Creative Destruction – Richard Foster, Sarah Kaplan
Corporations need to change the pace and scale of the capital markets in order to stay competitive. This is accomplished not only by creating new businesses and products but also by paring off functions that no longer facilitate growth.
In this book, the authors use historical data to demonstrate how this theory of creative destruction plays out in capital markets.
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The gale of destruction
Change necessitates a shift in our mental models. However, it can take a long time for businesses to overcome cultural lock-in. The psychological process of adjusting to corporate change is similar to that of adjusting to a terminal illness.
There is an emotional sequence that includes denial, anger, bargaining, depression, and acceptance, and these emotions interfere with the ability to accurately analyze a situation. Poor decisions are the result.
Living in a constant state of flux
People should plan their lives so that they have the tools they need to be professionally successful in a world that is constantly changing.
Destruction, like innovation, can be incremental, significant, or transformational. Companies are constantly subjected to incremental change.
Transformational destruction transforms the entire organisation, resulting in permanent change.
Balancing destruction and creation
Most businesses begin with a lot of creative energy. They eventually become more rational and make decisions based on careful consideration.
Companies should devote some of their attention to innovation and destruction as they mature and focus on operations. Some businesses move too quickly and end up hurting themselves, but moving too slowly is just as dangerous.
Continuity vs. Discontinuity
Companies believe that continuity is the name of the game when, in fact, discontinuity is the name of the game.
The trick is to strike a balance between continuity and change, as well as to pursue both destruction and creation at the same time. People in the company, the board, and the shareholders will, predictably, resist the destruction of legacy products and departments, at least until it is clear that the strategy is profitable.
Designed to Change
Companies must act like the market in order to survive in this rapidly changing environment. They must not only change as quickly as the market, but they must also broaden their decision-making processes to include more of the company’s collective wisdom.
Businesses should maintain multiple mental models at the same time. After all, there is more than one thing going on in the market at any given time.
Leading to Creative Destruction
Routine often takes precedence in management committees. Their mission, they believe, is to keep operations running smoothly. They don’t take any initiative of their own.
Managers must understand the environment in order to identify opportunities and risks. They must understand where the market is headed, but forecasting future consumer behaviour is difficult.
Increasing Creation by Tenfold
Companies that want to remain innovative must master divergent thinking. This is the key to being creative. The goal is to generate new ideas at the market’s pace and scale. It is a process of identifying unmet needs and possible solutions. It also helps to look to the outskirts for new ideas, observing what competitors on the edges of your market are doing. Typically, innovation occurs on the periphery.
Change Vs Continuity
Change will occur if it is deemed more valuable than continuity. Venture capital firms are one type of organisation that embraces change.
Leadership is essential for striking a balance between continuity and change. Leaders can help set the pace and scale of change, ensuring that it corresponds to the market’s rate and scope of change.
How To Make Company Changes Work: Part 1
Decide what you want to measure and control. Any organisation has different levels, and each level must be empowered to make a change.
Control and measure the right things. Don’t wield power simply because you can.
Ensure that information systems are as adaptable as possible. Make an effort to be agile.
How To Make Company Changes Work: Part 2
Allow for more experimentation. The corporation should allow for the exploration and pursuit of goals that correspond to the market’s pace and scale.
In order to encourage permission-giving, use incentives. Taking risks, even if they don’t pay off, should be encouraged. Be forgiving of errors.