Is your company built to last? That is the question posed by a thought- provoking book written by Richard Foster and Sarah Kaplan. The book is Creative Destruction: Why Companies That Are Built to Last Underperform the Market and How to Successfully Transform Them (Currency Books, April 2001). One of the themes of the book is that companies are built with the assumption of continuity continuous operations. On the other hand, capital markets are built with the assumption of discontinuity easy creation of companies and then "remorseless" destruction of them when they are no longer able to compete. The result of these two opposing assumptions is that corporations are not able to create value at the pace and scale of the markets. Wow! It's true that the capital markets have indeed been removing weaker players at an ever-increasing rate. Take a look at the average lifetime of a company on the S&P 500. In the 1920s and 1930s, a new member of the S&P Index could expect to remain on the list, on average, for more than 65 years. The authors contend that "by the end of 2020, the average lifetime of a corporation on the S&P will have been shortened to about 10 years." Creative destruction is about capitalism in its purest form.
Creative Destruction seeks to expose "the inherent conflict between the need for corporations to control existing operations and the need to create the kind of environment that will permit new ideas to flourish." The key to survival is innovation. Innovation can enable a company to recreate itself, to shed businesses that don't add value and enter ones that do. For companies to survive, they definitely need to tend to operations and execute well there is no question about that. However, they need something more to create an ability to adapt to the new environment (whatever that ends up being).
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