Rating: 
Summary: Investors Take Heed -- Buy and Hold is Oversold!
Review: Contrary to popular belief, Foster and Kaplan show that the majority of so-called "buy and hold" companies fail to keep pace with market index funds. Fundamental changes in the marketplace have made it increasingly difficult for companies to remain competitive for sustained periods of time. The authors not only discuss these shifts in the environment, but also uncover the structural factors inhibiting companies from effectively reacting to these market changes. Traditional models of corporate planning and control combined with "cultural lock-in" prevent even the most innovative of companies from taking the difficult decisions required to evolve with the market. Foster and Kaplan convey this message, its implications, and potential remedies through colorful, easy-to-read case studies of successful and unsuccessful companies. So what can an investor do? First, understand the reasons why only a few companies have the ability to continually re-invent themselves for sustained shareholder value. Second, be thankful when an investment outperforms the market for more than a few years time and question your broker's recommendation to "hold on to the winner." Finally, realize that strong past performance is not guarantee of future returns and might even be reason not to invest in a company, since the odds are stacked against continued outperformance. This is a 'must-read' for investors everywhere!
Rating: 
Summary: A solid , thought-provoking book on Business Innovation
Review: Foster's previous work - Innovation, the Attackers Advantage, is a masterpiece, and this follow up is an excellent read. An interesting observation at the start contrasts a company trying to excel and innovate, and the market as a Darwinian force, ruthlessly selecting the `best' irregardless of past performance. The message is the same, stark reminder as Clayton Christensen's - past excellence is no guarantee of future survival. Having delivered this baleful message, the book distinguishes between typical management techniques - measurement, control, which leads to operational excellence [called convergent thinking], and the type of observation, reflection and debate [called divergent thinking] which may lead to innovation.
The book outlines methodologies which can be used to attempt to combine both convergent and divergent approaches within a firm. The book therefore takes one step further than Clayton Christensen's suggestion of setting up a separate entity to pursue a specific `blue sky' set of ideas. However it in no way underplays the seriousness of the threat of new product or new product cycles to the incumbent, successful corporations - indeed some of the examples given in the book as successes (Cisco, Corning) have since gone through major traumas in subsequent product and economic cycles. The book seems to take explicit aim at Collin's book `Built to Last', saying that companies which have been longest in the Fortune 500 have underperformed the market - and expands this theme that the market, by having no emotional link to firms, will pick winners and punish the slow remorselessly. From an investors point of view, my interpretation of Foster's guidance would be to periodically pick the top performers in an index and sell those which don't make it to the top, regardless of past position; my interpretation of Collins is that eventually the tried and trusted firms win out.
I think my money would be on Foster. However in terms of management thinking Foster is definitely in the Thomas Kuhn, Giovanni Dosi, Clayton Christensen, Geoffrey Moore tradition of the intense difficulty of managing to be customer focused, operationally excellent and innovative simultaneously.
Rating:
Summary: A solid , thought-provoking book on Business Innovation
Review: Foster's previous work - Innovation, the Attackers Advantage, is a masterpiece, and this follow up is an excellent read. An interesting observation at the start contrasts a company trying to excel and innovate, and the market as a Darwinian force, ruthlessly selecting the 'best' irregardless of past performance. The message is the same, stark reminder as Clayton Christensen's - past excellence is no guarantee of future survival. Having delivered this baleful message, the book distinguishes between typical management techniques - measurement, control, which leads to operational excellence [called convergent thinking], and the type of observation, reflection and debate [called divergent thinking] which may lead to innovation.
The book outlines methodologies which can be used to attempt to combine both convergent and divergent approaches within a firm. The book therefore takes one step further than Clayton Christensen's suggestion of setting up a separate entity to pursue a specific 'blue sky' set of ideas. However it in no way underplays the seriousness of the threat of new product or new product cycles to the incumbent, successful corporations - indeed some of the examples given in the book as successes (Cisco, Corning) have since gone through major traumas in subsequent product and economic cycles. The book seems to take explicit aim at Collin's book 'Built to Last', saying that companies which have been longest in the Fortune 500 have underperformed the market - and expands this theme that the market, by having no emotional link to firms, will pick winners and punish the slow remorselessly. From an investors point of view, my interpretation of Foster's guidance would be to periodically pick the top performers in an index and sell those which don't make it to the top, regardless of past position; my interpretation of Collins is that eventually the tried and trusted firms win out.
I think my money would be on Foster. However in terms of management thinking Foster is definitely in the Thomas Kuhn, Giovanni Dosi, Clayton Christensen, Geoffrey Moore tradition of the intense difficulty of managing to be customer focused, operationally excellent and innovative simultaneously.
Rating: 
Summary: Faulty Research & Analysis
Review: Here's some hard data (which is not in the book): Since 1925 the best performing stock is Phillip Morris with a 17% return versus 9.75% for the stock market during the same period. Best stock since 1950 is again Phillip Morris.
$1,000 in S&P 500 in 1957 = ~ $96,000 today.
Same in Phillip Morris = ~ $3.75 million today.
So much for the authors' premise.
Rating:
Summary: An Essential Read
Review: Hundreds of books in the last decade have documented the need for companies to develop the ability for rapid change. In Creative Destruction, Richard Foster and Sarah Kaplan make the case by suggesting that companies must emulate markets by abandoning some of the very operational practices that enable them to survive and adopting a mindset of ruthlessly efficiency. Markets, the authors explain, reward exceptional performance and instantly punish - and often destroy - laggards. Therefore, the only way to compete with markets in terms of stock price performance is to mimic markets in terms of operation. We from getAbstract recommend this book for the insight imbedded in this basic analogy, but adds two caveats: 1) Some of this advice is too general to be of immediate, practical use, and 2) The fact that the authors chose Enron to illustrate many of their basic points unfortunately undermines the strength of some of their arguments.
Rating:
Summary: Hypotheses About How To Teach Dinosaurs to Dance
Review: McKinsey partner Richard Foster and ex-McKinseyite, Sarah Kaplan, combine with an extensive McKinsey database of 60 variables about 1008 large U.S. companies from 1962 to 1998 in 15 industries to measure how the stocks of the companies did versus the S&P 500 and their industries. Since few such stocks outperformed, the authors conclude that large companies need to be better innovators, being more like new industry entrants funded by venture capital firms. The bulk of the book highlights their proposals for encouraging innovation . . . from the top down. Although the ideas may work, they seem counterintuitive and are not supported by any significant research base. The book takes dead aim against the notion that building a company that lasts for a long time is the proper objective. The notion of "built to last" is indirectly challenged here. The book develops a concept of taking Schumpeter's famous concept of how markets foster creative destruction and transferring that inside your company as an organizing principle. 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, 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.
Rating:
Summary: How to destroy businesses and not destroy your career?
Review: One good thing about books written by McKinsey people is that if they write something, it's gonna be smart. Because otherwise they just keep the silence.
And this book is not an exception to this rule. Whilst the readers could find the idea of a permanent review and renovation of a corporate businesses portfolio fairly old and discussed so many times in books of Drucker, Schumpeter and other authors, there're some issues which make reading of "Creative Destruction" worth the time.
First, unlike two previously mentioned famous gentlemen, Foster and Kaplan bothered themselves with sizable stock market data research and analysis. This approach should really become a standard if we ever want to see organizational behavior and corporate strategy to become scientific disciplines and not a genre of fiction literature with well-known set of rules "how to write more or less good novel".
Second, even readers very familiar with literature about corporate strategy and portfolio analysis methods could find some profound insights on these 350 pages - may be different ones for different people. For example, a clearly stated paradox between operational excellence and innovation definitely deserves thinking about, since it's just so easy to say: "Yes, we need both - tight controlled low cost operations AND creative business development" or "We need to build the great team committed to the corporation AND sometimes we need to kick a part of the team out just to ensure great stock returns", - but isn't it the same as requiring water to become dry at certain moments, convenient for the observers? Bad thing. Do not expect to find in the book an answer to the question, stated at the very beginning. As well as where to find the businesses worth investing to. The authors do not know. Or they do not say - may be just to give to the reader an idea to invite McKinsey to think together about these issues in corporate HQs.
Rating:
Summary: The Link Between Innovation and Value Creation Is Explored
Review: The authors score a direct hit on those - investors and managers alike - looking for the continuous, corporate value creator. It simply does not exist. There is no question that there is a direct link between innovation and wealth creation. Using a proprietary database developed by McKinsey & Company to study the life cycle of American corporations, the authors demonstrate, what they term as "the corporate equivalent of El Dorado," the company that continually outperforms the stock market does not exist. It is a figment of the "one decision" crowd that resurfaces with each generation of investors. Capital Markets reward shareholders of competitive corporations and then rapidly, and with no remorse, forget them when they lose their ability to innovate. The McKinsey data show corporations, which operate with management philosophies based on the assumption of continuity, do not change at the pace and scale of the markets. Therefore, in the long run they fail to create value at the pace and scale of the markets.
Corporations are premised on continuity; their focus is on operations. Capital Markets are premised on discontinuity; their focus is on creation and destruction. They are less tolerant than the corporation of underperformance. "Blue Chip" corporations earn the right to survive. They have no claim on superior, or for that matter, even average long-term shareholder returns. The reason is simple, the authors conclude. Corporate control processes, the very processes that ensure long-term survival, inure them to the need for change. This is a book every serious investor should read. The message is spiced with case studies of how corporations like Johnson and Johnson, Enron, Corning and GE transform daily themselves rather than opt to incrementally improve operations. Managements need to create new businesses, abandon ingrown rules and structures and be continually adopting new decision-making processes, control systems and mental models. As the book's subtitle suggests, corporations must strive to be as dynamic and responsive as the capital markets if they are to reward investors with long-term superior returns.
Rating:
Summary: Timely and Fascinating Insights on Business Success
Review: This book couldn't have come at a better time as companies face difficult economic conditions and a turbulent stock market. Drawing on almost 40 years of industry data and using real examples of successful companies and the innovators who are changing their industries, Foster and Kaplan clearly show how the few winners have behaved in the past and present a compelling argument for how businesses who want to survive over the long term will need to react to increased competition and discontinuities in the future. This book is a must read for all business executives who want to stay on top in this rapidly changing environment.
Rating: 
Summary: Doesn't deliver what it promises
Review: This book takes some interesting insights from economist Joseph Schumpeter (who coined the term "creative destruction") and leadership expert Ron Heifetz and then goes on to make overly broad generalizations from them, supported by an extensive but questionable data analysis. The authors go on at length about the size and scope of the McKinsey corporate database that provides much of the backbone for the book's conclusions, but anyone who studies excellence or best-practices knows that you dont learn much about them by studying large, general samples; in fact, such samples are designed to rule out the exceptions. (And I'll just overlook the fact that Enron is one of the exceptional performers they highlight.) At bottom, the book fails to deliver on either of the promises in its subtitle. The primary reason seems to be that little of it is drawn from practical experience with exceptional companies. Despite its scope, the McKinsey database doesn't really answer, from a management point of view, why most companies have underperformed. (Although less systematically presented, you can get more wisdom from a practitioner's book like Tom Kelly's "The Art of Innovation.") This is most obvious as the book moves into suggestions for "how to change" these companies: neither the suggested methodology for strategic planning nor the successful case examples provide anything more than some basic, general ideas that have been better covered elsewhere in the organizational development and management literature. The subtitle also suggests that the book presents a refutation of the arguments for corporate sustainability that Collins and Porras gave in "Built to Last". Interestingly, Foster and Kaplan disdain to address that book directly or even cite it, except in a buried footnote. This is unfortunate because they present data on some of Collins' and Porras' profiled companies that suggest they have performed far more poorly than "Built to Last" would lead you to believe; it would have been helpful to understand who was overstating what. Collins and Porras also stress in detail that built-to-last companies "preserve the core / stimulate progress"; it is not clear that "creative destruction" differs from this in any significant way. In sum, the issue of how to create long-term value will still be a big question when you've finished reading this book. It is interesting to note, as the authors are current and former McKinsey consultants, that a majority of the underperformers in their database are McKinsey clients. If these companies failed to turn around after investing in McKinsey advice, what is the likelihood that anyone else will do it from ideas they got reading a book?
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