“When the wind of change blows, some build walls, while others build windmills.” — Chinese Proverb
When change is thrust upon us, we react in several predictable ways. This is true for industries, organisations, and individuals.
Reaction 1: Stick our head in the sand and hope it all just goes away.
Reaction 2: Fight disruption with regulation and/or legal action.
Reaction 3: Embrace the change and use it as fuel.
Reaction 4: Use forces of change to shape our future.
The pace of change is relentless, and it will continue to accelerate. Today is the slowest day of all our lives, the only way to wrestle back control is to create our futures by using the winds of change to empower us. That is the theme of this Thursday Thought.
The Gale of Creative Destruction
“Every act of creation is first an act of destruction.” — Pablo Picasso
The phrase “Creative Destruction” sometimes known as “Schumpeter’s gale”, is a concept in economics accredited to Austrian economist Joseph Schumpeter. According to Schumpeter, the “gale of creative destruction” describes the “process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. Simply put, with the creation of new value, businesses and business models comes the destruction of the previous system. The destruction of the old may happen quickly or may be a painfully long kiss goodnight, drawn out by downsizing, automation, debt refinancing and ultimately death. With every growth of the new order comes the destruction of the old.
I had the honour to deliver a keynote talk just before Sir Bob Geldof last week. My talk focused on disruption and the need for all of us to reinvent in permanence. Bob spoke of the mass disruption he witnessed in the music industry. “In 1979, it took 680,000 album sales to deliver a number one selling record. Today it only takes 10,000 sales (and they are not physical records)” Bob explained, “Think about it, 680,000 sales meant people spending their hard-earned pocket money, getting on a bus (bus fares), going into a physical record store (employment of staff) and buying a physical record (vinyl manufacturing, sleeve designers and paper and plastic sleeve). While the “creation” of a digital music file spells progress on one hand, it spells the “destruction” of the record store on the other.
This applies to all domains of progress, take driverless cars for example.
Winners (creation): consumers, the platforms (Free Now, Uber, Lyft), gig economy workers
Losers (destruction): taxi companies, drivers, car wash workers, small mechanic businesses, car manufacturers and some we cannot predict such as petrol/gas stations?
Today’s cycles of disruption are accelerating at an unprecedented pace. Industries and organisations are toppling quicker than they ever did before. Once a business reaches the top of one summit, they find themselves at the bottom on another, with a business landscape that does not resemble the one they understood when they embarked on their climb.
In their 2018 Corporate Longevity Forecast, Strategy and Innovation consultancy Innosight (discussed on the Innovation Show with Innosight’s Scott D. Anthony) forecasts the average tenure of S&P 500 companies to continue to grow shorter over the next decade. Innosight hold that the 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and forecast it will shrink to just 12 years by 2027. This spells accelerated creative destruction in the coming decade.
When the winds of change are so strong, the only way to survive is to expect the change, therefore, it does not take you by surprise. Understanding creative destruction enables you to harness it and spot opportunities, it means you can be proactive rather than reactive. It can be very difficult for a legacy organisation to let go of the both mental and business models that got the business to where it is today. We become wedded to our successes and forget the entrepreneurial DNA that powered the business to success in the first place.
Resisting the gales of creative destruction will ultimately lead to death. Embracing these gales means repositioning today’s business to maximise its resilience while IN TANDEM creating a new growth engine which embraces the seismic shifts in the business landscape. Building walls only buys us limited time before we will eventually die. Building windmills is a different mindset, it is a way of being and it is essential to survive as organisations, industries and individuals.
There is a Japanese proverb that sits nicely with the Chinese proverb I opened with. In these times of VUCA (Volatility, Uncertainty, Complexity and Ambiguity) it has never been more relevant. It says “The flatter the structure, the better it stands in the wind.” I share that quote to highlight that it is no longer enough to have a human approach to creative destruction, our organisational design much evolve too. The days of organisational command and control are limited, they stifle creativity, they stifle progress and they stifle humanity
THANKS FOR READING
To explore these concepts further, have a listen to Episode 201 “Dual Transformation: How to Reposition Today’s Business While Creating the Future with Scott D. Anthony”
In his new book, he proposes a practical and sustainable approach to one of the greatest challenges facing leaders today: transforming your business in the face of imminent disruption.
Dual Transformation shows us how a company can come out of a market shift stronger and more profitable, because the threat of disruption is also the greatest opportunity a leadership team will ever face. Disruptive change opens a window of opportunity to create massive new markets. It is the moment when a market also-ran can become a market leader. It is the moment when business legacies are created.
That moment starts with the core dual transformation framework:
- Transformation A: Repositioning today’s business to maximise its resilience, such as how Adobe boldly shifted from selling packaged software to providing software as a service.
- Transformation B: Creating a new growth engine, such as how Amazon became the world’s largest provider of cloud computing services.
- Capabilities link: Fighting unfairly by taking advantage of difficult-to-replicate assets without succumbing to the “sucking sound of the core.”
Scott with his co-authors Clark Gilbert, and Mark Johnson address the characteristics leaders must embrace: courage, clarity, curiosity, and conviction. Without them, dual transformation efforts can flounder.
Kodak, Nokia, Xerox, Netflix and Microsoft.
Scott pays homage to the late and great Clayton Christensen
and we discuss what skills we all need to ride the gale of creative destruction
Have a listen:
More about Scott here: