09 May 2012  Research & Ideas

Clayton Christensen’s “How Will You Measure Your Life?”

World-renowned innovation expert Clayton M. Christensen explores the personal benefits of business research in the forthcoming book How Will You Measure Your Life? Coauthored with James Allworth and Karen Dillon, the book explains how well-tested academic theories can help us find meaning and happiness not just at work, but in life.

 

Editor's note: Every year, HBS Professor Clayton Christensen teaches students that well-tested academic theories can help them succeed not just in business, but in life. He expounds upon those lessons in his forthcoming book, How Will You Measure Your Life? Co-authored with James Allworth (MBA 2010) and Karen Dillon, the book uses meaningful corporate and personal anecdotes to extoll the value of theory in finding and creating happiness.

"You'll see that without theory, we're at sea without a map or a sextant," Christensen writes. "If we can't see beyond what's close by, we're relying on chance—on the currents of life—to guide us."

Christensen also believes that certain common business principles are misguided and even dangerous. In the following excerpt, he explains why focusing on marginal costs and revenues can lead to personal, professional, and moral failure.

The Trap of Marginal Thinking

How Will You Measure Your Life?In the late 1990s, Blockbuster dominated the movie rental industry in the United States. It had stores all over the country, a significant size advantage, and what appeared to be a stranglehold on the market. Blockbuster had made huge investments in its inventory for all its stores. But, obviously, it didn't make money from movies sitting on the shelves; it was only when a customer rented a movie that Blockbuster made anything. It therefore needed to get the customer to watch the movie quickly, and then return it quickly, so that the clerk could rent the same DVD to different customers again and again. It wasn't long before Blockbuster realized that people didn't like returning movies quickly, so it increased late fees so much that analysts estimated that 70 percent of Blockbuster's profits were from these fees.

Set against this backdrop, a little upstart called Netflix emerged in the 1990s with a novel idea: rather than make people go to the video store, why don't we mail DVDs to them? Netflix's business model made profit in just the opposite way to Blockbuster's. Netflix customers paid a monthly fee-and the company made money when customers didn't watch the DVDs that they had ordered. As long as the DVDs sat unwatched at customers' homes, Netflix did not have to pay return postage-or send out the next batch of movies that the customer had already paid the monthly fee to get.

"As Blockbuster learned the hard way, we end up paying for the full cost of our decisions, not the marginal costs, whether we like it or not."

It was a bold move: Netflix was the quintessential David going up against the Goliath of the movie rental industry. Blockbuster had billions of dollars in assets, tens of thousands of employees, and 100 percent brand recognition. If Blockbuster decided it wanted to go after this nascent market, it would have the resources to make life very difficult for the little start-up.

But it didn't.

By 2002, the upstart was showing signs of potential. It had $150 million in revenues and a 36 percent profit margin. Blockbuster investors were starting to get nervous—there was clearly something to what Netflix was doing. Many pressured the incumbent to look more closely at the market. "Obviously, we pay attention to any way people are getting home entertainment. We always look at all those things," is how a Blockbuster's responded in a 2002 press release. "We have not seen a business model that is financially viable in the long term in this arena. Online rental services are 'serving a niche market.' "

Netflix, on the other hand, thought this market was fantastic. It didn't need to compare it to an existing and profitable business: its baseline was no profit and no business at all. This "niche" market seemed just fine.

So, who was right?

By 2011, Netflix had almost 24 million customers. And Blockbuster? It declared bankruptcy the year before.

Blockbuster's mistake? To follow a principle that is taught in every fundamental course in finance and economics. That is, in evaluating alternative investments, we should ignore sunk and fixed costs, and instead base decisions on the marginal costs and revenues that each alternative entails. But it's a dangerous way of thinking. Almost always, such analysis shows that the marginal costs are lower, and marginal profits are higher, than the full cost.

This doctrine biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they'll need in the future. If we knew the future would be exactly the same as the past,that approach would be fine. But if the future's different—and it almost always is—then it's the wrong thing to do. As Blockbuster learned the hard way, we end up paying for the full cost of our decisions, not the marginal costs, whether we like it or not.

You End Up Paying the Full Price Anyway

Case studies such as this one helped me resolve a paradox that has appeared repeatedly in my attempts to help established companies that are confronted by disruptive entrants—as was the case with Blockbuster. Once their executives understood the peril that the disruptive attackers posed, I would say, "Okay. Now the problem is that your sales force is not going to be able to sell these disruptive products. They need to be sold to different customers, for different purposes. You need to create a different sales force." Inevitably they would respond, "Clay, you have no idea how much it costs to create a new sales force. We need to leverage our existing sales team."

The language of the disruptive attackers was completely different: "It's time to create the sales force." Hence, the paradox: Why is it that the big, established companies that have so much capital find these initiatives to be so costly? And why do the small entrants with much less capital find them to be straightforward?

The answer lies in their approach to marginal versus full costs. Every time an executive in an established company needs to make an investment decision, there are two alternatives on the menu. The first is the full cost of making something completely new. The second is to leverage what already exists.

Almost always, the marginal-cost argument overwhelms the full-cost. When there is competition, and this thinking causes established companies to continue to use what they already have in place, they pay far more than the full cost—because the company loses its competitiveness. As Henry Ford once put it, "If you need a machine and don't buy it, then you will ultimately find that you have paid for it and don't have it." Thinking on a marginal basis can be very, very dangerous.

An Unending Stream of Extenuating Circumstances

This marginal-cost argument applies the same way in choosing right and wrong: it addresses a question I discuss with my students: how to live a life of integrity—and stay out of jail. The marginal cost of doing something "just this once" always seems to be negligible, but the full cost will typically be much higher. Yet unconsciously, we will naturally employ the marginal-cost doctrine in our personal lives. A voice in our head says, "Look, I know that as a general rule, most people shouldn't do this. But in this particular extenuating circumstance, just this once, it's okay." And the voice in our head seems to be right; the price of doing something wrong "just this once" usually appears alluringly low. It suckers you in, and you don't see where that path is ultimately headed or the full cost that the choice entails.

"The marginal cost of doing something 'just this once' always seems to be negligible, but the full cost will typically be much higher."

Recent years have offered plenty of examples of people who were extremely well-respected by their colleagues and peers falling from grace because they made this mistake. Nick Leeson, the twenty-six-year-old trader who famously brought down British merchant bank Barings in 1995 after racking up $1.3 billion in trading losses before being detected, suffered exactly this fate and talks about how marginal thinking led him down an inconceivable path. In hindsight, it all started with one small step: a relatively small error. But he didn't want to admit to it. Instead, he covered it up by hiding the loss in a little-scrutinized trading account. It led him deeper and deeper down a path of deception.

He lied to cover lies; he forged documents, misled auditors, and made false statements to try to hide his mounting losses. Eventually, he arrived at his moment of reckoning. He was arrested at the airport in Germany, having fled his home in Singapore. As Barings realized the extent of Leeson's debt, it was forced to declare bankruptcy. The bank was sold to ING for just 1 pound. Twelve hundred employees lost their jobs, some of them his friends. And Leeson was sentenced to six and a half years in a Singaporean prison.

How could hiding one mistake from his bosses end up leading to the undoing of a 233-year-old merchant bank, a conviction and imprisonment for fraud, and ultimately the failure of his marriage? It's almost impossible to see where Leeson would end up from the vantage point of where he started—but that's the danger of marginal thinking.

As soon as he took that first step, there was no longer a boundary where it suddenly made sense to turn around. The next step is always a small one, and given what you've already done, why stop now? Leeson described the feeling of walking down this dark road in an interview with the BBC: "[I] wanted to shout from the rooftops … this is what the situation is, there are massive losses, I want it to stop. But for some reason you're unable to do it."

100 Percent of the Time Is Easier Than 98 Percent of the Time

Many of us have convinced ourselves that we are able to break our own personal rules "just this once." In our minds, we can justify these small choices. None of those things, when they first happen, feels like a life-changing decision. The marginal costs are almost always low. But each of those decisions can roll up into a much bigger picture, turning you into the kind of person you never wanted to be.

I came to understand the potential damage of "just this once" in my own life when I was in England, playing on my university's varsity basketball team. It was a fantastic experience; I became close friends with everyone on the team. We killed ourselves all season, and our hard work paid off-we made it all the way to the finals of the big tournament. But then I learned that the championship game was scheduled to be played on a Sunday. This was a problem. At age sixteen, I had made a personal commitment to God that I would never play ball on Sunday because it is our Sabbath.

So I went to the coach before the tournament finals and explained my situation. He was incredulous. "I don't know what you believe," he said to me, "but I believe that God will understand." Every one of the guys on the team came to me and said, "You've got to play. Can't you break the rule, just this one time?"

It was a difficult decision to make. The team would suffer without me. The guys on the team were my best friends. We'd been dreaming about this all year. I'm a deeply religious man, so I went away to pray about what I should do. As I knelt to pray, I got a very clear feeling that I needed to keep my commitment. So I told the coach that I wasn't able to play in the championship game.

In so many ways, that was a small decision—involving one of several thousand Sundays in my life. In theory, surely I could have crossed over the line just that one time and then not done it again. But looking back on it, I realize that resisting the temptation of "in this one extenuating circumstance, just this once, it's okay" has proved to be one of the most important decisions of my life. Why? Because life is just one unending stream of extenuating circumstances. Had I crossed the line that one time, I would have done it over and over and over in the years that followed.

And it turned out that my teammates didn't need me. They won the game anyway.

If you give in to "just this once," based on a marginal-cost analysis, you'll regret where you end up. That's the lesson I learned: it's easier to hold to your principles 100 percent of the time than it is to hold to them 98 percent of the time. The boundary—your personal moral line—is powerful because you don't cross it; if you have justified doing it once, there's nothing to stop you doing it again.

Decide what you stand for. And then stand for it all the time.

From the forthcoming book HOW WILL YOU MEASURE YOUR LIFE? by Clayton M. Christensen, James Allworth & Karen Dillon. Copyright (c) 2012 by Clayton M. Christensen, James Allworth & Karen Dillon. To be published on May 15, 2012 by HarperBusiness, an imprint of HarperCollins Publishers.

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Comments

    • Peter McCann
    • President, MCCA McCann Corporate Consulting Associates

    This is absolutely superb. I was deeply sceptical of the wishy-washy, mushy ethics classes that I was exposed to during my MBA in the 1980s at a well-konwn Canadian business schools; I believed that a muscular, well-articulated and consistent ethical approach had personal validity, though.

    Professor Christensen's position is the best articulated expression of the consequences of morale failure.

    The slippery slope of 'just this once' is seen frequently when considering so many frauds; and, it appears again and again in non-business failures.

    This is a rigorous standard and one that I have not consistently met but a standard that I aspire to.

    I look forward to reading the full book when published.

     
     
     
    • David Shindler
    • Owner, Dash Coaching Ltd

    Great insight and timely given the moral vacuum our bankers and politicians have inhabited recently. I have had many arguments with people in business who cherry pick and vacillate when it comes to principles. Either they are deeply felt or expediency rules. My specialism is employability and my experience tells me that consistently and authentically standing for what you believe makes you stand out in the job market and in your career. It's competitive advantage and doing the right thing.

     
     
     
    • Anonymous

    Incredible . Can;t wait for the book !

     
     
     
    • ajit
    • None, None

    Fabulous. Determine what you value, stand for it 100% of the time, no ifs ands or buts.

     
     
     
    • Ravi Vir

    Professor Christensen, The expediency of meeting short term targets while missing the big picture is all too common in our present environment. Your personal story eloquently illustrates the value of holding "true to your values". Thank you.

     
     
     
    • arun
    • software engineer

    brilliant!

     
     
     
    • Andrew Malele
    • IT Systems Manager, maIT Computer Solutions

    What an eye opener. It relates to big coporates that hang on to legacy systems that have gone past their life cycle years ago. Not wanting to evolve with technology and aquire new systems to enable easy information access and speedily decisions making by the sales person who brings in the revenues.

     
     
     
    • Brett Butler

    Brilliant article. Can't wait for the book. I am delighted to see HBS's renewed emphasis on promoting the values and ethics side of decisions in business. Our lives cannot be compartmentalized into business vs. personal, money vs. ethics, spiritual vs practical. Indeed, such compartmentalization is another way to miss the full cost of our decisions. I highly encourage HBS to continue challenging students and alumni to engage and grapple with the ethical side of our leadership.

     
     
     
    • IAN MCKELLAR
    • TRAINER, WHITE LOFT

    Great article, thanks. I like Henry Ford's quote, "If you need a machine and don't buy it, then you will ultimately find that you have paid for it and don't have it". Classic ! I was reading about BP and how they had developed a management style which has made a "virtue of doing more for less". Eventually they were cutting corners and taking excessive risks because the priorities had been financial, rather than organizational integrity. As we know this resulted in a number of mishaps and disasters which were warnings to the road ahead. Finally resulting in the explosion of the Deepwater Horizon drilling rig in the Gulf of Mexico. BP were exposed to $70 billion in clean-up costs and lawsuits. And the wrecking of its brand in the USA and worldwide. I wonder how much their risky cost-cutting had saved them ? And how much was eventually lost in destruction to property and family businesses ?

    BP CEO Tony Hayward lost his job over the incident. So much for approving a risky management style. Certainly not worth the costs whatever the numbers were. I also wonder how many poor short term decisions came because of shareholder pressure ? We have to change to way we think, and the way we work !

     
     
     
    • Kapil kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    Our life is measured by our strength to stand firm on our basic principles-truth, honesty, morality,ethics and adherence to whatever is right. We must never compromise on these principles despite the short-term lure of some advantages which in foreseeable future will lead us to doom. That is common sense. If you plant thorns, flowers must not be eexpected. There do come occasions when we feel that we will not be caught if we very cleverly and intelligently commit a somewhat wrong action for big gain " just this once". Yes, we may not be caught. There commences a vicious circle of repetition(s) for we start believing that our action(s) are catch-proof. Such actions finally snowball to an unmanageable level and there is a great fall. This basic folly led to the failure of many large corporates which were rated very high untill their misdoings came to light. Thus, their top levels had to suffer badly and many are still in jails. In hindsight, a short sighted action led to all this. There is no alternate to being straightforward in the real sense. Greed kills, one must understand and be very wary of it. Our life is measured by positives and not by negatives which one may try to cover by shininig robes as the robes wear out sooner than later.

     
     
     
    • Andreas Huettig
    • Developer, Topcom

    Well written article, BUT:

    "There is nothing to stop you doing it again"? How about yourself? Maybe not take the easy way out, but take the hard way and fight for your beliefs. While still being able to decide when a justified exception appears. Yes, it's tempting to "break the rule" more often than necessary, but to never break them even if necessary just because you are lazy?

    In the examples you gave, there wasn't a really necessary exception shown, so I don't want to say Nick Leeson should have lied in the first place or similar. But in the overall closing line, 98% may be harder to do, but it's also the "more right" thing to do. ...if you think about it, Leeson was more on the 0% side (or wich errors did he admit to make up for 98% of the errors?) and you obviously shouldn't be there.

     
     
     
    • Liel Pascual
    • Global Healthcare Network

    Blockbuster's past success carried with it the seeds of its undoing. The Eastern philosophy of yin yang meets Prof. Christensen's rigorous academic framework.

    Also looking forward to the book.

     
     
     
    • Anonymous

    Prof. did you make it back to the basketball team ? Just this once you broke your commitment to the team ? This case was more about priortization. There would be other solid examples i believe

     
     
     
    • Anonymous

    I had the pleasure of taking Professor Christensen's class at HBS in 2004, and in his final lecture he gave a speech similar to (and more comprehensive than) this article. It wasn't on any curriculum, but it was one of the most valuable lessons and pieces of advice I've gotten.

    I am thrilled that Professor Christensen's message will now be delivered more broadly, and cannot wait to purchase this book.

     
     
     
    • mark allen roberts
    • CEO, OTB Solutions

    This article is perfect. As we have so many companies trying to grow quickly the temptation to bend the rules to win a sale is ever-present.

    As I have shared with my clients, you will have a number of spinning plates to juggle in your career, and there are two you can not ever let drop ; your core values , and your family. http://www.nosmokeandmirrors.com/2009/09/24/entrepreneur-best-practices-9-dont-let-the-two-most-important-plates-drop/

    Making compromises to what you know is right is a death of 1000 cuts. Stay true to what is right and serve your market and your team with integrity and you will build a sustainable profitable organization.

    Great content Mark Allen Roberts

     
     
     
    • Ryan
    • Software Engineer, Instructure

    @anonymous

    A moral, enduring commitment is different from a trivial, fleeting commitment. Nobody's moral compass should be defined by "playing on this basketball team".

    "Decide what you stand for. And then stand for it all the time."

     
     
     
    • Jessie Yearwood
    • Faculty, El Centro College

    This is absolutely a noteworthy article. The need to determine our values and practice ethical behaviors is a desperate in education as well.

     
     
     
    • Therese Pope
    • Zenful Communications

    If only EVERY business professional out there would follow this: "Decide what you stand for. And then stand for it all the time." It's all about standing in our truth as human beings, and practice what we preach beyond just business.

    Excellent article! One of the best articles I've read this week. Thank you.

     
     
     
    • Anonymous

    But the above view leaves no room for change. Life is ever changing and people's opinions and standards can and should evolve. Standing for something all the time means you can never change what you stand for, even if you get additional information that legimately causes you to change your view for the right reasons.

     
     
     
    • Alison Bayer-Orszak
    • Founder/Educator, Together Academics

    I would like some suggestion about what happens when two very different moral focuses come to a meeting- For example- my strong belief that the individual and the individual situation takes precedence versus another person who cannot see beyond their rule- and this causes hurt to a learner, rather than the growth that would be obtained when learning results in both inclusion and change- my principles remain to review both big picture and details and then to act accordingly with the understanding of "first do no harm" - what of the other party standing on princples that not only do not heal a situation but further negate any possible learning - I have kept this discussion abstract on purpose.

     
     
     
    • Misti DeHart

    This article is wonderfully refreshing. Clayton's books, especially, "How will You Measure your Life" should be read by by every parent and be mandatory reading in all high schools. If every President, business leader, teacher and parent lived this ethical/moral commitment our children would finally have a strong example, they so crave, to emulate.

     
     
     
    • Pankaj Sahai
    • Enterprise Consultant & Coach, Author: Smooth Ride To Venture Capital

    Absolutely riveting article. I agree with the Prof. that one should be clear about one's core values and should never violate those values in pursuit of worldly gain, if one is looking for authentic happiness in one's life.

    However, I find myself disagreeing with the personal example that Prof. Clayton Christensen has given to explain the concept.

    During our existence on this earth, we go through 4 stages ( childhood, bachelorhood,marriage/householder & Old age). Each stage has different challenges which we need to overcome to move to the next stage of our lives. Also, the beauty of nature is such that at each stage of life, whatever we enjoy and get attached to, has to be given up to move to the next stage. So, the child has to give-up his dependence on his parents to become a responsible adult; the bachelor has to give up his independence to become a responsible householder and, to have a happy old age, the householder has to give-up his sensual pleasures, and in old age one has to slowly give up his attachment to life, as death requires him to give up on life itself ( to be born again, if you believe in re-incarnation). At each stage we evolve and have a better perspective on our life's actions. Our actions related to our religious rituals too should be re- assessed as we go along; we must understand the intention behind the rituals and, as long as we do not violate the intent, I believe that we can reassess our response to the ritual itself.

    The Life Coach in me could not but recall the story of "The Mayonnaise Jar and Two Cups of Coffee" while reading the article. Here it is for those of you who have not heard this insightful story :

    A professor stood before his philosophy class and had some items in front of him. When the class began, he wordlessly picked up a very large and empty mayonnaise jar and proceeded to fill it with GOLF BALLS. He then asked the students if the jar was full. They agreed that it was.

    The professor then picked up a box of PEBBLES and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas between the golf balls. He then asked the students again if the jar was full. They agreed it was.

    The professor next picked up a box of SAND and poured it into the jar. Of course, the sand filled up everything else. He asked once more if the jar was full. The students responded with an unanimous "yes."

    The professor then produced TWO CUPS OF COFFEE from under the table and poured the entire contents into the jar effectively filling the empty space between the sand. The students laughed.

    "Now," said the professor as the laughter subsided, "I want you to recognize that

    1.This JAR represents your life. 2. The GOLF BALLS are the important things--your family, your children, your health, your friends and your favorite passions--and if everything else was lost and only they remained, your life would still be full. 3.The PEBBLES are the other things that matter like your job, your house and your car. 4.The SAND is everything else--the small stuff. "If you put the sand into the jar first," he continued, "there is no room for the pebbles or the golf balls. The same goes for life. If you spend all your time and energy on the small stuff you will never have room for the things that are important to you.

    "Pay attention to the things that are critical to your happiness. Play with your children. Take time to get medical checkups. Take your spouse out to dinner. Play another 18. There will always be time to clean the house and fix the disposal. TAKE CARE OF THE GOLF BALLS FIRST--THE THINGS THAT REALLY MATTERS. Set your priorities. THE REST IS SAND."

    One of the students raised her hand and inquired what the COFFEE represented. The professor smiled. "I'm glad you asked. It just goes to show you that no matter how full your life may seem, there's always room for a couple of cups of coffee with a friend."

     
     
     
    • Anonymous

    I agree with reader comment 11 - Our beliefs are invaluable in providing a moral compass, but sometimes you do have to be able to do something much more difficult, such as making a justified decision that may conflict with these beliefs- but is the best decision overall, even if it may be different than a belief - choosing to never change the way one thinks is the easier way - it takes a much higher level of thought process to actually determine when a change must be made - therefore to never break beliefs is lazy and doesn't demonstrate the true complexity of human lives and potential suffering - it seems shallow and somewhat incomprehensible that some people have the luxury and almost arrogance to say that they never vary in their beliefs - such statements indeed make me think that the person making them has not endured much in the way of human suffering, but for people who have, knowing that someone once gave you a break (meanin g they varied from their regular beliefs based on cirumstances) can mean all the difference in the world in being human and inhuman.

     
     
     
    • Robert Jacobson
    • Atelier Tomorrow AB

    Great insights, Clay, but their practical application would have the majority of current (and probably future, too) CEOs out on the streets without jobs and no visible means of support. Or working as college professors in obscure MBA programs where they exercise no leadership but where no leadership is expected of them, either. Or serving in office for a two-party/one-master political system where ethics definitely play second fiddle to expediency and avoiding embarrassment.

    Is there an action item here? Or just an ideology?

     
     
     
    • John Heinrich
    • President, American School of Ent.

    Clay, Excellent article. Good to see most of your health challenges are behind you. I don't suppose you'd do a course for us on leadership?

     
     
     
    • Iva Thort
    • Developer/Analyst

    As an non-theist, good on the good doctor for sticking to his guns that Sunday.

    Values are individual - another theist seeing their deity/ies differently migt well have taken the court, figuring it was God's will they were there, they were fit and God would want them to have fun and play...whatever.

    The general drift regarding ethics has merit, but it is worth noting that sociopaths can proudly claim they stand for certain values, all the time too.

    For mine, Blockbuster is just another example of a company crippled eventually by its size. Too big to be flexible and found itself sinking in quicksand it never saw coming in any of its more than likely well polished five and ten year plans.

    The type that pehaps Dr C is referring to here: "You'll see that without theory, we're at sea without a map or a sextant," Christensen writes.

    Really? You would not likely get on a train if you had a specific destination in mind yet didn't know where it was going e.g. wanted to go to New York, yet the train could be heading to NY, New Delhi, New Hampshire.... wherever...and no one could tell you. You'd rather not take any train I'd suggest. Especially if the trains could take you to some undesirable outpost potentially, or have you back-track halfway across the planet to end up broke, months later, back where you started from.

    Virtually all economic theory freely demonstrates (or should, post GFC) they don't have a clue where their trains are going, much less if they have brakes. But the argument "better something than nothing" is always trotted out. I'd rather walk and make it up as I go. Seemingly Blockbuster's competition walked and got lucky. However it remains to be seen if they go the same way.

    Unsure what theory shapes, but doubtlessly practice shapes outcomes. And also too a pronounced outcome bias. And quickly. But Doctor C's ethos of focusing on the decision, not the outcome is sound enough.

    We have no clue as to the extent of the short term/long term nature of the outcome. An example might be a rogue trader type who gets away with it, retires from larcenous trading, buys an expensive car, only to be crippled in it 5 years later in an accident that would not have happened to him in a far less fast vehicle.

    At least when you behave ethically, you get to enjoy the day - the outcome long term is fate's call. Trying getting a bell curve or your firm's 5 year plan to show you that little lesson.

     
     
     
    • Miskin BG
    • Manager Organizational Dev., Stimulus Consulting Pvt.Ltd.,

    Professor, while being 100% of the time is easier in Sunday analogy; being inflexible to change on the Bockbuster part could be an extension of the same ideology. How to measure your life in terms of your values vs. the results? Change vs. inflexibility? Theory vs.Practice?

     
     
     
    • Gadi
    • SVP

    How is this different than "slippery slope" theories? How do we distinguish between decisions that are risking "slippery slopes" outcomes, and those that are really just "expanding the boundaries" with no tangible risky outcomes?

    For example - when driving age was lowered to 16, there were fears this would get us on a path to irresponsible kids driving cars - "slippery slope" concerns, of the kind expressed in this article. And yet we all knew to draw the line at 16 and not let, say, 10 year olds drive cars.

    Many marginal cost decisions are just that, marginal cost decisions. They're not all taking us down "a slippery slope". How do you tell them apart?

     
     
     
    • Kathryn Alexander
    • President, CEO, Ethical Impact L3C

    Ah, the illusions of management. We get so caught in the 'how's of making money we forget our goal - a world that works. We are reaping the results of that kind of thinking in the banking industry right now. When it's everyone for himself, then we all lose.

     
     
     
    • Brian Carr
    • Civil Engineer, Civil Service

    I like the message above but it also implies, once you have crossed the line, there is no hope for you. That means you can write off 99.99% of humanity based on that logic.

    I developed this theory of ethics back in my teens when I often observed adults stating one thing and doing another. As I have grown and experienced life to my mid 40s, I find it rare for anyone to practice 100% ethical behavior. I don't believe anyone can hold to your principles 100% of the time. I do believe you can strive to meet your principles. If on the rare occasion you do falter and cross the line in the sand (your personal ethical boundary), as long as you recognize you crossed the line and strive not to do so again, the line in the sand remains. However if you justify your crossing of the line in the sand, the line in the sand of what is considered unethical shifts to a new location of what that person now percieves as unethical. Each subsequent crossing and justification will see that line continue to shift further and further into what that person would have once considered truly unethical behavior.

     
     
     
    • Sarah Caldicott
    • Founder, Innovate Like Edison

    Deeply compelling case for the importance of developing new skills and competencies versus simply strengthening existing ones. This line of thinking is applicable to any organization -- whether service-related or product-focused.

     
     
     
    • Anonymous

    The Blockbuster CEO was also ignorant of new technology and assumed that everyone thought like him- when ignorance at the top is prevalent then it is impossible for the organization to adapt, change or acquire that knowledge.

    Witness RIM, their OS didn't change for years, and the '02 version is fundamentally the same as today- and 2 ceos later they still think everything is fine, say hi to radio shack and blockbuster, nortel and nokia, lucent, novell, and all the other people who think R&D is overrated.

    It's actually an easy fix but so many ignore it and it goes like this-

    Innovate, if you cannot, buy them early.

     
     
     
    • Anonymous

    I, also, thought this was a great article and it also reminded me of a recent story on NPR and how the slips spreads so easily to others who are convinced it is the right thing - interesting story. Psychology Of Fraud: Why Good People Do Bad Things Chana Joffe-Walt and Alix Spiegel

     
     
     
    • Kamal Malek
    • CTO, Affinnova

    I don't know what to make of the massive non-sequitur at the heart of the story. The principle of ignoring sunk costs in investment decisions is supposed to reduce people's bias towards continuing on the same old path due to (now irrelevant) past decisions. Yet, in the story, it is the decision to abide by that principle that is blamed for the bias towards the status quo. Go figure...

     
     
     
    • Anonymous

    Enjoyed the story, albeit a very clean & neat lesson from his youth. i admire the Prof. for his conviction at this very young age and I also admire the coach for not trying to talk him around!
    Many of the 'lessons' we learn in life (on reflection) are often from such memorable and unpleasant experiences involving tough decisions - or mistakes and hardships we have experienced as we grow up and our decision making faculties are not fully matured. Education, relationships, work, sport & social life, and religion, all play a part as we develop. All parents - and I assume many Coaches & CEO's - will talk of these 'learning' experiences. Its a theory vs practice discussion, whereas once upon a time it was more just the practice. There is an industry of books to advise us these days but the challenge remains the same - do what you know is right. Having clear values will help you to trust yourself to make more intuitive and value- based decisions. This can only help support the theoretical and financial framework necessary for expert decision making in business.

     
     
     
    • Anonymous

    It's interesting that you felt some "moral" obligation to yourself to "listen" to an abstract notion rather than to the real people in your life. That sounds awfully self-centered.

     
     
     
    • Ram Kadivella
    • Director, LAJ

    This is a great essay on marginal thinking, a topic which as the name suggests is incomplete and wanting. The various responses are interesting too. The essay's biggest upside is 'reckoning now the time of real reckoning later' is the biggest deterrent to go off course and an easier one at that now. If all theories that are developed and studied in one's academic pursuits may not be applicable to real life, that only this applies so well is proof enough for taking theory seriously and applying it to oneself. Seems mere paying lip service is akin to marginal thinking; and following it to the core in real life which is one unending stream of extenuating circumstances is right thinking.

     
     
     
    • Raul Bello
    • Agent, TPH

    The marginal point of view is just a frame to make decisions using the frame with out wisdom and with out business experience is the way for disaster.

     
     
     
    • vishal
    • ashar brothers

    I didn't agree with prof. in this dynamic world you have to accept changes, it contradicts with law of nature.

    Adaptability is necessary for keep going on. Standing for what you believe and your principles is good, but at the same time you should accept changes if it is for good cause.

     
     
     
    • Carole Diamante
    • research faculty, Assumption College Philippines

    Thank you so much for this article. It did inspire me to continue my doctoral dissertation. It gave me the reason to stay in my marriage against all odds. "Decide what you stand for. And then stand for it all the time."

     
     
     
    • Errol Williams
    • IHG

    On point and inspiring! I just bought the kindle book and cannot wait to read through it next week. Thanks for reminding us to keep the bar high.

     
     
     
    • Bill Donohoo
    • Professor, Cal State San Bernardino

    This is a book that needed to be written. Our lives are more than our job. We need to be reminded of the things that will have real value. They are a blend of what we do in the office, but also what we do in our homes and our community. Thank you for your openness and insight. The material in this book will be incorporated into my classes.

     
     
     
    • Sandra Forsberg
    • Public Relations

    Insightful article, I look forward to reading the book Sandra

     
     
     
    • Anonymous

    I agree with Pankaj Sahai (22).... Do you not feel that the cause for the collective activity of which we are a part is above the personal beliefs. My personal beliefs should be known to my team mates and coach right in the beginning or else one should not take part in activities which may force you to compromise with your personal beliefs.

     
     
     
    • G S Singh
    • EduMint Advisory

    After reading this one chapter and the review, convinced that a prop in your life is essential. I would rather call it inner voice, which Prof. C must have listened to while praying on Sunday and decided not to play. Teaches you a lesson though that no one is indispensable! I remember a character in a classic Hindi novel saying " I have chalked my own paths in life and it times when I reached a wrong destination, traced my steps back and started all anew". One has to atone or pay for his wrong decisions in life without remorse and be ready to start all over again. May be its an other way of looking what Prof. C is articulating. Great topic he has covered. May be the book will give a more balanced and complete picture.

     
     
     
    • Laurence Rohde
    • Price / Cost Analyst, CLI

    This is one of the best articles I've seen in ages. I can see that Clayton has struggled with the ethics of personal values against the "team values". I have often wondered how many of us have decided to throw our own values out the window so we can be part of the group. I personally have in the last couple of years come to the conclusion one of the reasons American business has left such a bad impression is based on the ethics issue.

    We tend to bend over backwards to the point we cannot turn around because we fire all our shots at once. That is to say we give in to what the business partners believe is right, even when we know it does not match up to our value system. I have thought that our own abilities and ethics are no longer a concern as long as everyone makes money. This is fundamentally against our own well being we have started to put others so far in front of ourselves I feel it will be almost impossible to get back to the point where everybody's input is no longer taken into the analysis what we have instead is more a long the lines of a dictatorship in business where if your ethics do not allow you to do something you think is wrong your arguments are washed away by the "just do what you are told" mindset.

    This reason alone makes me wonder when we finally do reflect on how we presented ourselves to both business and personal relationships will we be able to say we were effective in our lives. Success cannot be measured in monies but in having said I regret nothing. This cannot be accomplished if we do things merely because they are legal. We have to get back on track and do things because it is the right thing to do. It is time to put respect back into the work place. In a nut shell we need to be ethical and honest, legal has been confused over the last 5-10 years with ethical. Just because it is legal it does not make it ethical it is time for American business again to hold this principal up. We need to get away from the backroom deals which make a select few wealthy monetarily but bankrupt ethically.

     
     
     
    • Harry K samboo
    • Consultant, BCA Consulting

    There is only one thing to figure out. It is true that optimal decisions are made by comparing marginal costs and benefits (NOT revenue) when the decision is one time. For the long run, you compare average costs and average revenue for survival.

    When it comes to investments (like Blockbuster), you compare expected costs and benefits. Blockbuster didn't do that, probably thanks to advice from some of these "innovation experts."

    The confusion on the part of this "expert" is further evident when he mixes up how to make personal (moral) decisions in our daily lives.

    It is not uncommon for business gurus to write a book attaching a well established theory arguing that they have found the magic bullet to solve all (worldly and otherwise) problems, only to be proved wrong by another "guru" subsequently.

     
     
     
    • philip peters
    • ceo, zagada institute

    Professor I love your work and your thinking and will get our new book. With respect, however, the personal case you used to illustrate a larger moral point by not playing on Sunday - a little find weak. My apologies for being so frank.

    I actually had a friend who wrestled with the same issue over Sunday cricket in the West Indies. He made the very opposite decision to yours and his life has still turned out marvelously.

    What is often perceived and practiced as a moral principle, is often constrained by culture, personal development, family values etc. The white Southerner father - the Southern Baptiste church - taught generations upon generations of American "peculiar morals."

    In a globalized world, the human person has to grow, has to change, has to evolve, and surprisingly we'll discover that this "new human being" has to co-evolve a new moral calculus. In summary, we have to manage - not only for external market-based disruptions, but personally manage for "internal disruptions," also.

     
     
     
    • Ram Pranam
    • Project Manager, Boeing Company

    Priceless!

     
     
     
    • jim warshell

    janis joplin said: "when you sell out, don't sell cheap". I wish she''d said "if you sell out, don't sell cheap" because in the context of this article, just about any sell out is too cheap.

     
     
     
    • David Gravelle
    • Owner, Gravelle Branding/Marketing

    I went back to re-read this article when today's revelations at Penn State hit.

     
     
     
    • Anonymous

    I found this article to provide sage advice. The foundation for this advice is supported by our community organizations, such as scouts, religious, and fraternal organizations that profess ethic and moral values. God bless those of us that try shortcuts, there is generally a piper to be paid.

     
     
     
    • Kumar
    • Analyst, -

    Unknowingly I have put this rule in my life when I was 13 or 14 years old. I am from India. when I was in school we had few lessons (not sure what subject it is) about effects of alcohol consumption, drugs, smoking and other addictive substances. At that time I made a mental note never in my life I would touch them.

    Over the last 20 years there were so many instances I had to exercise this judgement. I never broke that rule. As a teenager I have stayed away from friends who used to smoke cigars, alchohol, pubs. Rule is pretty stright -before you consume check if it has alchahol (or list of no go substances) in it, if so avoid at any cost. I was fooled by a friend - he mixed vodka and coke, I felt disgusted after knowing this,but decided it's not my fault so I stuck with the rule. There were many socially awkward situations but I always found ways to manage those situations.

    My rule is to 'never break the rule first time'. If you break the rule for the first time then you know how it tastes like. That taste effect would cascade to the urge I already have and I would break the rule again. second time, third time and so on and on. The first time rule breaking is very important as the author pointed out.

    Same rule I applied to casinos when I visited there first time I felt that if I make money it should be my hard earned not with luck or stealing someone elses- So no lotto tickets or casinos, poker, gambling.

    Problem with the marginal thinking is - it is more like black or white- yes or no. there is no middle ground/nutral. If you steal once or a million times you are a thief. So better enforce the rule for the first instance then there wont be second instance in your life. In some aspects of my life I did bad things without prior thought, but when I did realize it was a bad thing I have set this rule to that aspect and avoided breaking it.

    I am far from perfect (as my wife would tell me) but somehow I failed to implement this rule to address some of my bad habits such as my laziness and excess news paper reading.....

    Look forward to reading the book

     
     
     
    • Anonymous

    First part of article: It is foolish for a company to stay set in their ways when the business landscape changes. They should adapt and fully commit to adapting, even if it is inconsistent with their current modus operandi.

    Second part of article: Stick to your decisions no matter what even if unforeseen opportunities tempt you to contradict them. You should never adapt to changing circumstances.

     
     
     
    • Mohammed

    A captivating and thought provoking piece which gives us pause to think about decisions we continue to make on a daily basis. Subjecting ourselves to thinking of "just this instance" have a nasty habit of leading to largely unintended consequences that may ultimately dramatically impact our lives.

    I admire and respect Professor Christensen's commitment to his values and principles.

     
     
     
    • Ahmed Y Issa
    • Head of sales, Aujan Industries Co.

    It is always nice to remain who you are. When you look your face in the miror, do you tell yourself that I am who I am, I don't compromise on my principals, thanks I have not done this or that act,or do you disguise yourself why I did this terrible thing when I know it is not right? This should be your inner compass to guide you in life. It is also unbearable,the worries that come with the fraud, when this will be discovered. This applies to everthing we do on personal level as well as on business transactions. Million thanks to MR.Clayton for addressing this important issue. Remember one of the main reason for the downfall of the Roman Empire was the decay of the values.

     
     
     
    • shadreck saili
    • UCT

    Prof. Clayton ! This must surely earn you super +++. An article written with simplicity and yet with completeness and with situations that no one would easily deny having encountered in management or otherwise.

     
     
     
    • Anonymous

    Nice article, good insight and lots of useful tips. Albeit I am tempted to say that from my experiences of life.....I had learnt to be selectively judgmental about being a 100% or a 98% based on the specific situation, scenario and taking into consideration also many external factors which may or may not have a direct or indirect impact on the outcome of the decision. Of course my personal take .......

     
     
     
    • Captain Jan Becker
    • CEO, Becker Helicopters Pilot Academy Australia

    Clayton some of what you say rings true in our industry.

    Teaching students to fly helicopters is in part about the discipline to do it right, follow the checklist, don't take short cuts "just this once" - because if you do and get away with it fuels this misguided myth that you can take short cuts, with no consequence.

    When flying helicopters, as in life it's what you do when no one is watching that becomes the sum of who you become.

     
     
     
    • Pratyush Kumar Gupta
    • Writer, My Content Planet

    We written article based on insights and deeper analysis. This is true that most people fear of getting out of their "Comfort Zone", which makes them "Static" and prohibits them taking risks. However, it is equally true that when they get out of once the are bold enough to do it again and again and get A GAIN.

    A very impressive article, ideas well crafted in words. Elaboration of case study adds charm to its presentation. Looking forward for more from you. :)

     
     
     
    • Sean Clark
    • Managing Director, Sage Brand Directions

    Well done and so obviously true; anyone with the ability to think understands this, yet the rate of noncompliance and failure only increase. Business world especially continues to ignore.....throw in US politicians as well as they have a penchant for the underpinnings here, which of course tend to be elements associated with self-serving greed. I told anyone that would listen immediately after the '08 economic meltdown that this kind of philosophy and the associated activities and thinking would be the one positive outcome of that mess.....serving as a bright light within a very grim environment. Here we are four years later and I obviously could not have been more wrong. .
    Everyone should read this book and share with others. Sooner or later we just may get it right. As Churchill so keenly noted: "Americans can always be counted on to do the right thing...after they have exhausted all other possibilities."

     
     
     
    • Anonymous

    Great Article. Every life/ individual has two possessions of his own 1. Physical body :which needs all the pleasures of possession of the material things in the world. As these possessions increase we want to have these more, so we are never satisfied with these. This is the way for development/ progress, till we do it ethically. 2. Soul : inside the physical body, which always strive for happiness, peace and spritual/ moral possessions.

    Most of the crimes/ financial crimes are happening becuase of the un-ethical im-moral activities of the individuals.

    For all physical / intellectual achievments we have so many institution taking care of it.

    But I think now we need more dedicated institutions for spritual and moral development of society to reduce these regularly increasing crimes/ financial crimes.

    Moral / Spritual education must also be a regular part of our school/ unniversity curriculam if we want reduce the moral degradation which induces all these crimes.

     
     
     
    • Anonymous

    Wonderful, thank you

     
     
     
    • David Kirzner
    • Consultant, Quidgest

    Excellent and beautiful thought. Thank you Clay.

     
     
     
    • Anonymous

    Thank you Clay for your article and more importantly that you for sharing you story today at the Fidelity meeting. It was truly inspiring.

     
     
     
    • Anonymous

    Excellent article on how "just once this one" could get you in a deep hole which would be difficult to come out in a longer term.

     
     
     
    • Tom Dolembo
    • Founder, New North Institute

    Great article, always look forward to your work and compelling insight. I recall graduating from HBS, rising up the ladder with a powerful and at the time respected group, working very hard, then being told to falsify a report, be a "team player." I refused, even after the "you'll never work in this area again." I did the only thing I could have done. They did as well, and I did not, in fact ever hold a corporate job again (I am now 68, I was then 33). Acts have consequences, both ways. The group is still very rich, and the report probably would not have mattered to them. But the price was high for me and my family. Life in the deep cold is definitely not a choice I would encourage any HBS grad to make lightly.

     
     
     
    • Anonymous

    I would like to express my affection for your kind-heartedness supporting those people that have the need for guidance on your subject matter. Your real dedication to getting the message all around became definitely invaluable and have usually encouraged regular people like me to realize their pursuits. Your personal important publication denotes this much a person like me and far more to my mates. With thanks; from each one of us.

     
     
     
    • Noel
    • www.churchsoblessed.com

    "Decide what you stand for. And then stand for it all the time."

    "100 Percent of the Time Is Easier Than 98 Percent of the Time"

    Inspiring article that should help me live a life of purity and holiness. God bless you and more power!

     
     
     
    • ram

    Nice article.

     
     
     
    • Alfred Devaprasad
    • President and CEO, Alpha Group

    The 'just this once' syndrome is the biggest bane of man's free will. Without ethical conditioning this tool of man's progress could be the very reason of his annihilation.

     
     
     
    • R. W. Miles, MD
    • Physician, Int Med, Private Practice, Long Term Care

    I have written about the above as contributing to habitual medical error in nursing home practice. (JAMDA 2013 in press) In my model, deviation from sound medical principles for marginal indication can lead to habitual maltreatment of the elderly. My unsound actions often influence others who review the patient's medical record. The temptation to deviate from sound practice can become contagious and spread throughout medical communities. I call the phenomenon the treadmill effect.

    unsound actions have a subtle but pervasive effect on all practitioners who subsequently read the medical record of the patient being inadequately treated.

    i

     
     
     
    • Dan Dodson
    • Fellow, IBB Consulting

    I tell the story of going down to Dallas to meet with Blockbuster in the late 90s. As a consultant, my mission was to convince them to branch out into Internet Video in order to ride (what we thought) was an obvious technological trend at the time.

    We were surprised by the inertia at the time for what could have been a relatively low risk trial that would have bought an option on a future market opportunity.

     
     
     
    • Jon Jacoby
    • Vice Chairman, The Stephens Group

    I am reminded of an incident recounted to me by a friend who had run in the Democrat primary for governor of his state. He lost, and after conceding victory to the winner, the two were flying back to the state capital. The winner, an extraordinary politician, explained to my friend all the mistakes he had made in the positions he took on various issues in the campaign. My friend replied,"but if I did as you suggested, I would have been lying!" Bill Clinton was incredulous. What does the truth have to do with it?

     
     
     
    • Kehinde Lawanson
    • Executive Director, First Bank Nigeria limiteda

    This article is a pointer to how we should live our lives. A richly woven academic principle explained to give meaning to the rational formalism of the secular mind and the faith based illogicality of the spiritual person. Very useful insight.