When Joseph Schumpeter coined the expression “creative destruction” in 1942, he had no idea how creative the marketplace would become and how swift the destruction would be.
Today’s corporate world, already in unprecedented turmoil, will only get stormier. According to a report released last spring, half of S&P 500 companies are expected to be replaced over the next ten years. The report, entitled Corporate Longevity: Turbulence Ahead for Large Organizations, was developed by the global consulting firm Innosight*.
The company’s analysis of S&P shows that the 33-year average tenure of companies on the S&P 500 in 1965 narrowed to 20 years in 1990 and is forecasted to shrink to 14 years by 2026. We are seeing record M&A activity and the growth of startups with multi-billion dollar valuations. These are just two indicators that a period of relative stability is ending and that an increasing number of executive suites will lose control of their firm’s future.
Most of Schumpeter’s destruction is caused by new technologies and the innovative ways companies are bringing their goods and services to market. What was leading-edge ten years ago will likely be out of date tomorrow. Products, approaches, procedures and business processes that have worked for many years may now be draining a company’s resources. And what’s worse is that they might be causing the company to be losing touch with current customers, foregoing new ones or simply getting in the way of harnessing new opportunities.
Leading companies relentlessly examine their systems and processes to ensure they are state-of-the-art. Today’s market leaders simply never accept that the status quo is sufficient for the challenges ahead.
Of course, you don’t have to be listed on the S&P 500 to be subjected to these forces.
Creative destruction is equally true for mid-sized businesses. Many businesses believe that since they are relatively small but growing, the traditional processes and technologies that got them this far will continue to serve them well.
I see this repeatedly in the markets where VersaPay operates. Many companies are too busy making day-to-day decisions to stand back and assess their company’s systems. They don’t realize how their accounts receivable processes that may seem efficient have evolved into hindrances. CFOs and Controllers often don’t give their invoicing and AR processes more than cursory attention. This is an increasingly costly mistake, particularly given the importance of AR relative to any company’s two most important assets … customers and cash.