Table Of ContentMore Praise for Creative Destruction
“In the tradition of Beat the Market and A Random Walk Down
Wall Street, Creative Destruction blows holes in the conventional
wisdom about management, corporate cultures, and the underpinnings
of a successful corporation. It argues a whole new paradigm for
survival and growth which hopefully will have a far-reaching effect on
the actions of boards, management, and investors going forward.
Foster and Kaplan are on to something profound.”
—Frank Biondi, Senior Managing Director, Waterview Advisors, Former
Chairman and CEO of Universal Studios, and President and CEO of Vicacom
“A provocative wake-up call for leaders.”
—Mike Masin, Vice Chairman and President, Verizon
“As this book with its long-term analysis makes clear: A
successful past is but an opportunity to build the future. The only true
winners are those that relentlessly drive innovation and change and
continually challenge organizational practices and culture.”
—Linda Robinson, Vice Chairman, Young and Rubicam
“A compelling road map for management to strike a necessary
balance between operational excellence and creative destruction.
Those who do not heed its advice to challenge conventional mind-sets
aggressively do so at their peril.”
—John Hagel, co-author of Net Worth and Net Gain: Expanding Markets
Through Virtual Communities
“Offers a clear blueprint for how corporations can modify their
thinking in order to remain competitive.”
—Pamela Thomas-Graham, Executive Vice President, NBC, President and
CEO, CNBC.com
“Reading Creative Destruction was like the scales were falling
off my eyes. I had had a mental cataract operation.”
—Robert McKinney, former U.S. Ambassador to Switzerland
“I spend a good deal of every week listening to business leaders
and economists from around the world discuss their writings and
experiences. This is the single most informative account of the eternal
battle between managers and markets, and it explains with intellectual
force and hard research why managers must prune their corporations in
order to survive the remorselessness of the market.”
—Leslie H. Gelb, President, Council on Foreign Relations
A CURRENCY BOOK
PUBLISHED BY DOUBLEDAY
a division of Random House, Inc.
CURRENCY is a trademark of Random House, Inc. and
DOUBLEDAY is a registered trademark of Random House, Inc.
Copyright © 2001 by McKinsey & Company, Inc. United States
This book was originally published in hardcover by Currency in 2001
Library of Congress has cataloged the hardcover edition as:
Foster, Richard N.
Creative destruction : why companies that are built to last underperform the
market, and how to successfully transform them / Richard Foster and Sarah
Kaplan.—
p. cm.
eISBN: 978-0-307-77931-1
1. Organizational change. 2. Strategic planning. 3. Technological innovations—
Management. I. Kaplan, Sarah, 1964–. II. Title.
HD58.8.F687 2001
658.4′06—dc21
00-065887
All Rights Reserved
All Trademarks are the property of their respective companies.
v3.1
To my youngest son, Thomas William Foster, for his energy, inquisitiveness,
sparkle, and infinite patience; to my wife Catherine for her unending,
unshakeable and enthusiastic support, confidence and patience; to my older sons:
Doug for his market insight and practical understanding, and Lucien for his
wisdom and counsel.
RNF
To my parents who set me on my path and to my sisters who have traveled with
me along the way.
SK
Contents
Cover
Title Page
Copyright
Dedication
Acknowledgments
Introduction: The Game of Creative Destruction
CHAPTER 1: Survival and Performance in the Era of Discontinuity
CHAPTER 2: How Creative Destruction Works: The Fate of the East
River Savings Bank
CHAPTER 3: Cultural Lock-In
CHAPTER 4: Operating vs. Creating: The Case of Storage
Technology Corporation
CHAPTER 5: The Gales of Destruction
CHAPTER 6: Balancing Destruction and Creation
CHAPTER 7: Designed to Change
CHAPTER 8: Leading Creative Destruction
CHAPTER 9: Increasing Creation by Tenfold
CHAPTER 10: Control, Permission, and Risk
CHAPTER 11: Setting the Pace and Scale of Change
CHAPTER 12: The Ubiquity of Creative Destruction
Appendix A: List of Companies
Appendix B: Managerial Approach of Principal Investors
Appendix C: Dynamic Performance Analysis (DPA)
Notes
Selected Sources
About the Authors
Acknowledgments
“Creative Destruction” is the result of over a decade of research, sponsored by
our colleagues at McKinsey & Co. and our clients. First and foremost, we would
like to thank all of them for their support and counsel during this period.
While many colleagues have contributed time and thought to the arguments
put forth in this book, some deserve special mention. First on the list is Peter
Walker, the Managing Director of our New York Office. Pete has been a steady
supporter of the effort since it earliest days. His path remained steady, even
when it was not clear that we were still on the scent. Without his long-term
support, this enterprise would not have succeeded.
As the work has moved along, others have played key roles in keeping the
effort alive and the standards high. They include Rajat Gupta, Herb Henzler, Ian
Davis, Bill Meehan, David Meen, John Bookout, Steve Coley, Mike Nevens,
Bruce Roberson, Ron Hulme, Tim Koller, Bill Fallon, Ron Farmer, Peter
Freedman, Anton von Rossum, Andreas Beroutsos, Eric Lamarre, Michael
Silber, Jessica Hopfield, Endre Holen, Hugh Courtney, Kathleen Hogan, Bill
Pade, Peter Bisson, Larry Kanarek, Suzanne Nimocks, and Kevin Coyne.
Several of our friends in academia have made strong and steady contributions
to our thinking over the years. They include Tim Reufli from the University of
Texas, David Campbell from the University of Illinois, Martin Shubik, Will
Goetzmann, and Stan Garstka from Yale, Ronel Elul from Brown, Joe Bower,
Clay Christensen and Teresa Amabile from Harvard Business School, Ron
Heifetz from Harvard’s Kennedy School of Government and Mihalyi
Csikszentmihalyi formerly of the University of Chicago (now at Claremont
Graduate University).
Early readers and advisors included Brian Arthur and Eric Beinhocker, both of
whom took enormous time to think through and comment on the strengths and
weaknesses of our ideas.
Early McKinsey contributors to the effort included Karen Barth, Vince
DePalma, Carl Hanson, Anna Slomovic, Bro Uttal, and Lily Zaidman. They
helped in taking the earliest ideas and turning them into something tangible.
Chip Hughes and Kenneth Bonheure conducted early explorations into the
practical implications of our work as they turned our abstract ideas into useful
tools for day-to-day life.
On the operating level, Shishir Shroff began working on the Performance
Database that forms a critical part of our analysis while a graduate student at
NYU Stern School of Business in the early ’90s. Little did he suspect that the
task might turn into a career, but it has. To this day, there is no one who
understands more about the database and its construction than Shishir, who now
is a Practice Specialist with our Corporate Finance and Strategy practice in our
New York Office. In the early days Shishir worked under the guiding hands of
Michael Allison and Mike Ghenta. Robin Tsai, one of the best statistical analysts
that either of us ever have known, provided expert advice on what was knowable
and what was not, along with insightful early statistical analyses. Later we had
sustained contributions from Larry DiCapua, Tom Ball, and Ravi Chanmugam.
Ajay Shroff, now at Harvard Business School, undertook the job of rebuilding
and updating the McKinsey Performance Database after the first efforts clearly
showed that it would be valuable. Ajay brought enormous clarity to the effort.
After the data were clearly portrayed, Christopher Baldwin and Robert Reffkin
came on to write the key case studies which put a human face on the data. Their
deep digging, unimpeachable standards for completeness, and strong writing
skills will be seen in many chapters which follow. In the early days Anne Biondi
provided expert bibliographic summaries and catalogs. Cara Davis provided
continual facts for all phases of the book’s preparation, gave us expert literary
advice, and found accurate answers and arcane facts to address our endless
questions. Without Cara there would be no book.
As we worked out the details, many colleagues have made substantial
contributions. Steven Abernethy, now chairman of Transecure, and Qiang (John)
Feng did yeoman’s work interpreting the early results of the database four years
ago. Paul Brown-Kenyon, Jurgen Kaljuvee, Rajini Sundar, and Antony Blanc
did early case studies. After the initial data showed some surprises, Christian
Weber and Stephan Leitner from our German offices provided intellectual
leadership in interpreting why the anomalies occurred. Their early work found
clues to future interpretations that proved reliable. Subsequently, Toshi Moghi
and Nick Robinson did strong work in developing automated ways of displaying
the data so that mere mortals could understand almost four decades of data for
over one thousand companies. Somu Subramaniam was a constant guide to when
we were on the right and wrong tracks.
Our work to understand the long-term record of company performance grew
out of our practical experience with our clients. One client in particular stands
out as the foremost source of our insights, Johnson & Johnson. We would like
therefore to recognize our debt to our clients and friends, Ralph Larsen, Robert
Wilson, Roger Fine, Bill Weldon, Jim Lenehan, Russ Deyo, Bob Darretta,
