The continuing enthusiasm for start-ups and their associated culture suggests that Joseph Schumpeter’s idea of Creative Destruction remains in vogue. Schumpeter suggested that the constant cycle of destruction of the old and creation of the new was the very essence of capitalism. And that innovators — entrepreneurs and start-ups — were its engine.
Though these days this idea is usually associated with free market ideologues, Schumpeter wasn’t quite so positive about its ultimate meaning. He believed that eventually Creative Destruction would destroy capitalism itself.
After all, he developed the idea through analysis of the works of Marx.
There’s an interesting debate to be had about whether Schumpeter was right. About whether without radical intervention, the ongoing automation revolution will ultimately make economies based on mass consumption unsustainable.
But with my applied hat on, I’m more interested in the short term. In efficiency and value.
So a question: are start-ups the best way to create new value?
Think about it.
Start-ups are necessarily new, small, hungry companies. We have seen over the years that established businesses are largely incapable of innovating at the same rate. Very rarely do they release a truly disruptive innovation. Once you are of a certain scale (and that scale doesn’t have to be very large in my experience), change becomes challenging.
Certainly, radical change of the nature that true innovation often requires.
So instead large companies defend their sandcastles for as long as their marketing machines and lobbyists can hold back the tide.
Eventually of course, those empires of sand get washed away and a new entrant starts to build their own.
My problem with this, is that the new empires look very much like the old. Sure, the new entrant will do some things differently. They might have a different culture, better technology, a stronger brand. But so many of the fundamentals of the business are the same: capital, HR, finance, customer relationships.
Knocking these things down only to build them back up again just seems incredibly wasteful.
So what’s the alternative? We solve the change problem.
Imagine you could put an established business into a permanent ‘Phoenix State’, in which it goes through constant reinvention. Always rising from its own ashes. Instead of change being something painful that happens periodically, it becomes something natural that happens iteratively. Not constant refinement of the old model, but an acceptance and application of new models as it becomes clear they are the future.
How would you do this?
For a start you would have to find a way to break the organisation down into comprehensible ‘blocks’ with clear inputs and outputs. Doing this carries an efficiency penalty in its own right, but it’s a worthwhile trade for increased agility. Transforming a monolith is nearly impossible — like trying to hew a new sculpture from an old one. Rearranging building blocks (or changing, adding or dropping the blocks themselves) is much easier. Especially when not all of the building blocks of the business need to owned.
Secondly you would have to ensure transparency across the organisation. You can’t expect everyone to know what everyone else is doing, but someone has to be able to join the dots to recognise opportunities and efficiencies.
Thirdly you would have to find a way to expose leadership at every level to influences outside of their own walls. Institutional blinkers fall fast and blind leaders to even the largest most transformational trends in adjacent and relevant markets.
There are other issues too. Being listed on a stock market makes change harder, since you may have to convince a huge community of shareholders of your radical plans. And most of all, there are human issues of culture and communication, which cannot be underestimated.
But from a structure and process point of view, I think we’re starting to get there with a framework for how you put a business into a permanent Phoenix State.
We know now how to redesign an organisation around its customers, so that at the very least, it listens to them. We know how to break it down into functional units that can be assembled and reassembled to meet new needs. And we know how to expose leaders to external change drivers and help them to plan a response in an efficient fashion.
These tools are all now part of the Applied Futurist’s Toolkit. Others are successfully tackling issues of culture and communication.
This can be done.
So the question is, do you want to build a sandcastle, or a Phoenix?