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Clayton Christensen | How Will You Measure Your Life? | LinkedIn Speaker Series - YouTube

发布时间 2012-07-24 10:19:09    来源


Happy end day, everyone. Thank you for coming. So by way of intro to me, for those of you who don't know, I'm Dietrich Haldbeck. I'm on the business development team here at LinkedIn. And it's really great to see everyone here. It looks like everyone's as excited and honored as I am to have Professor Christensen here with us today. As most of you know, Clay is the bestselling author of the innovator's dilemma, one of the most prominent and influential books of our time. Despite being published 15 years ago, Clay's theory of disruptive innovation continues to be referenced and applied to the corporate strategies of technology companies all over the world, and is probably most relevant to companies today. In fact, just this week at Fortune's Brainstorm Tech Conference in Aspen, one of the panels was titled Disruptive Innovation Dog Fight in the Cloud and included CEOs from Box into it and you send it. LinkedIn, of course, has very successfully disrupted the recruiting industry. That's the good news. The bad news is that if we don't continue to recognize the value of innovation and take risks, we leave ourselves open to future disruptive technologies.

Professor Christensen followed his best seller with five additional publications, including books that apply as frameworks to difficult social issues like education and health care. His most recent book, How to Measure Your Life, takes his impactful business teachings and applies them to an individual's personal life to ensure they can have a successful but also happy career benefit from fulfilling relationships. And finally, as Enron's Jeff Skilling's classmate at HBS, Professor Christensen helps us ensure we can all live a life of integrity and in his words, stay out of jail. Over the past decade, Clay has founded a management consultancy firm, a nonprofit think tank, and an investment firm. He's on the board of Tata Consultancy Services, WR, Hamburg, and Franklin Covey. He's also a professor at Harvard Business School where I was fortunate enough to get a seat in his very popular class and get to know him as an inspiring individual.

Clay? APPLAUSE She also was very smart. I remember exactly where she sat. It was on the top row in the center. One seat left to the, yeah. Just a couple of one other thing you need to know about me. I've had a series of difficult health problems. So the most recent one was about a year and a half ago, I had a stroke. A clot came from somewhere and lodged itself right here in my brain and killed the port of my brain where you formulate speech and writing. And just like that, I couldn't speak. And that's my profession. So it's been kind of hard. But what I did was I went to the airport and got a copy of Rosetta Stone for English. And with our oldest granddaughter, who is five years old, we started with lesson one, level one. And I've just been learning how to speak again.
克莱?掌声。她也非常聪明。我清楚记得她坐在哪里,就在顶排中间。离右边还有一个座位。还有一件事情你需要知道。我经历过一系列困难的健康问题。最近的一次是大约一年半之前,我中风了。一块血块从某处形成,落在了我的大脑这里,损坏了我表达言语和写作的大脑部分。就这样,我突然不能说话了。而这可是我的职业。所以这段时间有点艰难。但是我去了机场,买了一份Rosetta Stone的英语学习软件。我和我们五岁的孙女从第一课,第一级开始学习。我一直在重新学习如何说话。

So you'll see me wrestling over what's the word. If you know the word I'm trying to say, if you would just let me know, so it will be faster. And you'll also notice that I will tend to speak at the floor rather than you. And the reason is that if I look at you, you'll distract me. And if I just look at the floor, I can focus on what's the word that needs to come out next. And so it's not that I have become shy all of a sudden. It's just as a transition as I'm learning how to do this. It helps me. I'll just describe where this most recent book, How Will You Measure Your Life Came From? Deidre and maybe a few others of you who went to the Harvard Business School, you realize shortly after you graduate that the core competence of the Harvard Business School is soaking alumni for donations.

And it manifests itself in lots of ways. But one of the most important is every five years, they invite you back for a reunion. And ostensibly, you come to see your friends. In reality, we want to turn you upside down and shake out all of the cash you've got. And I remember I was in the class of 79. And I subsequently have come back every five years. When we came back to the fifth reunion, it was unbelievable. Almost everybody came back. Most of my classmates had married people who were much better looking than my friends were. And several of many had children that looked just adorable. Their career just seemed to be going at a pace that they didn't imagine would happen. And it just seemed like everything was going right for everybody. But then as I came back to the 10th and the 15th, 20th, and then the 25th, Chinks began to come. And to emerge in our armor.

And in particular, friends who we thought were going to come, and were excited to get reacquainted with them, didn't come. And when we'd ask around, what's happening to her or him? More often than you ever have imagined, the answer was, he's in a messy divorce. His family is just a wreck. His spouse got remarried, moved to the other side of the country. And somebody else is raising their children. And they would, some would come back with this as a history. Very wealthy and very unhappy with their life. And I think as a general rule, as I've seen my own life evolve and those of my friends and students, that in the end, the deepest source of joy in our lives comes from intimate relationships with our families and our close children and friends. If you do a correlation between money and happiness, the coefficient is not significantly, it's not significant and typically is negative. So I know how frequently this has happened in the people who I know and love.

And I can guarantee you that there wasn't a single one of my classmates who, when they graduated, planned to go out and get divorced and have children who were an alienated from them. And yet, a shocking number of us have implemented a strategy that none of us planned to pursue. So that's one side. And then as Deidre mentioned, personally, a shocking number have ended up doing things that they never imagined that they would do. So I had a Rhodes Scholarship, went to Oxford. Every year, they send 32 from America. Two of the 32 ended up in jail. One of them was a congressman in Washington and was nailed in a slammer for a sexual relationship with a 16-year-old volunteer on his reelection campaign. And he was married with three kids at the time.

Another one was nailed for his role in a big insider trading problem. And as she mentioned, Jeff Schilling, the CEO of Enron, was a classmate of mine at HBS. And I knew these guys. And they were good people. And yet, they made decisions in their life that caused their life to go in a direction that they didn't plan on. And so I just worry that some of these generations, most promising people, will end up possessing in a life that they would not have chosen. So how to think my way through this problem with the support of my students has been really quite successful. So the course that Deidre mentioned is a course about how do we build and sustain successful companies? And in order to do that, we realized an idiot simple fact.

And that is for somehow, for whatever reason, when God created the world, he positioned us to face the future. But he made data available only about the past. And if you, like we teach our students that they should be data-driven and fact-based and analytical in making their decisions, in many ways we condemn our graduates to take action when the game is over. And the problem with that arrangement is that you've got to look into the future about which there is no data. And either you have to do it in a crapshoot, or you need to have theories of causality.

Because those of you who have history in science realize that when we call it something a theory, what it is is a statement of causality. What causes what and why? And with my students over the last number of years, we've been trying to build theories of causality about the business side of enterprise so that we could predict in advance that when we, as leaders, take action, we can predict with some certainty what will happen as the result of actions. And so what we did as a group of students is we spend the whole semester studying these theories of causality.
因为你们中那些有科学历史的人会意识到,当我们把它称为理论时,实际上是一个因果关系的陈述。是什么导致了什么以及为什么? 在过去的几年里,我和我的学生一直在尝试建立有关企业商业方面的因果理论,以便我们可以预测,当我们作为领导者采取行动时,我们可以相对确定地预测将会发生什么。因此,我们作为一群学生所做的是整个学期都在研究这些因果关系理论。

And then we put them on, like a set of lenses, and try to examine a case about a company that is in a mess. And try to see through the lens of the theory can we explain how they got into this situation, and then what actions would solve the problem and which wouldn't. And then the next day, we have another case about another dimension of a manager's job. And then we put that on, like lenses, study a new case. And then we take those off and put on yesterday's theory to see, can we understand in a more holistic way how they got to where they are and what actions will solve the problems.

And it's been quite a useful enterprise for us as we've been trying to explain what's happening in society around us. Then the last day of class, what we've evolved into doing, is rather than looking through the lens of these theories at companies, we instead put them on the mirror and look at ourselves through these lenses. And where the question is, if I keep doing what I'm doing, what will the outcome be in my life? And if that's the outcome that I want in my life, what do I need to begin doing now that will take me in that direction?

And so it's just been very enlightening to, I think, all of us. And as a result, with a former student and a woman who had been the executive editor of the Harvard Business Review, we decided to write a book called, How Will You Measure Your Life? So if you wouldn't mind, I'd like to go through some of the theories in our research, quickly show how we have used them to understand companies, and then turn it around and share with you what we've been seeing about our lives.

So the first theory is the theory of disruption, which changed my own life, as this emerged from my doctoral dissertation. But it is a theory that explains why so many successful companies like you are toppled from the peak that you are now in. And what is it that causes successful companies to fail? And then once you become successful, who could kill you? And so I'd like to just go through this theory for those of you who aren't exposed to it.

And I've chosen an industry that is just completely foreign to most of you, just so that you could see it in the abstract, and then we could think about you. So for those of you who haven't yet made a lot of steel in your lives, historically there are two ways to do it. Most of the world's steel historically has been made in massive integrated steel mills. It would cost today about $10 billion to build an integrated steel mill.

The other way to do it is in what they call mini mills. Minimills melt scrap in electric furnaces. And you could easily fit six electric furnaces in this room. Because you can make steel in such a small chamber, you don't have to scale up the downstream steps. And that's why they call these things mini mills. The most important dimension of a mini mill is you can make steel of any quality in a mini mill for 20% lower cost than you can make it in an integrated mill.

Now just think about this for a minute. Imagine that you were the CEO of an integrated steel company somewhere in the world. You're making commodities, like you have never seen commodities before. Here's a technology, mini mills, which, if you implemented it, would reduce the full cost of making your steel by 20%. Don't you think you'd implement that technology? And yet not a single integrated steel company anywhere in the world has yet built and operated a mini mill. Sorry about this.

And this is my sense for why something that makes consummate sense has been impossible for smart people to do. So the steel industry, like every industry, is structured by tears. So at the bottom of the market is concrete reinforcing bar, or rebar. It is so simple that almost all of us could make rebar. At the high end of the market is sheet steel that's used to make cars. It is very complicated to make. And at the beginning of this story, the integrated mills made the full range of these products.

The mini mill idea became technologically viable in the late 1960s. And because these guys were melting scrap in these electric furnaces, the quality that they could produce was really crummy. In fact, the only market that made would buy what the mini mills made was the rebar market way down at the bottom, because there are almost no specs for rebar to begin with. And then once you buried it in cement, you couldn't verify whether they met spec. So it was just a perfect market for crummy products.

As they attacked that tear of the market, the reaction to the integrated mills was they were just delighted to get out of the business. It was such a dog-eat-dog commodity. Gross margins were only 7%. It made no sense to defend a 7% business when if they just got out of that business or focused their assets in the next tier, margins were 12%. So as the mini mills expanded their capacity to make rebar, the integrated mills just locked that off from their product line. As they added up the remaining numbers, their profitability improved as they got out of rebar.

The mini mills, because they had a 20% cost advantage, they rolled tons of money getting into rebar. So they actually were quite their friends. Then the whole thing fell apart in 1979. What happened that year is the mini mills finally succeeded in driving the last high-cost integrated player out of rebar. If you look at what happened to the price of rebar in 1979, the price collapsed by 20%. It just turns that there's a subtle fact about strategy that we never thought about before.

And that is a low-cost strategy only works as long as you have a high-cost competitor in your market. And as soon as they had fled up, it was low-cost mini mills fighting against low-cost mini mill in a commodity business. And very quickly, competition drove prices down to the point where they couldn't make any money. So what are those poor mini mills going to do? Well, they tried to be more efficient making rebar, but that was just a recipe for survival. And then one of them looked up market and said, oh, my gosh. If we could just make bigger and better steel, we'd make money again, because the margins there are nearly double what we're doing here. And so they stretched that ability to tackle that tier of the market. As they did so, the reaction to the integrated mills was, man, they were happy to get out of that business, because it was such a doggy dog commodity. They could only make 12% gross margins, whereas if they shut those lines down and focus their assets at structural steel, the margins are 18%. So they do the same thing. As they lobbed off the lowest profit part of their product line, and then they added up the remaining numbers, their gross margins improved as they got out.

As the mini mills got in, they had a 20% cost advantage. And so their profitability returned. And again, they were quite happy one with another. But that fell apart in 1984. That was the year when the mini mills finally succeeded in driving the last high cost integrated player out of angle Aryan and Bar and Rod. If you look at what happened to the prices of those products in that year, the price collapsed by 20%. And the reward to the mini mills for their victory is they couldn't make money. So what are these poor suckers going to do? And they got to move up market. And as they moved up, the calculation of the integrated players was the same. If we got out, our profitability improved. And so they did. And then as soon as they were gone, prices collapsed. What's Newcorgan to do? They got to figure out how to go after sheet steel, where the margins are more attractive. And as they did that, the reaction of the integrated mills was to get out of it.

Out of commodity steel, and focus on specialty steels. And so this is where they are today. Today in North America, the mini mills account for about 65% of all production. And all but one of the integrated mills has gone bankrupt. Now you notice that I was able to tell the whole story without using the words stupid manager once. There is no stupidity involved on either side of the equation. Every time the integrated mills got out of something, their profitability improved. And every time the mini mills got in, their profitability improved. And the causal mechanism behind this phenomenon of disruption is the pursuit of profit. And that's so you can predict with real certainty that if you're trying to start a new company, and you think you can win by jumping ahead of the equivalent of integrated competitors in your market, and you can beat them by making better products that you can sell for better profits to their best customers, they will kill you.

But if you come in at the bottom like this and pick up the people that they don't want to go after and then go up, you set up a war where your opponent is motivated to flee rather than fight you. And that's really why you guys are who you are, is because you're disrupting the providers of services and search and placing and so on. And a whole bunch of other things. Where else have you seen this happen, where somebody comes in at the bottom of the market and then cleaned it out going up? Solar panels is wrong. We talk about that. We wish it would be successful, but it's not. Yeah, Walmart has done it to Kmart. Hard drives that's happened over and over again. In computers, it's happened over and over again. Any of you know a company called Toyota? You lose perspective, but they did not enter the Western markets with Alexis. But they came in in the 60s with rusty little subcompacts called the corona. And then they went from corona to Tercel, Corolla, Camry, Avalon, Forerunner, Sequoia, and then Alexis.

And General Motors and Ford were making big cars for big people. And they would see Toyota coming up at the bottom through the 70s and 80s. They'd say, you know, we ought to go get those buggers. And so they designed products that were called Chevats or Pintos, little subcompacts. But they would then compare the subcompacts with the profitability of making even bigger SUVs and bigger pickup trucks for bigger people. It made no sense. And so Toyota disrupted Detroit. And Detroit's basically gone. Who's killing Toyota? Hyundai and Kia, the Koreans, have stolen the bottom of the market from Toyota, not because Toyota's asleep at the switch. But why would Toyota ever want to defend the least profitable part of the business when they have the privilege of competing with Mercedes in luxury cars? And then Cherry comes from China next. And seriously, we don't have to worry about it. Who's killing Oracle? Salesforce. And it's exactly the same thing going on there. And Sisko disrupted Lucent. And now Huawei is coming underneath Sisko. And it just happens all the time. Last question about this. If you go back to the biggest of the integrated steel companies, US Steel or Bethlehem Steel, who decided that they were going to go out and get killed? What happened? Did the executives pull into the board and put together a plan for going off the cliff into bankruptcy? Seriously, who made the decision? Actually, the answer was nobody. But collectively, it was individual people making decisions which, when they were made, seemed to be tactical and inconsequential. I think today I'm not going to sell rebar. I think I'm going to sell sheet steel to somebody.

Or I'm the scheduler in a plant. I don't think we'll schedule rebar this week. We'll do something else. And all of these individual decisions were made in a way that seemed to be logical. But then in the end, it sums up to implementing a strategy that nobody intended to pursue. And for the companies that we just listed that are now being disrupted, it's happening even though the senior managers would never say that they want to be killed. But doing what the right thing is actually doesn't make sense if you look over the longer term. So if we turn it around to try to examine what happens in our lives, you notice that the way these guys were measuring goodness on the vertical axis was gross margins.

If I go after higher gross margins, our profitability improved. And how you measure the company makes a huge difference in what you will prioritize and what you don't. Now you think about this in America, the last President Bush articulated that we will leave no children behind. And within about a year, they had to articulate, how will we measure leaving people behind? And as soon as they had this metric, the districts around America just went and started to teach to the test so that they would be measured as having not leaving people behind, irregardless of whether that was the right metric or not, everybody always tries to follow on whatever metric life they're being measured. And so the choice of gross margins actually caused these people to get out of the low end and focus on the high end because gross margin percentage went up as they got out.

So how do we measure our life? Well, I think that this is roughly true. That people who have a high need for achievement, which includes at least 100% of the people in this room. When we have an extra ounce of energy or 30 minutes of time, we will deploy those resources into whatever activity gives us the most tangible and immediate evidence of achievement. And what brings us this sense of achievement are our careers. Every day, we finish a project, ship a product, close a sale, get promoted, get paid. And our lives in our profession provides tangible, immediate evidence almost every day that we're achieving something.

On the other hand, intimate relationships with our children and our spouses and close friends don't pay off on a day-to-day basis. In fact, those of you who have children observe this, that on a day-to-day basis, your children misbehave every day. And it really isn't until 20 years down the road that you can look at them and put your hands on your hips and say, we raised a great woman. But on a day-to-day basis, it just doesn't give us immediate evidence of achievement. And so when we have this extra ounce of energy or 30 minutes of time, our inclination is to invest on more time in our professions and plan that tomorrow I'll start to spend more time with my family. And it's the mechanism. It's the very same way these guys were deciding to invest in this rather than that.

They implemented a strategy that they don't plan to implement in our lives. A great many people find themselves in unhappy families. Even though they didn't plan it that way because of the way they implemented their resources. This is a more general level way to think about that problem. That almost everybody, when we start a company, we have a strategy. In order to implement the strategy, we need resources. And so we get it funded. And then we decide what to invest in and what not to invest in. And that deployment of resources determines the type of products and services and processes and acquisitions. And that defines what our strategy is.

And sometimes the strategy that we actually pursue is what we intended to do. But a lot of times what happens is unanticipated problems and opportunities just erupt in our lives. And we call those emerging initiatives. And the emergency initiatives start to compete with the intended strategy for resources. And what you decide you will implement depends on what you invest in in the resource allocation process. And as you succeed in the market, then you learn a lot more about what works and doesn't work.

So for most companies, strategy is not an analytical event followed by implementation. But strategy actually emerges 24-7 as people decide in an incremental basis, individual by individual, what we will prioritize and what we won't. And this is a kind of a generalized summary of what happened in this steel company. Ultimately, as you decide what you invest in in the resource allocation process, priorities get embedded in the company's profit formula. And so the reason why the steel companies measured profitability by gross margin percentage is everybody inside and outside the company measured profitability in this way. And that then determined what you can priorities and what you can't prioritize.

So how do you deal with this problem? This is the way Clay Christensen decided to do it. In my first job with a consulting firm in Boston called the Boston Consulting Group, about a month after I started with the company, the project leader that I was working for came to me on Micah Tuesday and said, Clay, just so you can plan on this, on Sunday at 2 p.m., we've got a big team meeting. Because we've got to put together everything we have for a big meeting next Monday with the client. And this is your assignment. And I said, oh, man, Micah, I got a problem here.

And that is I made a commitment to God when I was 16 that I wouldn't work on Sundays. And just I'm a religious guy. And that was just what I wanted to do with my life. And Mic just went bonkers. And he said, this is a company where everybody, if they have to, works when they have to work. And I said, well, I observe that, but I don't want to be that kind of person. And if I can't take my Sundays for my faith, I just don't want to work here. He was so mad. And he went off, came back about an hour later, calmed down a little bit. And he said, look, I talked to everybody else. And we'll do it on Saturday at 2 p.m.

And I said, oh, Micah. I got a problem because I made a commitment to my wife that I wasn't going to work on Saturday. That was a focus on our family. And Mic went off the deep end on that one. And he said, if you're married and you take a job with this company, you've got to know what goes first. And I said, well, the reason I'm in trouble is because I know what has to come through first. And I can't come to this meeting on Saturday. He said, everybody works on Saturday. And I said, but I can't. Anyway, he went off even matter, came back an hour later. And he said, do you, by chance, work on Fridays? And anyway, so it worked, just fine. And I've thought about this a lot because if I had been, if I had just that one time, said just this once in this particular extenuating circumstance, I'm going to break my standard and do it. The problem with that logic is my whole life has been an unending stream of extenuating circumstances. And I realized that I need to stand for myself.

Whatever my standards are, it's easier to keep that commitment 100% of the time than 98% of the time. And that has been, although those were just silly little meetings 30 years ago, they have proven to be two of the most important decisions I've ever made. And it became known in that company that if Clay Christensen is on your team, he doesn't work on Saturday. He doesn't work on Sunday. He's gone out of here by 6 PM. And nobody ever asked me to work on Saturday or Sundays or evenings after that. And I also believe that, again, this is from a perspective of my faith in God, that if we do things that God wants us to do, because he wants us to be happy, he will magnify us so that in our profession, we can actually do more. That he can magnify us to do more than we otherwise would able to do. Anyway, that's one set of thoughts about how you will measure your life. I've got a few more thoughts. But any questions or criticisms or comments or cannonballs? Are you doing OK?

The next one is, you notice I made a point in the diagram of steel that their choice of how they will measure profitability, gross margin percentage, really defined what they would and wouldn't do. So it raised the question with me and my students about how will we measure our lives. And I got an insight that, for me, has been very useful. And one day I was driving to work early, and I just got this feeling. I don't know where it came from, but it was a feeling inside that I was going to be given a big responsibility professionally. And it was very exciting. And it was so clear to me that this was coming, that I started to think about how I'll put the team together and everything. And then a couple of months later, they announced that, in fact, the person that was there was going, and they appointed a different person than Clay Christians.

And I just thought, I was so certain this was going to come to me. And I kind of predicated my whole next plan of that portion of my life around this. And I started to wonder, I look at my resume versus hers, and my resume was much better. And what's wrong with me? Why would they not have done this? So I had all of these thoughts. And then I got an idiot simple insight about how to assess what had just happened there, which kind of seems stupid to some of you probably. But the conclusion was that God doesn't hire accountants. And what I mean by this is we, because we have finite minds, in order to understand what's going on, we have to aggregate the phenomena into numbers.

And so you guys, you can't keep track of all the individual customers who give you an order. You just, your brain can't keep all of them in view. And so we have to aggregate that in terms of orders and revenues. And they can't keep track of all your individual pieces of cost. And so you aggregate that. And then you subtract costs from revenues. And if the bottom line is a bigger number than last year, then you're doing well. And if it's smaller than you're screwing up. But because we have infinite minds, we have to aggregate in order to know what's going on. And it also gives us a sense of hierarchy. So people who preside over bigger numbers are higher than people who are responsible for smaller numbers in one way or another.

And so we get this sense that if we go up the ladder faster than other people, we're being more successful than other people. And if we get richer than other people, that's a number. And so we begin to believe that this will is how we will measure our lives. But then I realized the difference is that God has an infinite mind. And that means that he doesn't have to aggregate above the level of individual people to have a complete understanding of everything that's going on in the world. And because he doesn't have to aggregate above the level of individual people, that's why I say he doesn't hire accountants. When I have my interview with God at the end of my life, he's not going to want to even come up in the conversation that I was a professor at the Harvard Business School or that I started a company that's been very successful. It's not going to come up.

And all he's going to do is say, all right, Clay, I stuck you in this position. Let's just talk about the individual people whose lives you blessed using your talents to make them become more successful and better people. And then I stuck you in this situation. And let's talk about the individual people whose lives you help to become better people and so on. And that's what we will talk about. The numbers actually will never come up in that conversation. And once I realized that this is the way God will measure my life, is by the individual people whose lives I help to become better people. Oh my gosh, the influence that has had on my life in terms of what I try to accomplish every day just changed completely.

And every day I just pray that there will be somebody in my circle who I can become to be a better person. And I tell you, I feel so much more important to society because of this way I have decided to measure my life. And I thought I'd just offer that to you to figure out what is the purpose of your life and how will you measure it? Because understanding the measure will make a very big impact on what you do. Should I keep going to have questions or comments? Okay, I'm sorry to. I want to come back to another theory that I think is important both in business and in our personal life. And it's a. what do I call it? A pox on humanity that I will call marginal cost thinking. And those of you who have taken courses in finance or economics, remember what is a law or a principle that you should ignore sunk and fixed costs.

And just look at the marginal cost and the marginal revenue associated with a particular activity. And the reason why that's so critical is that if you're an established company like LinkedIn and you're looking at the starting of a new business, maybe something that would be disruptive to yourselves, if you use the logic of marginal cost thinking, it causes you not to do what you should do. So let me go back to the history of steel and describe how this happens. So we have a case in our course about US steel, which is one of these people.

And it happened in 1989. The Minimills had driven US steel out of these three tiers of the market and all that they were making was sheet steel. And there was an announcement in the paper that the biggest Minimill Newcor had just announced that they were going to go from here to here by making the world's first Minimill that made sheet. And the head of a group of engineers pulled the team together and said, ladies and gentlemen, we're dead. Because to this point, whenever the Minimills had taken a piece, we have fled. And now there is no place to go. Newcor has announced they're coming in.

And we either have to shut down or we have to build a Minimill. And so they looked at what the economics looked like. And at the time, US steel could produce commodity steel by at $340. They sold for $350. And so they're just hanging on with their fingernails. If they built a Minimill, you could make it at so much lower a cost that the net per ton improved by 6x. And that was very attractive in the steel industry. And so the proposition just sailed through the process. And until it came to the CFO.

And the CFO looked at this and said, wait a minute. I can't believe you're even thinking about building a new mill to roll sheet. We have 30% excess capacity in our existing mills. If you want to run another sheet of steel, do it in our existing mills because the marginal cost of producing that is only $15. And you could sell it for $350. So you do the math. Does it make sense to create something new or just to use what we have? And the engineers looked at it and they were just so ashamed that this had never occurred to them. And so they just decided not to do it.

Well, then, subsequently what happened is none of the salespeople wanted to sell this low-end sheet. And if you cut the price on one ton in order to fill the excess capacity, you had to drop the cost on every ton. And it just made no sense to do it. And so they ended up without a new Minimill. It turns out that had they built the Minimill, which cost about $300 million. Over the subsequent two decades, that would have generated free cash of $3 billion. It played itself over 10x, even though it made no sense to do it. And this really helped me in my life because when I've seen companies that are being disrupted, and I'd say, you know, your sales force that's really good at this is actually no good at this disruptive stuff. You need to build a new sales force to do that. And always they come back, Clay, you're so academic. You have no idea how costly it is to deploy a new sales force. We've got to use the existing ones. Or I would say, you know your brand that's really good on that sustaining trajectory?

The brand won't work down here. You've got to build a new brand. And always the reaction is Clay. You have no idea how expensive it is to build a new brand. We've got to use our existing structure. And a startup company will say, guys, I guess we need to build a sales force, don't we? And they just do it. Or we need a brand and they just do it. And the question is why is it that the big companies that have all the capital find it so expensive to build new things? Whereas the startups just do it. And I realized that it's all behind this marginal cost thinking. So every time a senior executive needs to make a decision or an investment, there are two items on the menu. The full cost of making something new versus the marginal cost of using what we have in place. And always the marginal cost trumps the full cost. But in a startup company, they don't have anything established to leverage.

And so they just do it. And that marginal cost thinking causes successful company after successful company to decide that it makes most sense to continue to do what they have built rather than creating something new. And that was the same marginal cost thinking that I described when Mike wanted me to meet on Saturday or Sunday. Because if the language was just this once in this particular circumstances, it's okay to do it. I'm thinking about the marginal cost is low and the marginal benefit is high. But over time, the full cost is what I almost always have to pay. And this language of marginal cost thinking when we get confronted with pornography, you look at that and you say the marginal cost of engaging in this is very small, especially if I can keep it quiet. But piece by piece, it adds up to divorce and awful things. And so this is just another way of thinking about how it's actually quite important that we use these principles to examine our lives. I'll do just one last one if that's okay. Any questions or criticisms? All right.

This is one that has been fun for me. So here I am, Clay, and I have characteristics. Unfortunately, I just turned 60 years old. We have five kids, live in suburbs, got advanced degrees, whatever. But the fact that I have these characteristics has not caused me to go out and buy the Wall Street Journal. There might be a correlation between my characteristics and the propensity that I'll buy the Wall Street Journal. But the characteristics don't cause me to do that. What causes me to do it is, you know, stuff happens to us every day. Jobs arise in our lives that we need to get done. And we reach out and hire products or services or people to get the jobs done for us. And what the implication of it is that in marketing, understanding the customer is the wrong unit of analysis. You got to understand the job that they're trying to get done. That's what is critical. And to illustrate that, I want to quickly tell a funny story about milkshakes.

So one of the big fast food restaurant chains was trying to goose up their sales of their milkshakes. And so they brought our customers in who bought milkshakes and they'd say, how could we improve the milkshakes so you buy more of them? They give very clear feedback. They would then improve the milkshake on those dimensions. And it had no impact on sales or profits whatsoever. So we convinced them that that's the wrong way to think about the world. You need to understand what's the job that they're trying to get done that caused them to come here to hire a milkshake. So a colleague and I stood in a restaurant for 18 hours one day. And just took very careful notes on what time was he, did he buy it, these are almost all males. What was he wearing? Did he buy other food with it? Was he alone? Did he eat it in the restaurant or go off with it?

And it turned out that nearly half of the milkshakes were sold before 8.30 in the morning. They were always alone. It was the only thing they bought and they always got in the car and went off with it. So to figure out what the job was that they were trying to do that early in the morning, we came back the next day and stood ourselves outside the restaurant so that we could confront these people as they emerged with their milkshake. And in language that they could understand, essentially it's a excuse me, please. I got a problem. What job were you trying to do that caused you to come here at this awful hour to hire a milkshake? And as they would struggle to answer, I'd say, well, look, think about the last time you were in the same situation needing to get the same job done, but you didn't come here to hire a milkshake. What did you hire?

And it turned out that they all had the same job in the early morning and that is they had a long and boring drive to work. And they just needed something to do while they were driving to keep themselves from falling asleep. One hand had to be on the wheel, but somebody gave me another hand and there wasn't anything in it. And I just needed something to do while I'm driving. And I'm not hungry yet, but I know I'd be hungry by 10 o'clock, so I also need something that would just thunk down in my stomach and stay there for the morning. Good question. What do I hire when I have this job to do? You know, I never thought about it before, but last Friday I hired a banana to do the job. Take my word for it. Never hire bananas. They're gone in three minutes. You're hungry by 7.30? If you promise not to tell my wife, I hire donuts a lot. But actually, they don't do the job either. Come to think of it. They crumb all over my clothes. They mean my fingers gooey. They're gone too fast. Yeah, I do bagels. Man, they're so dry and tasteless. I have to steer the car with my knees while I put the jammed grain cheese on. And once the phone rang and I was in big trouble, I hired a Snickers bar once, but I felt so guilty. I never hired Snickers again.
事实证明, 他们早上都有相同的工作,那就是他们要开着车去工作。他们只是需要在开车时做些事情来保持清醒。一只手必须握在方向盘上,但有人给了我另一只手却什么也没有。我只是需要在开车时做些事情。现在我还不饿,但我知道到了十点我会饿的,所以我也需要一些在早上吞下去就留在胃里的东西。好问题。当我有这个任务要完成时,我应该雇什么呢?你知道,我以前从来没有想过,但上周五我雇了一个香蕉来完成这个任务。相信我。永远别雇香蕉。它们在三分钟内就消失了。你七点半就饿了?如果你答应不告诉我妻子,我经常雇甜甜圈。但实际上,它们也没什么作用。想想看,它们弄脏了我的衣服,弄乱了我的手指。它们消失得太快了。对了,我吃百吉饼。天哪,它们太干、太无味了。我得用膝盖控制着车,一边往上加果酱和奶酪。有一次电话响了,我遇到大麻烦,我有次雇了一个士力架,但我感到很内疚。我再也不雇士力架了。

But let let me tell you, when I come here and hire this milkshake, it is so viscous. It takes me 25 minutes to suck it up, this thin straw. Who know what the ingredients are? I don't care. I just know that I'm full all morning. And it fits right here in my cup holder. And I can actually turn it sideways and it doesn't fall out. It's just perfect. And it turns out that the milkshake does the job better than any of the competitors. And the competitors are not Burger King milkshakes, but it's bananas, donuts, bagels, Snickers bars, coffee, and so on. And then the afternoon is hired for a totally different job. But once you understood what the job was, then they realized, oh my gosh, we have been improving the milkshake on dimensions of performance that are irrelevant to the job. And what is critical, we weren't even aware of them.

So understanding that, how would you improve the morning milkshake? Well, you make it even thicker to take longer to suck it up. You would stir tiny chunks of fruit in it and make it different every day, not to help them become healthy, because they don't hire it to become healthy. But you're just driving along and going. And it brings unpredictability to a normal routine. And then you move the dispensing machine from behind the counter to the front of the counter and install a prepaid swipe card so you could just dash in, gas up, and go and never get caught in the line. And that becomes obvious only if you understand the job to be done. So one of our students on the last day of class asked to the other class members, if you ever thought it was a guy, if you ever wondered what job your wife hired you to do, and as we thought about it, I'd started to think about in my own life, do I understand what's the jobs in Christine's life for which she might hire a husband? And I realized very quickly that I really have, honestly, have tried to be an unselfish man. And I spend much of my life doing things for Christine, which I am certain she needs.

And I work so hard to be the kind of husband that I'm certain that she needs. And then when she doesn't appreciate what I'm trying to give her, I get mad because I'm trying to give you what I know you need. And then when the student said, no, Clay, you need to sit in her chair and understand, don't try to understand Christine, you need to understand what are the jobs that are arising in Christine's life for which a husband might be useful. Because just like the milkshake competed against Burger King, you know, other products and not milkshakes, most things you have options for what you can get the job done beside your spouse. And I realized that, oh my gosh, it's frustrating to thinking like most marketers do, I'm certain you need our product. I'm certain you want what I want to give to you as opposed to understanding what's the job and then try to become the kind of husband that can do the job perfectly. And I'm still in process, but it has been a wonderful way for me to think about what might be the source of even a happier marriage. We've been at it for 36 years, but a lot more to go. Anyway, there are a few more things, but I've taken your time. Any other comments or questions that I could help with? Yes, could you use that? Unless it's not an important question. We better maybe just have these two.

Yeah, so I was wondering if you've thought about countries, the way that you've articulated the differences between startups and established companies. Some countries have a lot of investment that's already happened, a lot of infrastructure that they've built out. And they're trying to expand that in some kind of way to optimize their marginal costs. Other countries, startup countries, countries that don't have a lot of infrastructure are looking at available technology and building something new. And they don't really have to worry about marginal costs. And that gives them an advantage. That's right. You can roll out entirely cellular based telephone system. You can build all of your trains, the sides meet rails, etc. Yeah. I was wondering if you could speak to that issue with that. Boy, it's a very important insight and you're exactly right. So in the competition amongst nations, there are two things going on. One is truly disruption. So if you look at why Japan's economy was so robust through the 70s and 80s and then died in the 90s and in our century, the reason is that Japan's companies disrupted America's manufacturing base. It wasn't just Toyota, but one after another, they disrupted us. And then Korea, Taiwan and Singapore came in at the bottom of the market and disrupted Japan as their products hit the high end. And then comes China and India and now Vietnam is already doing it to those guys.

So that's one explanation of the macroeconomic impact of microeconomic disruption. But then the other one is very important because if you're growing, then you have to keep adding capacity and every time you add capacity, you implement whatever is the latest technology. And if you're not growing and there's a new technology, the calculus is that the marginal cost wants you to stay with what you have. And so it's a very punishing reality that we think that growth is the consequence of good technology and smart people. But in reality, growth is an input to being able to sustain success because of the marginal cost thinking. It's a magnificent summary. So thanks. Thank you. Hi.

Question about, you were talking about the, and when you're thinking about developing products and services, the job that they serve, how do you resolve the inherent conflict that you often see particularly in larger or more established companies where a product or service may be addressing a customer job, but they may also be serving a job that the company itself needs to address. People talk about it in terms of a strategy tax, that there is a, you know, Microsoft often encounters this. I think there are other, there are times, even with our own products where we talk about these issues where there may be different jobs that something tries to address, whether it's an internal job and goal versus an customer goal.

Yeah. Well, this is a great question. I think you want to just separate the two jobs. As a general rule, I don't mean to be disparaging of, but there's a, there's a class of humanities that we call marketers. I don't know if you've ever met them, but they exist when you're developing a new product that doesn't do what the customer needs to do. And so you hire marketing people to convince the customer after the fact that they need what you've decided they need. It is much more, marketing is, is done much more productively if they're part of the development of the product, inputting to that decide, you know, what the job is. And if you do that well, you don't need marketing. Sorry, I think there's just a potentially difference between sort of things you want to do to drive network effects versus things that are good for the individual. So this may not be something that's good for the individual, but if the individual does it, it's good for the whole. So that conflict, more than a, oh, I don't understand the cost.

Yeah. Well, this is the way I try to think about it as separate questions because if you do something for the network effects, in all likelihood, it will never have that impact if it doesn't do the job of the person who is the customer who has to buy it. And then once you understand that, then you could add characteristics to the product or service to have the second level effect provided that it doesn't compromise in any way its job to be done. I think that that's correct, that it has to be a serial decision and not a parallel decision. That's a great question. Last one, and then we better let you go back. Thank you very much for coming here first of all.

I have a question about what you are saying about the personal level of the company level. It seems like a lot of what you are talking about is about essentially managing change in a certain way. We have all those disruptions coming in, both at the personal level and in organizations. Are there, in your experience, things that companies do and individuals do that make them better at foreseeing what's going to happen at managing situations like, for example, the steel situation and don't allow themselves to get there?

Yeah. That's a great question. I don't know the answer yet. I'll tell you where my mind is at this point in time. That is, in my personal life, by actually allocating chunks of my energy and time to my family and to God and to my profession, is the best solution that I can find. A secondary one is I try never to work alone, but to anything that I do do with my children. Rather than buy nice homes, we've bought run-down homes that we have to fix up ourselves. Every time I do something, I do it with the kids. And working together, we've had wonderful times together. So in trying to organize my life, I've tried to put the job to be done all on the same field, if that makes any sense.

In a corporation, the evidence is very strong that if you try to disrupt yourself from within the mainstream organization, the probability that you can succeed at the next wave is zero. It has never happened. The only way you could do it is you have to set up a completely independent business unit because it needs a different business model. And it's critical because you will never get an email from the people at the top saying, guys, last Friday we got disrupted. It's a process, not an event.

And if you, the new one begins and really becomes defined while the core business is at the top of its game. If you wait until this is in trouble, then this game is over. And that's why you need to do it in parallel. So I hope that's useful. Well, you guys, you've wasted a good hour on an important afternoon, but I'm grateful that you take the time to spend this with me. And if I could be useful, I just work at HBS. And so let me help in whatever we can.

It's a great company and you're wonderful. Well, thanks so much.