Briefly define “creative destruction” and “creative recombination,” and discuss how these concepts relate to change.
Let’s imagine you have to redecorate your apartment. Creative destruction would start with the assumption that nothing in your apartment is of any use, so the first thing you’re going to do is throw it all out. That’s creative destruction: To make a change, you have to get rid of the old in order to make room for the new. Creative recombination would be something like, Can I take all those different pieces of furniture that I have in my apartment and move them into some new configuration? So, destruction: in order to create, you have to destroy. Recombination: in order to create, you can take what you already have and put it back together in a different way.
What are the advantages of recombination over destruction?
The danger of creative destruction is that you start out by saying, “We’re not even going to look at the employees we have, the culture we have, the structures we have, the technologies we have. We’re just going to assume that we need to do something different, so we start by downsizing people and trying to rip up the old culture and put in a new one.” The downside of this approach is that it’s very disruptive in firms. I have a friend who had 13 bosses in two years. Every time her company made a change, there was a new boss, and every new boss had a new conception of how things should be done. So my friend had 13 episodes of creative destruction in a row. She was extremely burned out, extremely cynical, and she spent most of her time dealing with changes as opposed to working.
There are a number of advantages and disadvantages to each approach. The main claim in my book is that creative destruction is greatly oversold — it’s used way too much and with not enough attention to the disruption. A safer default option, particularly for firms that have changed a lot already, would be to try to reuse some of the people, processes and information technology and to build on the existing cultural values of the firm. You don’t have to destroy and rebuild, so this approach may be cheaper and also faster because you have a lot of things that are continuing to work while the change is going on.
The idea is to recognize that there are at least two options. You’ve got to weigh carefully which one’s the right one for you. In the 1970s, a lot of American firms hadn’t changed for decades. They were completely out of sync with global competition from Japan, Korea, and so on. There was very little left there that was useful — you really had to destroy. But now we’ve destroyed a lot, and maybe there’s an option there for recombination.
How does one know whether creative destruction or recombination is better for a particular business or situation?
One criterion is, how burned out are people in the company with change? Another consideration is if this is a firm that doesn’t have a lot of stuff to recombine. You can think of it as a continuum and less in terms of absolutes. Maybe there’s a little creative destruction and a little recombination we could do: this part is really useless, we really need to slash and burn, but here there are a lot of good people, good cultural values and good social networks with clients, there’s a lot of know-how, there are some very good processes and maybe some very rich IT technology. Why don’t we, instead of tossing all those assets, try to do something different with them? I’m suggesting that that’s an avenue for managers that can be very effective, and I give a lot of examples of firms that did that and were extremely successful in bringing about change.
Stepping back, you’ve got to ask, which way of changing is sustainable over time? You might do creative destruction once in a while, but companies that do it with too high a frequency are shown to fail at a greater rate. The second piece in the book is pacing, which is alternating periods of stability and change. And there are a number of examples of managers who do that very elegantly — they make a big change, it’s very destructive and they keep the firm stable long enough for it to kind of recoup. Ideally, if you want the least disruptive approach, the best option might be to use creative recombination with pacing — periods where you recombine things, take a break, solidify and then do it again.
You have studied many companies’ experiences. Describe some of the most revealing examples of success or failure using different change modalities.
Each chapter of my book starts with an example of what for me sort of crystallizes the notion that you could successfully change in a particular way. As the lead example in the process chapter, I use a company that built helicopters in batches of three or four for big government contracts. As military contracts start shrinking, they have to move from military to civilian production. Now they have to produce runs of 200 helicopters. So the first approach is, you bring in a consultant and the consultant says, “Scrap everything you know about military production and put a whole new system in.” They try that, and they fire the consultant and hire new consultants, and so on.
They find they have a very good product-development process in-house that they use for developing the software for their helicopters. They also find that a lot of their employees had worked in mass-production auto industry lines, so they already have a lot of people who are knowledgeable in mass production. And then they find that there are elements of their culture that transfer very well from small-batch production — four helicopters — to a hundred. That’s a good example of a company that made a very swift, efficient change, largely by reusing a lot of its processes, people and cultural values.
For the culture chapter, I used the example of Ogilvy & Mather and Charlotte Beers, a very successful CEO who turned around the culture of that firm very quickly. She took the notion of brands, the importance of brands, and turned the whole culture around that. This notion of brands is not at all new to Ogilvy & Mather. The founder, Charles Ogilvy, wrote a book that advocates brands, brands, brands, brands. What happened was that he had a couple of successors who completely forgot that notion. But it was still sort of latent in the culture, and then Charlotte Beers comes in and reuses those values. It’s already in everybody’s head, and everybody’s happy to go back to those roots.
The pacing idea is well illustrated by Lou Gerstner, the former CEO of IBM. He had done three major turnarounds, and with each one of them, there were bursts of activity and tremendous change and then periods of pause where the company absorbed the change. I compare the IBM case to Sears, which made one big wave of change and right afterward another big wave and then ended up completely spinning out of control. The other well-known example is Al Dunlap, also known as Chainsaw Al, who went into Sunbeam and just ripped everything apart, basically destroyed the company.
Can evaluation and recombination of elements be done in-house, or do companies need to hire consultants?
From my point of view, you should use the change expertise you have in-house. You shouldn’t say, “Fire all the managers and bring in change consultants.” A lot of companies do that. You should say, “Well, especially if our firm has changed a lot, we probably have a lot of experience in-house about how to make those changes. Or there’s a part of the organization that’s already made the change, a division that’s already made this change, and we need to copy it.” Typically, consultants have very little interest in reusing stuff — they would rather sell you an entirely new package. They also don’t know the company, and the models are typically not built around “Let’s first see what you have.”
You argue in your book that five organizational elements — people, networks, culture, processes and structure — divided along a “hard” process-structure and “soft” network-culture axis, can be recombined for painless change. Which of these elements have you found easiest or most difficult to recombine?
Usually, people say the structure and process pieces are the easiest to change because they’re fully under the control of management. Usually those are the levers that are the easiest to pull. The harder stuff is, How do you change culture? You can’t just snap your fingers and have the culture change, or the people — they’re human, and humans are messy and complicated, much more so than machines or processes. Social networks also; they’re hard to see, and even if you see where they are and where they’re helping your firm, they can be hard to change. So, typically that softer axis of people, culture and networks is considered harder to change.
Eric Abrahamson is professor of management at Columbia Business School.