Clayton Christensen on Winners and Losers in the Next Economy
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Harvard Business School professor Clayton Christensen on the rise of health care and the demise of Wall Street.

Clayton M. Christensen:

Clayton M. Christensen is a professor of business administration at the Harvard Business School. He is the bestselling author of five books, including his seminal work, The Innovator's Dilemma, which received the Global Business Book Award for the best business book of the year, and most recently, The Innovator's Prescription, which examines how to fix our healthcare system. Christensen serves on several public and privately traded boards and is the founder of a successful consulting company and an investment management firm. He holds a B.A. with highest honors in economics from Brigham Young University and an M.Phil. in applied econometrics and the economics of lessdeveloped countries from Oxford University, where he studied as a Rhodes Scholar; he received an MBA with high distinction from the Harvard Business School in 1979, graduating as a George F. Baker Scholar, and was awarded his DBA from the Harvard Business School in 1992.

TRANSCRIPT:

Question: Where is the next big opportunity?

Christensen: The biggest opportunities are in healthcare. We are now just desperate to make healthcare affordable and accessible. And healthcare is something that everybody consumes, great opportunities for nonconsumers to be brought into the market by making things affordable and accessible. Now, I just can’t think of another industry that has those kinds of characteristics where demand is robust, great opportunity for disruption, so that’s where I’d focus.

Question: Who will be the biggest losers?

Christensen: I think the big losers on the other side of the recession will be Wall Street. It’s easy for me to see that the locus of money and the decisions that are made on how to finance the world’s business have been migrating and now are almost being pushed to places like Singapore and Hong Kong where they’ve had regulations that have kept the financial institutions much stronger. So I think Wall Street, overall, is just never going to come back to what it used to be. The investment banks, this is not news, but examined through the lenses of our research on disruptive innovation, the commercial banks have disrupted the investment banking business. So when [IB] was eliminated, it allowed the investment banks to get into commercial lending and the commercial lenders to get into equity financing. But did you notice that none of the investment banks went into commercial lending in a big way, and the reason is that the margins are so unattractive in the lending business versus the equity financing business that it just didn’t make sense. Whereas for the commercial banks to get into equity financing, the margins there are so much more attractive than lending that they’ve all moved that market and basically wiped out the entire investment banking industry. And the reaction of the investment banks to the disruption by the commercials was to kind of quit the asset business entirely and to begin fabricating these securities where you can earn transaction fees without having to have assets in the bank at all. And so the ROEs and the ROAs go away, yeah, because they synthesized these securities and earn transaction fees and, you know, that’s kind of collapsed on them. I think that’s just the whole industry there that’s gone.