February, 2012, Volume 10, Number 1
Creative Destruction Whips through Corporate America: An Innosight Executive Briefing on Corporate Strategy
Lifespans of top companies are shrinking, according to an Innosight study of the S&P 500 Index:
- 61-year tenure for average firm in 1958 narrowed to 25 years in 1980—to 18 years now.
- A warning to execs: At current churn rate, 75% of the S&P 500 will be replaced by 2027.
- To survive and thrive, leaders must "create, operate and trade" their business units without losing control of their company.
- Study led by Innosight director Richard N. Foster, co-author of Creative Destruction.
The term "creative destruction" is widely credited to the Austrian-American economist Joseph Schumpeter (1883-1950). Schumpeter studied the formation and bankruptcy of companies in Europe and the United States. He concluded that "economic progress, in capitalist society, means turmoil." Richard Foster, in his 2001 book Creative Destruction, applied Schumpeter's theory to the modern practices of management and innovation.
According to Foster, the life span of a corporation is determined by balancing three management imperatives: 1) running operations effectively, 2) creating new businesses which meet customer needs, and 3) shedding business that once might have been core but now no longer meet company standards for growth and return.