Richard Foster - Creative Destruction: Why Companies That Are Built to Last Underperform the Market--And How to Successfully Transform Them

More Praise for Creative Destruction

Frank Biondi, Senior Managing Director, Waterview Advisors, Former Chairman and CEO of Universal Studios, and President and CEO of Vicacom

Mike Masin, Vice Chairman and President, Verizon

Linda Robinson, Vice Chairman, Young and Rubicam

John Hagel, co-author of Net Worth and Net Gain: Expanding Markets Through Virtual Communities

Pamela Thomas-Graham, Executive Vice President, NBC, President and CEO, CNBC.com

Robert McKinney, former U.S. Ambassador to Switzerland

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 innovationsManagement. I. Kaplan, Sarah, 1964. II. Title.
HD58.8.F687 2001
658.406dc21
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

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 Harvards 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 books 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 yeomans 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.