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Creative Destruction: Why Companies That Are Built to Last Underperform the Market--And How to Successfully Transform Them Hardcover – April 3, 2001

3.9 out of 5 stars 25 customer reviews

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Editorial Reviews

Amazon.com Review

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

From Publishers Weekly

In this painstakingly researched, well-documented work, Foster (Innovation: The Attacker's Advantage, 1986) and Kaplan argue that one of the fundamental tenets of American business that a company must be designed to stand the test of time is seriously flawed. Building off the ideas of economist Joseph Schumpeter, who argued in the 1930s and 1940s that capital markets weed out underperformers so that new firms can take their place, Foster and Kaplan contend that once they are successful, companies tend to institutionalize the thinking that allowed them to thrive. However, they say, markets now change too quickly for traditional management structures to keep up. Rather than aiming for continuity, companies should embrace discontinuity, they argue, constructively destroying and re-creating themselves as needed. Aspects of this idea have been proposed for nearly 15 years by authors like Tom Peters and Andy Grove, but Foster and Kaplan's extensive research, drawing on analysis of more than 1,000 companies over four decades, have moved the argument beyond rhetoric. Their prescriptions for forward-looking management increase the pace of change within organizations, open up the decision-making process and relax conventional notions of control are not as fresh as the rest of their argument. But there is no doubt that Foster, a senior partner and director at the consulting firm McKinsey & Co., and Kaplan, a former McKinsey employee who is now a doctoral student at M.I.T., have raised significant questions about how organizations should define long-term success. (May)Forecast: A four-city author tour and print advertising campaign may help attract attention to this book, but it's more likely to be talked about than bought or read.

Copyright 2001 Cahners Business Information, Inc.


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Product Details

  • Hardcover: 384 pages
  • Publisher: Broadway Business; 1 edition (April 3, 2001)
  • Language: English
  • ISBN-10: 0385501331
  • ISBN-13: 978-0385501330
  • Product Dimensions: 6.2 x 1.5 x 9.1 inches
  • Shipping Weight: 1.4 pounds
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (25 customer reviews)
  • Amazon Best Sellers Rank: #1,204,042 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Donald Mitchell HALL OF FAMEVINE VOICE on April 6, 2001
Format: Hardcover
McKinsey partner Richard Foster and ex-McKinseyite, Sarah Kaplan, combine with an extensive McKinsey database of 60 variables about 1008 large U.S. companies from 1962 to 1998 in 15 industries to measure how the stocks of the companies did versus the S&P 500 and their industries. Since few such stocks outperformed, the authors conclude that large companies need to be better innovators, being more like new industry entrants funded by venture capital firms. The bulk of the book highlights their proposals for encouraging innovation . . . from the top down. Although the ideas may work, they seem counterintuitive and are not supported by any significant research base. The book takes dead aim against the notion that building a company that lasts for a long time is the proper objective. The notion of "built to last" is indirectly challenged here. The book develops a concept of taking Schumpeter's famous concept of how markets foster creative destruction and transferring that inside your company as an organizing principle.
The authors did not look at companies which were not large and those that were not "pure plays." So there is little in here about outstanding stock market successes among large companies like Tyco International and General Electric. Remarkable performers among foreign forms, like Nokia, are also missing.
The model operators are General Electric (I was surprised too, after they were left out of the quantitative study), Johnson & Johnson, Enron, Corning, L'Oreal (yes, I know they are a French company and are not in the quantitative study, also), Kleiner Perkins, and KKR. I guess there were so few good examples of what the authors wanted to share that they had to stretch to find them.
Almost everyone else is a negative example.
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Format: Hardcover
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".
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Format: Hardcover
Foster and Kaplan take dead aim at the "built-to-last" crowd -- the cluster of authors of a few years ago that trumpeted company longevity as the ultimate goal. Unfortunately for that crowd, "Creative Destruction" presents its case backed up by something the "built-to-last" case lacked -- comprehensive data -- and the data strongly suggest that companies built for longevity consistently under perform the market in shareholder value creation.
What is very clear from the data is that value creation is driven by innovation -- and the innovation tends to come from new entrants. This key point is a validation, through enhanced quantification, of Clayton Christensen's views on the problem of corporate incumbency. What is also clear is that the transition period between new entrant and incumbent is increasingly compressed. Fifty years ago an innovative new business model might have been good for above average returns of a couple of decades -- now perhaps five years is a more realistic outcome. There clearly are examples, though the exception rather than the rule, of companies reinventing themselves in the quest for superior value. Enron is such an example, as is Corning. Schwab is another example. Common characteristics of these re-inventors is that they try a lot of things and they fail a lot -- but they know how to manage the failures and they know how to really ride the winners.
This book should also give pause to any executive who, having recently witnessed the demise of many Internet-based models, is feeling more secure. The reality is that the first wave of barbarians may have been fended off, but they will be back, stronger and smarter than ever . . .
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