Creative Destruction: Why Companies That Are Built to Last Underperform the Market--And How to Successfully Transform Them (Hardcover)

The authors did not look at companies which were not large and those that were not "pure plays." So there is little in here about outstanding stock market successes among large companies like Tyco International and General Electric. Remarkable performers among foreign forms, like Nokia, are also missing.

The model operators are General Electric (I was surprised too, after they were left out of the quantitative study), Johnson & Johnson, Enron (obviously before being caught with lying about their earnings and filing for bankruptcy), Corning (which has since had some mighty setbacks), L'Oreal (yes, I know they are a French company and are not in the quantitative study, also), Kleiner Perkins, and KKR. I guess there were so few good examples of what the authors wanted to share that they had to stretch to find them.

Almost everyone else is a negative example. These include Intel (with DRAMs), Storage Technology, Thermo Electron, and others who experience flops after periods of short-lived success.

The best parts of the book deal with mental models and their strengths and weaknesses. At their worst, these models are wrong and encourage complacency, arrogance, and sluggishness. When the environment changes, they may leave the experienced totally at sea or following incorrect instincts. The prescription is to encourage the creation of new mental models by providing more permissiveness while reducing the amount of control in organizations. You will come away with a good sense of where stalled thinking comes from. On the other hand, the suggested solutions are very institutional as opposed to being focused on changing how each person perceives their own situation.

I have some nits to pick. First, it has been reported for decades that 80 percent of the stocks in the S&P 500 underperform the index each year. No study was needed to report that large companies do not routinely beat the market averages. You can go to many on-line brokers' sites and spot who has outperformed whatever index you want to use over many time periods in a few minutes.

Second, I recently studied dozens of companies who had successfully changed their business models in fundamental ways four or more times in a row and had outperformed the market averages and their competitors. I found only one of these companies mentioned in this book. So the way the sample was drawn excluded many interesting cases.

Third, the authors picked some strange cases to look at. They focus on the failures of Storage Technology, but say almost nothing about EMC, the company that surged ahead of both IBM and Storage Technology in data storage to become the fastest growing stock on the New York Stock Exchange in the 1990s. EMC's market capitalization is one of the largest in the world. They are also very good at making mental model changes. The company's leaders are also very accessible. The omission is puzzling. Could it be that the cases chosen to detail had something to do with who was and was not a McKinsey client at one time or another? I don't know the answer to that question, but my curiosity was piqued.

Fourth, McKinsey has been advising companies on how their decisions affect stock prices by influencing valuation for many years. The book made no reference to that discipline. Is it irrelevant?

Fifth, the database excludes companies who are acquired. So, potentially AOL or Time Warner would have to be viewed as a loser not worthy of further study if they had been part of the group, even though the combination was probably a merger of equals . . . And both company stocks outperformed the market averages for many years in the past.

Sixth, the quantitative and the qualitative parts of this book don't seem to connect very well. It seems to me that you could have written exactly the same book without the quantitative study. So what was the point? I think most people would agree that the rate of change has been speeding up, and will probably do so more in the future.

Seventh, the innovation model they propose may work, but it doesn't match well with what I learned from looking at those who successfully change business models often. Realize that there are other ways to pursue this.

The authors did not look at companies which were not large and those that were not "pure plays." So there is little in here about outstanding stock market successes among large companies like Tyco International and General Electric. Remarkable performers among foreign forms, like Nokia, are also missing.

The model operators are General Electric (I was surprised too, after they were left out of the quantitative study), Johnson & Johnson, Enron, Corning, L'Oreal (yes, I know they are a French company and are not in the quantitative study, also), Kleiner Perkins, and KKR. I guess there were so few good examples of what the authors wanted to share that they had to stretch to find them.

Almost everyone else is a negative example. These include Intel (with DRAMs), Storage Technology, Thermo Electron, and others who experience flops after periods of short-lived success.

The best parts of the book deal with mental models and their strengths and weaknesses. At their worst, these models are wrong and encourage complacency, arrogance, and sluggishness. When the environment changes, they may leave the experienced totally at sea or following incorrect instincts. The prescription is to encourage the creation of new mental models by providing more permissiveness while reducing the amount of control in organizations. You will come away with a good sense of where stalled thinking comes from. On the other hand, the suggested solutions are very institutional as opposed to being focused on changing how each person perceives their own situation.

I have some nits to pick. First, it has been reported for decades that 80 percent of the stocks in the S&P 500 underperform the index each year. No study was needed to report that large companies do not routinely beat the market averages. You can go to many on-line brokers' sites and spot who has outperformed whatever index you want to use over many time periods in a few minutes.

Second, I recently studied dozens of companies who had successfully changed their business models in fundamental ways four or more times in a row and had outperformed the market averages and their competitors. I found only one of these companies mentioned in this book. So the way the sample was drawn excluded many interesting cases.

Third, the authors picked some strange cases to look at. They focus on the failures of Storage Technology, but say almost nothing about EMC, the company that surged ahead of both IBM and Storage Technology in data storage to become the fastest growing stock on the New York Stock Exchange in the 1990s. EMC's market capitalization is one of the largest in the world. They are also very good at making mental model changes. The company's leaders are also very accessible. The omission is puzzling. Could it be that the cases chosen to detail had something to do with who was and was not a McKinsey client at one time or another? I don't know the answer to that question, but my curiosity was piqued.

Fourth, McKinsey has been advising companies on how their decisions affect stock prices by influencing valuation for many years. The book made no reference to that discipline. Is it irrelevant?

Fifth, the database excludes companies who are acquired. So, potentially AOL or Time Warner would have to be viewed as a loser not worthy of further study if they had been part of the group, even though the combination was probably a merger of equals . . . And both company stocks outperformed the market averages for many years in the past.

Sixth, the quantitative and the qualitative parts of this book don't seem to connect very well. It seems to me that you could have written exactly the same book without the quantitative study. So what was the point? I think most people would agree that the rate of change has been speeding up, and will probably do so more in the future.

Seventh, the innovation model they propose may work,

One hopes that the summer 2004 edition will relate their analysis of value destruction to some of the critical weaknesses at Enron (and there were many) - one of which was a chronically weak approach to corporate governance (defined in terms of behaviours as well as robust structures and processes, preferably not devised / developed by a charismatic Chairman / CEO) but this is probably beyond the scope of what the authors can do or aim to do.