Skate to Where the Money Will Be

by Clayton M. Christensen, Michael Raynor, and Matthew Verlinden

WHEN IBM DECIDED TO OUTSOURCE ITS operating system and processor chips in the early 1980s, it was, or appeared to be, at the top of its game. It owned 70% of the entire mainframe market, controlled 95% of its profits, and had long dominated the industry. Yet disaster famously ensued, as Intel and Microsoft subsequently captured the lion’s share of the computer industry’s profits, and Big Blue entered a decade of decline.

It’s easy to look back and ask, “What were they thinking?” but, in truth, IBM’s decision fit well with prevailing orthodoxies, particularly with the idea that companies should outsource all but their core competencies—that is, sell ...

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