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  • June 2014
  • Article
  • Harvard Business Review

The Capitalist's Dilemma

By: Clayton M. Christensen and Derek C. M. van Bever
  • Format:Print
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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 Investments; Creating Markets; Evaluating Business Investments; Innovation; Emerging Markets; Investment; Economic Growth; Capital; Innovation and Invention

Citation

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

Derek C. M. van Bever

General Management
→More Publications

More from the Authors

    • March 2022
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    Managing Innovation at Atrium Health: 'Never Let a Good Crisis Go To Waste'

    By: Derek van Bever, Rory McDonald and Anibha Singh
    • February 2021
    • Faculty Research

    Jobs to Be Done: A Toolbox

    By: Derek C. M. van Bever, Bob Moesta, Iuliana Mogosanu, Shaye Roseman and Katie Zandbergen
    • August 2020 (Revised November 2021)
    • Faculty Research

    Beyond Beer: Brewing Innovation at Molson Coors

    By: Derek C. M. van Bever, Stephen P. Kaufman, James Barnett and Shaye Roseman
More from the Authors
  • Managing Innovation at Atrium Health: 'Never Let a Good Crisis Go To Waste' By: Derek van Bever, Rory McDonald and Anibha Singh
  • Jobs to Be Done: A Toolbox By: Derek C. M. van Bever, Bob Moesta, Iuliana Mogosanu, Shaye Roseman and Katie Zandbergen
  • Beyond Beer: Brewing Innovation at Molson Coors By: Derek C. M. van Bever, Stephen P. Kaufman, James Barnett and Shaye Roseman
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