Sunday, November 20, 2011

How Pursuit of Profits Kills Innovation and the U.S. Economy

Clayton Christenson, a  Harvard Business School professor was one of the speakers at last month's IT Symposium.  In his address, he hit on one of the major problems with our economy and how it affects our tremendous loss of talent, innovation, and jobs.  Here are a few of his comments:
Christensen retells the story of how Dell Computers progressively lopped off low-value segments of its PC operation to the Taiwan-based firm ASUSTek — the motherboard, the assembly of the computer, the management of the supply chain and finally the design of the computer. In each case Dell accepted the proposal because in each case its profitability improved: its costs declined and its revenues stayed the same. At the end of the process, however, Dell was little more than a brand, while ASUSTeK can—and does—now offer a cheaper, better computer to Best Buy at lower cost.

Christensen also describes the impact of foreign outsourcing on many other companies, including the steel companies, the automakers, the oil companies, the pharmaceuticals, and now even software development. These firms are steadily becoming primarily marketing agencies and brands: they are lopping off the expertise that is needed to make anything anymore.  In the process, major segments of the US economy have been lost, in some cases, forever.

Christensen even suggests that in slavishly following such thinking, Wall Street analysts have outsourced their brains.

“They still think they are in charge, but they aren’t. They have outsourced their brains without realizing it. Which is a sad thing.”

In essence, we are not just outsourcing our jobs, but our ingenuity, our innovation, and our expertise, thereby building up those elements in foreign countries to a point where they become our competitors and can beat us because they now have all the expertise, production capability and supply chains for components.

At one point, the US was the leader in electronics manufacturing. Now, very little of this industry is centered here, and we have devolved into being little more than an electronics distributor. Outsourcing has brought profits to American companies, their executives, and their stockholders, but at the expense of our country's workers and its economy.

If we are to provide more jobs for American workers, we will have to address this aspect of free enterprise and highly regulate it -- for the survival of our country.

(If you are interested in reading the full article, written by Steve Denning, it can be found at Forbes, but the essence of Christensen's address that I wanted to emphasize is pretty much contained above.) 

Coming Up:
                    An Open Letter to the One Percenters

Duopoly and Wealth: The Ties that Bind
   Political Duopoly: Working Partner of the Plutocracy

Plutocracy to Plutonomy: From Bad to Worse!

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