Creative Self-Destruction: The Organizational Fountain of Youth

Fountain of Youth, by Lucas Cranach the Elder, 1546

Fountain of Youth, by Lucas Cranach the Elder, 1546

The Age of Consumerism

Sears revolutionized the way rural Americans shopped by significantly increasing the number of products available to them and at lower prices. Sears maintained an extensive mail order catalog for over 100 years.

When I was in my early teens, my mother took a job working at a call center for the Sears catalog taking mail orders. The year was 1993. During the time my mother worked for Sears, their catalog continued to get smaller and smaller each year until there was no longer a need for the call center. I remember well the day my mother lost her job when they shut down the call center as a result of scaling back the catalog due to decreased sales. 

Excerpt from a Sears catalog

Excerpt from a Sears catalog

Sears did not invent the mail order catalog. However, Sears took the novel idea and tweaked it by targeting underserved rural populations of Americans who had disposable income in the late 19th century. Before the Sears catalog, Americans living in rural areas shopped at general stores, where there were little variety and higher prices. Sears revolutionized the way rural Americans shopped by significantly increasing the number of products available to them and at lower prices. Sears maintained an extensive mail order catalog for over 100 years (at its peak, the catalog contained over 700 pages of goods). In addition to their mail order catalog, Sears also began operating department stores in the early 20th century. Sears did not invent the department store, but executed the concept with great success, even introducing their own lines of high-quality and well-respected brands, such as Kenmore and Craftsman. With its catalog and departments stores, Sears was a major force in the retail industry for nearly a century, going so far as to even offer kit-houses in their catalogs in its early days. At its peak and as a sign of its dominance over the retail sector in America, Sears was headquartered out of the then-tallest building in the world—Sears Tower—in downtown Chicago (the name of the building has since been changed to Willis Tower.)

Willis Tower

Willis Tower

The story of Sears is both a cautionary and instructive tale. On the one hand, while Sears did not invent the mail order catalog or the department store, the company managed to dominate in both areas. On the other hand, when disruption occurred with the advent of online shopping in the Digital Age, Sears failed to adapt and has been in decline ever since. The saga of Sears teaches that you don’t have to be the innovator to take advantage of the innovation; many innovators fail to turn their ideas into successful businesses. The BBC’s Jonathan Glancey points to Harding, Howell & Co’s as the first department store. Ever shopped at a Harding, Howell & Co’s? I didn’t think so–the store went under in 1820. Forbes’ Kelly Phillips Erb cites Montgomery Ward as the first mail order catalog, which debuted in 1872. The Sears mail order catalog didn’t make its first appearance until 16 years later in 1888. But when the Sears catalog did come out, it quickly became the leader in the industry. The bottom-line moral of the Sears story is that being the innovator is not a predictor of business success, but if you fail to respond to disruptions in the marketplace, maintaining the status quo can lead to irreversible decline. 

Bureaucracy: Challenge and Response

There are almost always human keepers of...bureaucracies who protect them and have a vested interest in making sure they remain fixed
Arnold Toynbee

Arnold Toynbee

So why is it that Sears was able to successfully adopt innovations in retail with a mail order catalog and department stores, but was unable to respond to changes in retail brought about by the Digital Age? The answer is surprisingly simple: bureaucracy. The renowned British historian, Arnold Toynbee, said that all of human history could be summed up in one phrase: challenge-and-response. Whenever a person, organization, community, country or the world face a challenge, a response to the challenge is sought until one is found that meets it. Once the response is identified, it is usually codified. This codification provides stability and manifests as systems, structures, policies, and procedures (i.e. bureaucracy). There are almost always human keepers of these bureaucracies who protect them and have a vested interest in making sure they remain fixed. There is value in codifying effective responses to challenges so that lessons don’t have to constantly be re-learned. Being passed from one generation to the next, these codified responses represent growth and development in our collective knowledge, and protecting them is important. But when the dynamics of the challenge change, there is a gap period that occurs during which the old response is tried and fails until a new response is discovered. This gap period can have devastating consequences.

Guerrilla Warfare

The British approach to warfare could not withstand the American revolutionaries’ new response— guerrilla tactics—leading to the birth of a nation.
The Battle of Bunker Hill, by Howard Pyle, 1897

The Battle of Bunker Hill, by Howard Pyle, 1897

A good example of a codified response used during a gap period was how the British fought during the American Revolution. The style of combat the British used against the American rebels had worked very well in the past. Even as ragtag American revolutionaries were humiliating the British military, the British empire was still the largest and most powerful in the world at the time—a sign that its military tactics had been successful. While there were multiple factors that contributed to the British defeat in the Revolutionary War, one of the significant reasons was the British military’s inability to respond to the guerrilla warfare tactics that the American insurgents were using. Centuries of successful British military campaigns created a highly codified approach to warfare. The British approach to warfare could not withstand the American revolutionaries’ new response— guerrilla tactics—leading to the birth of a nation. To be sure, American separatists were not the first to use guerrilla warfare tactics. However, the British military had not adapted its response to meet the challenge of guerrilla warfare, thus the gap. 

Sears in the Digital Age

...if the challenge changes and your response doesn’t, the new challenge will eventually defeat you.

While Sears’ inability to adapt to the Digital Age didn’t have the life-and-death consequences of the American Revolutionary War, the underlying premise is the same: if the challenge changes and your response doesn’t, the new challenge will eventually defeat you. In the early days of its existence, Sears adopted responses to changes in the marketplace and did so with great success. For decades, the consumer market didn’t change much, except for new competitors and products. During those decades, Sears created formal and informal systems, structures, policies, and procedures to ensure they were responding to the challenge of consumer behavior at the time. By the time the Digital Age arrived, these systems, structures, policies, and procedures acted like a monkey trap (i.e. a device with a hole small enough for the monkey to fit its hand in with an object of desire in side [food] that is too big to escape the hole and which the monkey refuses to release, thus trapping it). 

Holding on to the Banana

...bureaucracies act first like shelters and then like prisons, as they are built up over time to protect personal and institutional interests.

I’m confident that there were senior leaders at Sears who wanted to revolutionize their business model by seizing on the advent of e-commerce, but the organization simply could not let go of the banana. The organization would rather die than adapt, like the monkey that gets caught in the trap instead of simply letting go of the banana. The paradox is that the bureaucratic institutions put in place have value to a point, which justifies their existence. However, they only serve the institution until they don’t anymore, at which point so many people have been put into place to protect the bureaucracy and have a vested interest in maintaining it that it is difficult to successfully challenge and change the systems, structures, policies and procedures that make up the bureaucracy. 

In many (perhaps most) cases, individuals are not aware that they are protecting a bureaucracy that is leading to the institution’s demise; they are simply following the rules, ensuring that others follow the rules, and providing rewards for those who conform while punishing those who don’t. In other words, keepers are usually well-intentioned. Good intentions notwithstanding, these bureaucracies act first like shelters and then like prisons, as they are built up over time to protect personal and institutional interests. These prisons trap their hostages as they eventually become inescapable and collapse, resulting in the death not only of the bureaucracy but the organization to which it was attached. 

I will tell you that I have spent a lot of time in organizations that are highly bureaucratic, but that want to innovate, so they pay lip service to innovation and even sometimes establish special organizations that are meant to innovate with the intent that those innovations will be cycled back into the larger organization. I’ve only ever seen this done with token successes that don’t fundamentally influence how the larger organization responds to challenges. The vested interests in maintaining the status quo—especially in large and successful organizations—has an inertia that almost always prevents changes in response to challenges. 

Innovation as Novelty at the Edges

...bureaucracy at Sears allowed for incremental innovation...However, when revolutions occur that fundamentally change the challenge, novelty at the edges will not provide a sufficient response to that challenge.

At this point, some readers may be wondering, “Companies come up with innovate products and ways of doing business all the time.” That’s true. The technology for cars, for example, is constantly changing to the point where they can all but drive themselves these days. This is a type of innovation called “novelty at the edges.” In other words, this is innovation that builds on itself. Some of these innovations will be useful while others will not, but large organizations have wide margins for error that allow for occasional failure. Regarding the products and services an organization offers and the means by which it offers them, the organization should always be open-minded about embracing this type of novelty at the edges. And almost all successful organizations do. For example, the bureaucracy at Sears allowed for incremental innovation in that a Kenmore washing machine built in 1980 is very different from a more advanced one built in 2017. However, when revolutions occur that fundamentally change the challenge (be those changes brought about by industry, consumer behavior, or both), novelty at the edges will not provide a sufficient response to that challenge. Revolutionary changes require revolutionary innovation. The revolution that occurred which allowed Sears to successfully respond to changes in consumerism with a mail order catalog and later departments stores was due to the growth in the middle class and the increase in discretionary income among Americans in the late 19th and early 20th centuries. But then came the revolution of the Digital Age, which brought with it a whole new way to shop—online. And just as Sears was able to enter the new era of consumerism in the late 19th century, Amazon has been able to respond to Digital-Age consumerism. In fact, both Sears and Amazon are not so much examples of organizations that adapted to a new challenge as much as they are examples of organizations that came about as a result of changing dynamics in consumer behavior, and then reinforced that behavior with their business models. 

An Antidote?

...if you’re content being an extremely successful organization for decades, all the while building a dam that protects you but will eventually cut off your water supply, then, by all means, codify your systems, structures, policies, and procedures, and put people in place to guard these bureaucracies at all cost.

So is there an antidote to this organizational paralysis by bureaucracy? It depends. By all accounts, the way Sears responded to the market served it well for decades. It could be argued that if Sears preemptively acted by moving to an e-commerce model, it could have spelled the retailer’s demise if the timing was off. As a large multinational corporation, there was simply too much at stake for Sears to throw caution to the wind by radically changing its business model. I think that’s a fair argument to make. So, if you’re content being an extremely successful organization for decades, all the while building a dam that protects you but will eventually cut off your water supply, then, by all means, codify your systems, structures, policies, and procedures, and put people in place to guard these bureaucracies at all cost. Alternatively, your organization can live in a perpetual state of evolution by innovation. But there are risks associated with this as well. Innovation can be expensive because there’s often a high rate of failure. And what happens when you do find something that answers the challenge? Are you going to stick with it and protect it or are you going to risk it being deprived of oxygen by continuing to over-innovate? 

Height Advantage and Wave Theory 

Creative self-destruction is a form of operating in such a way that an organization is prepared to radically change its products and services or the way it delivers its products and services so that it is not only riding the current challenge wave but is prepared to use its height advantage at the peak of the challenge wave to leap to another challenge wave.

So organizations face a dilemma. On the one hand, there is some value in codifying responses and creating bureaucracies, while on the other hand bureaucracy prevents organizations from making revolutionary innovations in response to significant new challenges. Conventional wisdom suggests that companies are born out of successfully meeting a challenge, reach maturity, and eventually fall into decline and die. When an organization can no longer survive due to a lack of revolutionary innovation in response to new challenges, this is a form of creative destruction, which is considered a given in capitalism. This creative destruction leaves devastation in its wake, with employees losing their jobs and investors losing money (unless you were smart enough to short the stock). However, there is an alternative: creative self-destruction. Creative self-destruction is a form of operating in such a way that an organization is prepared to radically change its products and services or the way it delivers its products and services so that it is not only riding the current challenge wave but is prepared to use its height advantage at the peak of the challenge wave to leap to another challenge wave. If the organization waits too long, the wave it’s riding will shrink, and it will lose its height advantage and be unable to make the leap. By the same token, if the organization jumps too quickly, it will fall short of the coming wave and risks being overtaken by it. This method of doing business attempts to avoid gap periods when a new challenge is emerging by staying with or ahead of it. But this is much easier said than done. As I’ve noted, the paradox of bureaucracy is that it has value in that it provides a stable response posture to the present challenge, but also resists change, because change threatens the keepers of bureaucracy and shines a light on their intransigence. 

To be sure, the dynamics of how challenges change vary from industry to industry, and some companies may be able to remain in business for centuries before a new challenge emerges that requires a different response. On the other end of the spectrum are companies that are operating in a space where the challenges are almost always changing. I would argue that Apple is in the latter category and is a possible candidate example of a company that has a culture of creative self-destruction. From a distance, it appears to me that Apple is preparing to jump from the wave of how consumers currently use electronic devices to a wave in which the way people use their devices will constitute a revolution, thus presenting a new challenge, which Apple may be anticipating by readying itself for a leap. 

The Fountain of Youth

Fountain of Youth, by Lucas Cranach the Elder, 1546

Fountain of Youth, by Lucas Cranach the Elder, 1546

Minimum Viable Systems, Structures, Policies, and Procedures

For an organization to be a leap organization, it must have minimum viable systems, structures, policies, and procedures; the organization must be minimalist in terms of bureaucracy.

So what does it take for an organization to position itself such that it can ride wave after wave of revolutions in challenges without falling into the gaps (i.e. a leap organization)? The first practice has to do with minimum viability. Many people have become enamored of the idea of minimum viable products, and Apple itself has been a poster child for minimum viable products. For an organization to be a leap organization, it must have minimum viable systems, structures, policies, and procedures; the organization must be minimalist in terms of bureaucracy. This means fewer systems, structure, policies, and procedures, and especially fewer people who have a vested interest in maintaining the bureaucracy and whose value to the organization is wholly dependent on the maintenance of the bureaucracy (i.e. the management cadre). 

Flat Organizations: Serendipity & Spontaneity

Because the complexity of skills people now possess are so deep, innovation often occurs when two or more people collaborate cross-functionally in mutually-beneficial ways...

Second, organizations must be as flat as possible. Hierarchy complicates communication and disrupts two of the most important precursors to innovation: serendipity and spontaneity. Because the complexity of skills people now possess are so deep, innovation often occurs when two or more people collaborate cross-functionally in mutually-beneficial ways, which will happen serendipitously if there is not a management cadre or bureaucracy whose existence is predicated upon maintaining the status quo and quashing any change that threatens it. I do not mean to suggest that there should be no predictability or stability in an organization; it’s alright for there to be a tension between predictability and stability and serendipitous innovation. The key to overcoming this is to ensure that not a single person has a job in an organization with the sole purpose of maintaining the codified response mechanisms of systems, structures, policies, and procedures. The fewer people there are whose livelihood depends on the status quo being maintained, the less likely they are to prevent or sabotage cross-functional and serendipitous innovation, because such innovation is, by definition, a threat to the status quo. 

Third, spontaneity is crucial to innovation because it allows people to maximize the energy that comes from their unpredictable “ah-ha” moments. I can’t imagine a more detrimental practice to innovation than trying to control the unpredictability of innovation by having and “innovation-by-fiat” culture; fiat and innovation are antithetical. Because innovation is often accompanied by a high rate of failure, embrace that failure and reframe it as success (i.e. “This idea didn’t work, and that’s a success because now we can cross it off the list of possibilities.”). 

The Futurists

Futurists often sound like skeptical pessimists because they are peering into the future and are intuiting an incongruence...

Lastly, value the futurists in your organizations. Futurists often sound like skeptical pessimists because they are peering into the future and are intuiting an incongruence among how an organization is currently responding to a challenge, how that challenge will change, and how the organization is not yet prepared to meet the foreseen challenges. While I agree that the constant foreboding prophecies of futurists can be demoralizing, helping them to reframe their mindset away from what’s not being done toward what is possible by spreading the word using encouraging and positive language, can go a long way to getting tremendous value out of these rare individuals without sacrificing morale.  

Conclusion

...through creative self-destruction we can develop leap-organizations that can ride one wave of challenges and leap to the next without falling into the gap and being swallowed.

Many of today’s organizational leaders—especially in business—have a sense that their codified responses to 20th-century challenges are going to be insufficient for 21st-century challenges, and we’re already seeing the early evidence of organizations that are being swallowed by these new challenges. In response, many executives pay lip service to revolutionary innovation and sometimes even go so far as to establish semi-autonomous organizations with the charge to innovate. The problem with these pseudo-independent innovation organizations is that often their revolutionary innovations—which would help an organization become a leap organization—are not refactored into the mother organization, due to all of the above-mentioned dynamics that create organizational cultures resistant to change. A CEO’s or President’s will, desire, and directives alone are insufficient to overcome the deeply embedded systems, structures, policies, and procedures that prevent revolutionary innovation within organizations. Most organizations will be unable to change their responses to new challenges that come from significant shifts in how people behave, and they will fall victim to creative destruction. However, I believe that through creative self-destruction, we can develop leap-organizations that can ride one wave of challenges and leap to the next without falling into the gap and being swallowed. And I believe this can be done by developing cultures that create space for and are not resistant to timely revolutionary innovation.