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Creative Destruction: A Six-Stage Process for Transforming the Organization

1 rating: 5.0
A book by Richard L. Nolan

Managers in today's information economy are searching for a new set of principles to help them transform their organizations from traditional hierarchical structures to more flexible IT-enabled networks. Creative Destruction unveils a blueprint for applying … see full wiki

Tags: Books, Cafe Libri
Author: Richard L. Nolan
Publisher: Harvard Business Press
1 review about Creative Destruction: A Six-Stage Process...

Create It with Rigor and Passion or....

  • Apr 13, 2001
Rating:
+5
There are three recent publications with the same title (Creative Destruction) whose authors correlate Joseph Schumpeter's concept of "creative destruction" with the contemporary business world. Foster and Kaplan explain "why companies that are built to last underperform the market -- and how to successfully transform them" whereas in their work, Nolan and Croson offer "a six-stage process for transforming the organization." In the third volume co-edited by McKnight, Vaaler, and Katz, various authors and co-authors of 13 anthologized essays examine various "business survival strategies for the global Internet economy." I highly recommend all three volumes as well as two of Schumpeter's works: Capitalism, Socialism and Democracy, and, Essays: On Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism.

As already indicated, Nolan and Croson present and explain a "six-stage process for transforming the organization" at a time when there are extraordinary demands upon today's executives. For example, they must have or quickly gain mastery of new information technologies, new organizational structures, and managing a new dominant sector of employment: professional entrepreneurs. Worse yet, they confront what the authors characterize as "four main sources of inertia": business as usual, IT that locks in "business as usual", not evolving into an IT-enabled organizational structure, and finally, workers who are not going to fire themselves. What to do? In Chapter One, the authors recommend 20 information economy management principles, half of which have been "salvaged" from the industrial economy. (See Exhibit 1-2 on pages 16-17.) Then in Chapter Two, they introduce what they call "The Six Stages of Creative Destruction": Downsize!, Seek Dynamic Balance, Develop a Market-Access Strategy, Become Customer Driven, Develop a Market-Foreclosure Strategy, and finally, Pursue Global Scope. The authors devote a separate chapter to each of these "Stages", explaining with eloquence as well as practicality HOW to complete what is indeed an immensely difficult process.

It is important to keep in mind that Schumpeter was an advocate of "dynamic disequilibrium": entrepreneurship is the rule, NOT the exception. Entrepreneurs (by nature) engage in a process of creative destruction as they challenge what O'Toole characterizes (in Leading Change) as "the ideology of comfort and the tyranny of custom." They dismantle the old order of economic activity (technological, organizational, and managerial) and simultaneously invent and build a new one. Nolan and Croson are quite correct when suggesting that "creative destruction" must be driven by an entrepreneurial spirit but also requires leadership and management skills of the very highest order.

In the final chapter, the authors suggest that an organization's starting point when embarking on "The Six Stages of Creative Destruction" determines which of two scenarios to follow: "The first, and easiest, takes an organization from a hierarchy with an established, but still informal, shadow network, to a fully IT-enabled network organization....A second transformation scenario, rather more difficult that the first, takes a traditional functional hierarchy directly to a fully IT-enabled network organization, without passing through the shadow network to rest." ABB, ADP, AT&T, FedEx, GE, General Mills, Intel, Microsoft, Motorola, Morgan Stanley, and PepsiCo are among the corporate organizations which have successfully completed "The Six Stages of Creative Destruction", transforming themselves to become viable information economy competitors. They have exhibited extraordinary discipline in the consistency and efficiency while doing so. Although the authors cite major organizations such as these to illustrate key points, my own opinion is that, with appropriate modification, "The Six Stages of Creative Destruction" can also help small-to-midsize organizations to transform themselves as well.

For executives in all manner of organizations, the Appendix ("What Size Is Right? A Theory and Simulation of Firm Design") may be one of the most useful sections in the book. For example, after having observed theoretical organizational behavior under a variety of assumptions over hundreds of situations, Nolan and Croson gained "some interesting insights" into how technology and organization "gradually combine in the downsizing process." They derived these principles which can guide and inform executives: (1) :The lion's share of gains comes from revolution, not evolution (NOTE: Hamel's Leading the Revolution as well as Evans and Wurster's Blown to Bits strongly support this principle.); (2) "Mixed span of control means more revolutions"; and (3) "Random technology means more revolutions." Now more than ever before, incumbent organizations must adopt and then integrate technology ASAP to maintain their competitive advantages. And that adoption must be completed with both rigor and passion as the velocity of creative destruction accelerates globally at a rate Schumpeter could not possibly have envisioned 40-50 years ago.

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