Originally circulated on 16 October 2020
Aweh fellow Ruminants & Groupies in Lock Down Level 1
Aweh from day 203 of lock down – now level 1.
Todays dense topic relates to the work of the late Clayton Christensen on the topic of disruptive innovation. This inspiration came from a friend who was lectured by him. I have provided a link for a lecture he gave at the Oxford business school on this topic. https://youtu.be/rpkoCZ4vBSI. The video is long (59 minutes) so I know only my most devoted groupies will have the required stamina but it is well worth it. There are a number of themes he covers and I will very briefly cover some of the more important themes. The main theme is a theory of what causes successful companies to lose their growth, stagnate and ultimately fail.
He describes a number of examples and uses the steel industry as a core example. The steel industry was characterised by large integrated steel producers, producing a variety of steel grades. Today there are very few large integrated steel producers left. The large integrated producers generally followed a strategy of abandoning commodity grades of steel to low cost producers and moving to higher margin products and ultimately to specialty steel grades and then most of them then stagnated, declined and ultimately failed as the low cost producers moved up the value chain with a different business model and different technology. The steel industry has been a very fertile field for management consultants specialising in restructuring.
I will leave it to you to ponder whether there are any similarities between the steel industry and the chemical industry. There certainly are important differences but it is still worth pondering what disruptions lie in store for the chemical industry in the coming decades.
The other intriguing theme he explores are the tried and tested financial measures we all use to measure business success (IRR, NPV, EVA, ROIC, RONA etc.). He argues that the world is awash with capital and that the future winners and disruptive innovators are not constrained by these very restrictive measures. To be honest I’m still trying to wrap my mind around this as it goes against my current financial indoctrination and mind-set. I look forward to the comments from those more learned than me.
Thank you very much for the many helpful suggestions and input and please keep the submission ideas flowing. I have received a number of topics which I need to explore and study further. I thank you all for that.
Regards
Bruce
Ruminant Pink Friday 