Sep 07, 2011

Joe’s Journal: On Success and Creative Destruction

“Success always obsoletes the very behavior that achieved it. It always creates new realities. It always creates, above all, its own and different problems. It is not easy for the management of a successful company to ask, ‘What is our business?’ Everybody in the company thinks that the answer is so obvious as not to deserve discussion. It is never popular to argue with success, never popular to rock the boat. But the management that does not ask ‘What is our business?’ when the company is successful is, in effect, smug, lazy and arrogant. It will not be long before success will turn into failure.”

–Peter F. Drucker

The economist Joseph Schumpeter, a friend of the Drucker family, was also one of the most significant intellectual influences on the work of Peter Drucker. Schumpeter identified the process of “creative destruction” in market capitalism, a process that is triggered by entrepreneurial activity, which is itself essential for economic development.

[EXPAND More]Innovation tends to make obsolete the comparative advantages enjoyed by leading organizations, thus causing disruptions to companies and economies. It is hard to predict where the disruption will come from because it can come from inside or outside a specific industry. The products of organizations, therefore, tend to go through life cycles of growth, stagnation and decline represented by an “S” curve.

To survive and prosper, an organization should anticipate this process not only by abandoning unproductive products, processes and services but by rethinking its business when it is near the top of the “S” curve. At that point it has excess resources and can take the “hit” to earnings required to invest in new ventures. The company should ask, “What should our business be?” before the competition forces the company to take a defensive position.

In practice, it is hard to believe we have a problem when all is going well. But, the stubborn facts of competitive life tell us that problems are likely to be right around the corner. We should take preemptive action and innovate, even going so far as to “cannibalize” our successful products and services. For if we do not do this, our competitors will.

— Joe Maciariello  [/EXPAND]

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