Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
Creative Destruction is a landmark book that may have slipped past your radar. Year 2001 seems in many ways long gone, but the seminal findings and messages contained in this book are, if anything, more relevant in 2004 than they were when they were documented four years back. While the book may appear initially to be peripheral to those of us who are passionate and committed to develop our organisation's capability to learn, the more the reader delves into this book, the more central are its findings and tenants our area of contribution.
The core message that Foster and Kaplan deliver is that high performance built‐to‐last companies cannot continue to deliver year after year, for the capabilities that deliver continuous performance inhibit the discontinuities and creative destruction that these organisations must develop, if they are to maintain excellence and remain competitive. This runs against the prevailing wisdom of creating enduring features in organisations that seem timeless and permanent. In essence the challenge for corporate leaders is embedded in the paradox of walking and chewing gum: of delivering high performance whilst engaging in the organizational renewal that sustains success. The seeming paradox lies in the fact that the capabilities that deliver each of these contributions are contradictory, qualitatively different and create tensions that are difficult to reconcile, and it is the development and refinement of these capabilities that must intrigue and engage those whose contribution is the enhancement of organizational learning.
The authors' motivation for this book arose from the McKinsey Corporate Performance Data Base. This database and the findings from Foster's (1986) earlier book Innovation – The Attacker's Advantage, led the authors to conclude that during periods of discontinuity in industry structures and technology, attackers, rather than defenders, have the economic advantage. Yet, the attacker's advantage did not appear to be sustainable. Their success, while creating prime mover advantage, scale and other sources of competitive leverage, inevitably led to the development of organizational processes, and individual and collective mindsets that inhibited their capacity to capture new opportunities and to sustain the key features of an attacker; for attackers soon began to act suspiciously like defenders.
The authors rely on both individual case studies and extensive quantitative data sets to establish, explore and elaborate on their analysis and recommendations. They begin by challenging the assumption that all organisations should continue to exist. Their premise is that the very ideas of assuming permanence and continuity have in them to seeds of organizational demise. As they demonstrate “… in the long term, they do not create value at the pace and scale of the markets” (p. 9). The authors point to three central explanations for this phenomenon. First, the innovation that quickly creates value can be imitated or bested in the market, often by new entrants. Second, the market quickly learns how to value the innovative company and its initial high value is eroded back to the cost of equity for that industry. Third, the new entrant often falls prey to cultural lock in, complacency, and rapid increases in organizational complexity that derive from the growth than success can deliver.
How then can corporate leaders defy the vulnerabilities that success so often delivers? Foster and Kaplan have coined the phrase creative‐destructive to capture the essence of the challenge. This implies that the often immediate and pressing demands of delivering current performance (to meet the demands of analysts and shareholders) must now be balanced with the imperative to simultaneously develop new initiatives, business models, strategies, products and services and being prepared to stop or phase down existing activities. Yet, these imperatives unleash conflicting forces in organisations; and they often demand qualitatively different individual competencies and organizational capabilities which are difficult to reconcile and resolve.
Drawing from lessons learned in private equity firms, Richard Foster and Sarah Kaplan describe and explore how organisations can avoid the pitfalls of success (for example, deflecting the issues) and how they can develop both creative and destructive capabilities. At the heart of these capabilities is the application of both convergent and divergent thinking, and the balancing of control, permission and risk. They propose detailed steps that can be followed to develop the organizational capabilities that deliver the necessary balance.
Finally, they offer a framework and processes that create the opportunity for managers and members to learn individually and collectively how to create and destroy. They argue that conventional strategic and business level planning contain traps that protect the present rather than identify and unleash the future. They propose a design meeting as the starting point, suggest who should be invited to attend, how corporate leaders can identify issues and pose questions, and how participants can create agendas and processes that enhance the likelihood of successful renewal. In this context Johnson and Johnson is documented as a case study that demonstrates the framework, actions, processes and potential outcomes.
In summary, I would argue that anyone who has a central interest in making a contribution through organizational learning must read this book. First, it presents a rigorous and robust analysis and diagnosis of organizational success and decline. From this analysis the authors present a lucid and plausible point of view: our conventional wisdom about sustained organizational performance and success is flawed by our tendency to assume and aspire to continuity. Second, from this point of departure the authors present fresh insights into the tensions between performance, creation and destruction, or the discarding of patterns of thinking, organizational arrangements, or products and services that have outlived their usefulness. Third, the authors offer a framework, an agenda and processes that practitioners can use to build the necessary competencies and capabilities that offer opportunities for renewal and sustainable success.
If you missed the release of this book I commend it to you as a stimulating resource written by authors who would probably place themselves outside of the field of organizational learning. For this reason they offer fresh insights that not only will challenge our most basis assumptions about our knowledge base and thinking, but it offers practical ideas and tools that will enrich the reader's effectiveness.
Foster, R.N. (1986), The Attacker's Advantage, Summit Books, New York, NY.