Heskett Column - Built to last or bought to sell SUM UP

Creative Destruction: Back to the Drawing Board?

The authors of a recently-published book, Creative Destruction, have more work to do to convince our readers of their primary argument that creative destruction, based on an assumption of discontinuity, is a more effective management principle than operational excellence, borne out of an assumption that continuity is more desirable. The problem apparently has much to do with the narrow definition of success, the ability to outperform the stock market that the authors use as the primary criterion for their study.

Jonathan Pinto commented, "An assumption of continuity does not preclude considering the option of knocking down and starting all over again if that's what is best for the business ... (but) Kaplan & Foster [authors of the book] seem to be recommending destruction for its own sake."

Readers also took issue with another shortcoming in the "creative destruction" research. As Devdip Ganguli put it: "The sphere of influence of companies goes beyond themselves and their investors: their decisions encompass social and environmental consequences too. Therefore to say that the ultimate measure of performance is total return to the investor shows a lack of perspective ... While it may be true that the cycle of change is faster today than before and companies have to adapt to it more efficiently and quickly, it would be unwise to submit ourselves to the ideal of creative destruction." Ashok Nayak put it most succinctly: "And what about social responsibility?"

In summary, there seems to be a strong feeling here that if creative destruction is what it takes to outperform the market over long periods of time—the objective measure used for the study—it may not be worth all the costs. It raises once again the debate stimulated by advocates of agency theory over the past two decades. And it brings to mind the old Milton Friedman axiom that the business of business is to make money (presumably more than the average for the market and for long periods of time), thereby providing the means by which society can take of itself. What do you think?