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Creative Destruction 

What is Creative Destruction?

Creative destruction describes a reality we face: new and better things come along (creative) and replace the older things that don’t work as well (destruction). For example, smartphones have displaced landlines and payphones (as well as alarm clocks and cameras).

Creative destruction applies to businesses, products, services, methods and types of organizations.

Creative Destruction is highlighted in the Vision Dimension.

Why Is This Important?

Creative destruction makes people throughout society better off, not only by continually creating better products and services, but also by creating better, safer jobs available to more people.

If we do not drive creative destruction; however, creative destruction will drive us out of business.  But it is easy to become complacent, protective and less innovative as we become successful. This is why Koch’s Vision focuses us on building the capabilities that enable us to continually create new opportunities and transform. We also need employees who are principled entrepreneurs willing to change the paradigms, methods and tools that helped us succeed in the past.

Principle in Brief

Successful businesspeople stand on ground that is “crumbling beneath their feet,” wrote economist Joseph Schumpeter in 1942. He described creative destruction as “the process of industrial mutation” which “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating the new one.”

As entrepreneurs create new businesses, products, services, processes, methods or types of organizations, less-effective ones become obsolete. It is apparent that consumers benefit as new alternatives that better serve them are brought to market. What is not obvious is that, over the long term, creative destruction benefits virtually everyone. It makes people throughout society better off, not only by continually creating better products and services, but also by creating better, safer jobs available to more people.

Those whose businesses or jobs are threatened or lost due to creative destruction often don’t take this long-term view and try to stop it. When they succeed, progress is stifled, disproportionately harming those who are worst off. Progress is maintained by ensuring those who are hurt in the short term learn new skills and have the opportunity to benefit long term from innovation and higher productivity.

At Koch, we recognize that the future is unknown and unknowable. This is why our Vision is open ended and embraces creative destruction. It focuses us on building the capabilities that enable us to continually create new opportunities and transform. This requires seeking disruptive innovations through internal development and acquisitions, and shedding products, assets and businesses that are unprofitable or worth more to others. When we drive creative destruction faster than our best competitors, we are successful.

Creative destruction originates with employees who are principled entrepreneurs, who recognize that however well they are doing today will soon not be good enough and are willing to change the paradigms, methods and tools that helped them succeed in the past. This happens when employees find a role where they have the opportunity, ability and passion to innovate and create value, thereby experiencing the glorious feeling of accomplishment.

Understand It Better

Examples

Below are some examples of creative destruction. Each example highlights what was created and what was displaced. As you read, consider how society progressed and benefited from creative destruction. 

Give it a try

The power of these principles happens through application. There’s no substitute for learning as you apply.