We've written before about the important insights offered by Clayton Christensen, who is rightfully well-known and admired for his penetrating analysis of the crucial phenomenon of business innovation.
Recently, we've been thinking a lot about his article entitled "We are living the capitalist's dilemma," published towards the end of last month. In it, he discusses the paradox of capital everywhere (corporate balance sheets are flush with cash, for example), while entrepreneurs seeking to create new innovations cannot find financing.
He compares the situation to the famous line from Samuel Taylor Coleridge's 1798 poem, The Rime of the Ancient Mariner --
Water, water, everywhere,Nor any drop to drink.
Professor Christensen explains what might be the cause of this dilemma, by drawing a very useful distinction between three different types of innovation, which normally operate in a virtuous cycle, and observing that this cycle seems to have become derailed.
We believe that investors should carefully consider the arguments in Professor Christensen's analysis, and become familiar with the three types of innovation that he describes. Doing so may help to identify investment opportunities, as well as understand more clearly the current economic latitudes through which we are sailing.
We would also add that, in times such as those that Professor Christensen is describing, searching for the right kind of innovative companies becomes more important than ever for investors, as we have discussed in previous posts (such as this one). Also, it would be advisable to avoid shooting any friendly albatrosses with crossbows.
We would also add that, in times such as those that Professor Christensen is describing, searching for the right kind of innovative companies becomes more important than ever for investors, as we have discussed in previous posts (such as this one). Also, it would be advisable to avoid shooting any friendly albatrosses with crossbows.