Analysis of Business Issues
What is creative destruction? Before we can tackle that question, we must look at historical patterns that successful companies have endured. In a span of seventy years from 1917-1987, the Forbe’s list of 100 largest companies has dwindled to 39. With that knowledge in hand, we can proceed to answer what creative destruction clearly is. A textbook definition of creative destruction will attempt to portray the phenomenon as a cyclical occurrence, where companies rise due to competence and companies die due to incompetence. However, there should be a further step taken. Creative destruction is a key component of a functional economy, where trends have shown that the concept improves innovation and creativity, and punishes corporations who are too stubborn to adapt to societal evolution. In this paper, creative destruction will be dissected into three parts, which entail the causes, processes of thinking, and solutions that could be implemented. Creative destruction brings about an interesting point on why markets tend to perform better than companies. The author of the article states that “corporations are built on the assumption of continuity; their focus is on operations. Capital markets are built on the assumption of discontinuity; their focus is on creation and destruction” (Foster and Kaplan 10). Continuity is a limited concept, as history has shown. Very few companies can adapt year after year, decade after decade accordingly to its consumer needs. Some firms may not even have the capital or resources to adapt in the first place. There is an extreme element of luck to companies such as General Electric, because there are just too many factors in the market that can drive a company out. So how do we invest accordingly? Are short-term investments ideal because there are too many variables that can negatively affect a long-term investment? The most significant advice the author is attempting to inform the readers about is that the market is cyclical. This means, no matter how functional or profitable the company is during a period of time, if the timing is wrong, the company could very well disappear. The idea of “one-decision” stocks during the second wave of the stock market boom shows us that the idea is extremely flawed. It is next to impossible for a company to be immune to a stock market collapse. The interconnectivity of the stock market, not only in today’s technological world, ensures that one factor or another affects each other. If Toyota is doing excellent, chances are when Exxon and Dutch Shell collapses that consumers will see a spike in gas prices, which inevitably leads to lower car sales. Consumer demand is the single most difficult trend for any corporation to project. Although creative destruction is almost inevitable in the market, there are several factors that can be considered “drivers” of the idea. For example, in the 1990’s, or the “age of discontinuity” as the author puts it, businesses shifted their attentions away from goods and into services (Foster and Kaplan 13). Compounded by technological advances in information, transport, and in almost every other facet of life, companies tend to a have a shorter lifespan.
The assumption that companies should adapt to market trends is tough to grasp. Markets survive over time because they have the flexibility to dump those companies that lag behind, and companies do not have that flexibility. Companies are more stubborn to their ways, and no matter how innovative the company is, every decision that a corporation makes has to go through a series of voting or other communal methods of decision-making. There is an inherent "need for corporations to control existing operations and the need to create the kind of environment that will permit new ideas to flourish-and old ones to die a timely death” (Foster and Kaplan 15). This theory has been proven