by Richard Foster, Sarah Kaplan
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Product Description
Turning conventional wisdom on its head, a Senior Partner and an Innovation Specialist from McKinsey & Company debunk the myth that high-octane, built-to-last companies can continue to excel year after year and reveal the dynamic strategies of discontinuity and creative destruction these corporations must adopt in order to maintain excellence and remain competitive.
In striking contrast to such bibles of business literature as In Search of Excellence and Built to Last, Richard N. Foster and Sarah Kaplan draw on research they conducted at McKinsey & Company of more than one thousand corporations in fifteen industries over a thirty-six-year period. The industries they examined included old-economy industries such as pulp and paper and chemicals, and new-economy industries like semiconductors and software. Using this enormous fact base, Foster and Kaplan show that even the best-run and most widely admired companies included in their sample are unable to sustain their market-beating levels of performance for more than ten to fifteen years. Foster and Kaplan's long-term studies of corporate birth, survival, and death in America show that the corporate equivalent of El Dorado, the golden company that continually outperforms the market, has never existed. It is a myth.
Corporations operate with management philosophies based on the assumption of continuity; as a result, in the long term, they cannot change or create value at the pace and scale of the markets. Their control processes, the very processes that enable them to survive over the long haul, deaden them to the vital and constant need for change. Proposing a radical new business paradigm, Foster and Kaplan argue that redesigning the corporation to change at the pace and scale of the capital markets rather than merely operate well will require more than simple adjustments. They explain how companies like Johnson and Johnson , Enron, Corning, and GE are overcoming cultural "lock-in" by transforming rather than incrementally improving their companies. They are doing this by creating new businesses, selling off or closing down businesses or divisions whose growth is slowing down, as well as abandoning outdated, ingrown structures and rules and adopting new decision-making processes, control systems, and mental models. Corporations, they argue, must learn to be as dynamic and responsive as the market itself if they are to sustain superior returns and thrive over the long term.
In a book that is sure to shake the business world to its foundations, Creative Destruction, like Re-Engineering the Corporation before it, offers a new paradigm that will change the way we think about business.
Amazon.com
Striving for excellence or building to last is one thing. Sustaining superior performance over the long haul is another matter entirely, as longtime McKinsey & Company executives Richard Foster and Sarah Kaplan persuasively point out in Creative Destruction. Based on a concept first advanced some 70 years ago by economist Joseph Alois Schumpeter, Foster and Kaplan propose that corporations can outperform capital markets and maintain their leadership positions only if they creatively and continuously reconstruct themselves. In doing so, they can stay ahead of the upstart challengers constantly waiting in the wings. The decidedly radical paradigm that they champion has been urged in one form or another by others since Schumpeter, but this effort is particularly convincing because of the massive research the authors cite to back it up: McKinsey studies of more than 1,000 corporations in 15 industries over 36 years. Citing the specific reasons behind ups and downs at firms such as Storage Technology, Intel, Johnson & Johnson, and Corning, Foster and Kaplan claim that the process of creative destruction must become an integral part of today's corporations from top to bottom if they truly hope to attain lasting excellence (and beat Wall Street's primary indices for more than a few fleeting years). Firms that have mastered elements of this practice have done so by innovatively shedding detrimental processes and operations while cleverly spotting and appending those that add new value. The authors write that the "key to their success is the balance they have struck between creativity and destruction--between continuity and change." Their book offers impressive insight into the acts of both breaking down and building up. If its analyses of past performance mean anything, it should prove very interesting to savvy managers as well as long-term investors. --Howard Rothman
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Average Customer Review:
1 of 1 people found the following review helpful:
 Not, in the end, a compelling read, 2007-01-01
The book starts of reasonably well. Its general themes explaining why large companies tend to behave in ways that make them less effective at responding to change than the market are well described. As the book tries to show examples of companies that did or did not respond well to the forces of change in business they lose their way. Not only do they extol a number of companies seemingly purely because they were founded by friends from McKinsey, they also use Enron as a successful example! Too many of their examples have not done well since the book was published and that undermines their message. The book also lacks concrete advice, though I must confess to skimming towards the end.
My takeaway? The market as a whole will ALWAYS innovate more effectively than any company so get over it and be prepared for companies to come and go and change constantly. There's not much, if anything, you can do about it.
1 of 1 people found the following review helpful:
 Captialism Is Ruled by the "Gale of Creative Destruction" , 2006-03-11
This is an unbelievably well-written delineation of the state of captialistic economy. 'Creative Destruction' refers to the force behind the expanding capitalistic empire. It is a phrase coined by Joseph Schumpter in the 30's. Business leaders of today that get caught in cultural lock-in will fail tomorrow. A business needs to transform and re-evaluate itself against the currents of the constantly changing market, or fall as prey to those that do. Old-time rates of change were much slower and seemed to give credence to pure branding and operations quality over innovation. However a closer look will reveal that these companies averaged only a sixty year lifespan. Modern companies on the S&P 500 are only averaging a ten year lifespan due to the accelerating rates of change. This is an age of discontinuity. There is no longevity to the conservatism of yesterday.
This book explores the ways of creative thinking... how to foster it... and what fear mechanisms destroy it in the upper levels of corporations. It gives ideas on how to evaluate affiliations and acquisitions.
On a humorus note, Enron is cited as an example of success based on this approach. They are quoted 'we hire smart people and pay them more than they think they are worth.' and there are 'no punishments for trying (risking).' Seems like it is always best to be careful who you let guard the cookie jar.
Truly a great read by the highly respected Senior Partner and Director of McKinsey & Co.
Five Super Stars
1 of 1 people found the following review helpful:
A solid , thought-provoking book on Business Innovation, 2004-06-17
Foster's previous work - Innovation, the Attackers Advantage, is a masterpiece, and this follow up is an excellent read. An interesting observation at the start contrasts a company trying to excel and innovate, and the market as a Darwinian force, ruthlessly selecting the `best' irregardless of past performance. The message is the same, stark reminder as Clayton Christensen's - past excellence is no guarantee of future survival. Having delivered this baleful message, the book distinguishes between typical management techniques - measurement, control, which leads to operational excellence [called convergent thinking], and the type of observation, reflection and debate [called divergent thinking] which may lead to innovation.
The book outlines methodologies which can be used to attempt to combine both convergent and divergent approaches within a firm. The book therefore takes one step further than Clayton Christensen's suggestion of setting up a separate entity to pursue a specific `blue sky' set of ideas. However it in no way underplays the seriousness of the threat of new product or new product cycles to the incumbent, successful corporations - indeed some of the examples given in the book as successes (Cisco, Corning) have since gone through major traumas in subsequent product and economic cycles. The book seems to take explicit aim at Collin's book `Built to Last', saying that companies which have been longest in the Fortune 500 have underperformed the market - and expands this theme that the market, by having no emotional link to firms, will pick winners and punish the slow remorselessly. From an investors point of view, my interpretation of Foster's guidance would be to periodically pick the top performers in an index and sell those which don't make it to the top, regardless of past position; my interpretation of Collins is that eventually the tried and trusted firms win out.
I think my money would be on Foster. However in terms of management thinking Foster is definitely in the Thomas Kuhn, Giovanni Dosi, Clayton Christensen, Geoffrey Moore tradition of the intense difficulty of managing to be customer focused, operationally excellent and innovative simultaneously.
1 of 2 people found the following review helpful:
How to destroy businesses and not destroy your career?, 2003-04-18
One good thing about books written by McKinsey people is that if they write something, it's gonna be smart. Because otherwise they just keep the silence.
And this book is not an exception to this rule. Whilst the readers could find the idea of a permanent review and renovation of a corporate businesses portfolio fairly old and discussed so many times in books of Drucker, Schumpeter and other authors, there're some issues which make reading of "Creative Destruction" worth the time.
First, unlike two previously mentioned famous gentlemen, Foster and Kaplan bothered themselves with sizable stock market data research and analysis. This approach should really become a standard if we ever want to see organizational behavior and corporate strategy to become scientific disciplines and not a genre of fiction literature with well-known set of rules "how to write more or less good novel".
Second, even readers very familiar with literature about corporate strategy and portfolio analysis methods could find some profound insights on these 350 pages - may be different ones for different people. For example, a clearly stated paradox between operational excellence and innovation definitely deserves thinking about, since it's just so easy to say: "Yes, we need both - tight controlled low cost operations AND creative business development" or "We need to build the great team committed to the corporation AND sometimes we need to kick a part of the team out just to ensure great stock returns", - but isn't it the same as requiring water to become dry at certain moments, convenient for the observers? Bad thing. Do not expect to find in the book an answer to the question, stated at the very beginning. As well as where to find the businesses worth investing to. The authors do not know. Or they do not say - may be just to give to the reader an idea to invite McKinsey to think together about these issues in corporate HQs.
10 of 12 people found the following review helpful:
 Doesn't deliver what it promises, 2002-07-04
This book takes some interesting insights from economist Joseph Schumpeter (who coined the term "creative destruction") and leadership expert Ron Heifetz and then goes on to make overly broad generalizations from them, supported by an extensive but questionable data analysis. The authors go on at length about the size and scope of the McKinsey corporate database that provides much of the backbone for the book's conclusions, but anyone who studies excellence or best-practices knows that you dont learn much about them by studying large, general samples; in fact, such samples are designed to rule out the exceptions. (And I'll just overlook the fact that Enron is one of the exceptional performers they highlight.) At bottom, the book fails to deliver on either of the promises in its subtitle. The primary reason seems to be that little of it is drawn from practical experience with exceptional companies. Despite its scope, the McKinsey database doesn't really answer, from a management point of view, why most companies have underperformed. (Although less systematically presented, you can get more wisdom from a practitioner's book like Tom Kelly's "The Art of Innovation.") This is most obvious as the book moves into suggestions for "how to change" these companies: neither the suggested methodology for strategic planning nor the successful case examples provide anything more than some basic, general ideas that have been better covered elsewhere in the organizational development and management literature. The subtitle also suggests that the book presents a refutation of the arguments for corporate sustainability that Collins and Porras gave in "Built to Last". Interestingly, Foster and Kaplan disdain to address that book directly or even cite it, except in a buried footnote. This is unfortunate because they present data on some of Collins' and Porras' profiled companies that suggest they have performed far more poorly than "Built to Last" would lead you to believe; it would have been helpful to understand who was overstating what. Collins and Porras also stress in detail that built-to-last companies "preserve the core / stimulate progress"; it is not clear that "creative destruction" differs from this in any significant way. In sum, the issue of how to create long-term value will still be a big question when you've finished reading this book. It is interesting to note, as the authors are current and former McKinsey consultants, that a majority of the underperformers in their database are McKinsey clients. If these companies failed to turn around after investing in McKinsey advice, what is the likelihood that anyone else will do it from ideas they got reading a book?
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