Sunday, August 15, 2010

Outside Reference

Creative Destruction - Why Companies That Are Built to Last Underperform the Market – And How To Successfully Transform Them
Doubleday/Currency, 2001
Richard Foster and Sarah Kaplan

Creative Destruction offers a radical new proposition: The most exceptional, enduring corporations cannot continue to beat the capital markets indefinitely. In order to continue to maintain excellence and remain competitive, they must adopt the dynamic strategies of discontinuity and creative destruction.
Foster and Kaplan, drawing on research they've conducted at McKinsey & Company on more than 1,000 companies in 15 industries, show that even the best-run and most widely admired companies are unable to sustain market-beating levels of performance for more than 10 to 15 years. They write: "Corporations are built on the assumption of continuity; their focus is on operations. Capital markets are built on the assumption of discontinuity; their focus is on creation and destruction. The data present a clear warning: Unless companies open up their decision-making processes, relax conventional notions of control, and change at the pace and scale of the market, their performances will be drawn into an entropic slide to mediocrity."
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 have enabled them to survive over the long haul, deaden them to the vital and constant need for change. What will be required are more than simple adjustments for these corporations.  Foster and Kaplan explain how companies like Johnson & Johnson, Corning, and General Electric overcome cultural "lock-in" by transforming rather than incrementally improving their companies. In order to continue their success, these companies create new businesses and sell off or close down businesses or divisions whose growth is slowing. They also abandon outdated, ingrown structures and rules and adopt new decision-making processes, control systems, and mental models.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.

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