my experience, it seems that it’s often easier for executives to spot disruptions occurring in someone else’s industry rather than their own, where their deep and nuanced knowledge can sometimes distract them from seeing the writing on the wall.”

More news below. And be sure to look at this new research by Fortune Analytics which shows, among other things, that a surprisingly large percentage of Amazon Prime customers—29%—also bought online from Walmart during the holiday season.

Alan Murray
@alansmurray
alan.murray@fortune.com

TOP NEWS

Markets rebound

Asian markets experienced a slight recovery today, following yesterday's heavy, coronavirus-related falls in China. The Shanghai Composite is up 1.3%, the Hang Seng 1.2%, Kospi 1.8%, Nikkei 0.5%, and the ASX 200 0.4%. European markets are also healthy at the time of writing, with the Stoxx 600 being up 0.8%. U.S. futures look good, too. CNBC

Alphabet breakout

Alphabet's results yesterday beat analyst's profit estimates, but fell short on the revenues Wall Street was hoping to see. Shares fell 2.5% accordingly. Interestingly, though, Alphabet for the first time broke out results for YouTube's ad business ($15.1 billion in 2019 revenue, up from $11.2 billion the year before) and the Google Cloud unit ($8.9 billion in 2019; $5.8 billion in 2018). TechCrunch

Tesla shares

Tesla's share price rose by almost 20% yesterday, thanks to a bunch of factors. One of those was analysts boosting their forecasts for Elon Musk's automaker. Panasonic and Tesla's joint battery venture also became profitable in Q4, and Chinese battery maker CATL announced a supplier agreement with Tesla. New York Times

Iowa caucus

And the winner of the Democratic Iowa caucus is… dunno. You'll have to wait to find out, hopefully sometime today, because the state party found inconsistencies in the reporting of the results and is scrambling to put out something accurate. This may or may not have to do with a new app that precinct chairs were given to tally the results. Fortune

AROUND THE WATER COOLER

Ford battle

The Journal has an interesting piece on how Ford found itself at odds with the administration and with other automakers, by overestimating President Trump's appetite for a compromise with California over fuel-economy regulations. Analysts say the standoff has left the industry in a "quagmire". WSJ

Golden times

There's a record amount of gold in exchange-traded funds. According to Bloomberg, the holdings on Monday eclipsed the previous record, set in 2012. The reason? Coronavirus dampening risk appetites, and growing evidence for U.S. dollar weakness. Bloomberg

Antitrust enforcement

The German government has proposed a new law that would strengthen the powers of the country's antitrust enforcer when it comes to Big Tech. The regulator would be able to stop large companies from giving preferential treatment to their own products or services, if rivals' products and services therefore suffered. Dominant firms would also not be allowed to block users from transferring their personal information to other platforms. Financial Times

Privacy enforcement

Germany's federal privacy regulator has compared his Irish counterpart's "go-slow" approach to enforcing the EU's tough new laws on Facebook with Germany's probes into the dieselgate scandal. Ulrich Kelber said Helen Dixon's office, which has jurisdiction over most Big Tech firms, was heavily under-resourced for the task (something Fortune reported on last year). Irish Times

This edition of CEO Daily was edited by David Meyer.