Xix) Factors That Influence Incorrect Allocation Of Money

The factors are

i) too much focus on successful core businesses - thus no money diverted to new growth activities

ii) growth gap - this refers to the difference between investors' expectations as expressed in present value calculations and the current share price. Generally, senior management expects to meet investors' expectations using sustaining innovations rather than disruptive innovations; the latter's new revenues and profits are unknown. Yet

"...Creating new disruptive businesses is the only way in the long-term to continue creating shareholder value..."

Clayton Christensen et al, 2003

Remember: investors expect organisations to continue to grow

iii) impatience for growth

"...When the corporation's investment capital becomes impatient for growth, good money becomes bad with the subsequent cascade of inevitable incorrect decisions..."

Clayton Christensen et al, 2003

Most disruptive businesses will initially not grow very quickly as they need to compete against non-consumption and follow an emergent strategy process. This will work against disruptive innovations being selected

iv) tolerance of initial losses for the sake of growth, ie impatient for growth but patient for profit - as sustaining innovations will be competing in established markets, executives accept the potential for initial loss before growth will occur. Disruptive innovations, in contrast, are more likely to be immediately profitable and yet have small initial growth

v) mounting losses - this results in members of the management team being changed and an unrealistic focus on immediate growth that will favour sustaining over disruptive innovations


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