Friday, May 16, 2008

Creative Destruction is Essential for long Term Success

The Economist Joseph Schumpeter ( in his book Capitalism, Socialism, and Democracy, published in 1942, popularized the concept of creative destruction (
Creative destruction simply is the process or practice of reinventing oneself constantly often at the expense of the past. What this means is that after the process of reinvention, the final product or idea or paradigm may be vastly different from the past.

This concept resonates with ancient ideas in many philosophies where it has been understood that a paradigm that works, or a civilization that works very well needs to "destroy" it self and reinvent itself, otherwise it will be destroyed and replaced by another paradigm, civilization etc. over which you will have no control or ownership. This thought can be extrapolated to nations, governments and businesses as well.

In the late 19th and most of the 20th century, large, inflexible forms of organizations would come to dominate governments and industry in the name of stability. Companies would respond to these organizations of stability and implement hierarchies and strategies that would in effect render them complacent, leaving no room for what Schumpeter and others called creative destruction.

So the question is are you an agent of creative destruction or are you scared of change? From a business perspective this means that are you willing to have your organization change in fundamental ways that render it vastly different from what it is now, or would you rather have a competitor destroy your organization.

Over the years many organizations like Nokia and others have changed themselves as the markets and society has changed, but many more have bitten the dust or become secondary players because they failed to reinvent themselves.

The need for creative destruction within organizations is normally understood as a concept, but rarely practised because it threatens the status quo. Often leaders in organizations themselves protect status quo because the alternative would mean apparent loss of control or position at a personal level. Sometimes organizations in order to show their willingness to change practise ideas like that of TQM ( other such methods that bring short term gains but do not address the fundamental issues.

In the business and technology world the days of a stable visions of the future can debilitate you. To run a successful business you need to embrace and thrive on chaos and drive process. Some of the interesting events that will unfold in the next decade will be Microsoft's attempts at creative destruction. Microsoft is clearly aware of the issues, the next decade will tell us if they can act on this awareness and continue to remain the primary player or be relegated to a secondary role. On the political front most major powers of the past like Great Britain have failed at their efforts of creative destruction and have been relegated to secondary roles. The most obvious question now is whether the United States has the ability to embrace creative destruction and remain a primary player, say in 50 or 100 years.

Wednesday, May 7, 2008

Frugal Engineering - Ghosn has it wrong?

The announcement of the TATA Nano (commonly called the 1 lakh or $2500 car - has brought the concept of frugal engineering to the forefront. Business leaders like Ghosn the CEO of Renault and Nissan have adopted with good intention the theme of frugal engineering and evangelized India as a frugal engineering hub. Ghosn seems to focus on engineering with less. Ghosn says "Frugal engineering is achieving more with fewer resources. The cost of developing a product in the West is high since engineers there use more expensive tools. In India, they achieve a lot more with fewer resources," (

The sentiment that frugal engineering is about engineering with less is wrong. Successful products including frugally engineered products always start with the customer. The customers in the developing world are demanding useful features that benefit them in improving their quality of life. If the Nano succeeds as many people expect, then it is because the Nano meets the needs of the customer within their budgetary constraints.

The danger from Ghosn’s interpretation is that companies will only look to designing or engineering products cheaper. This will lead to short term gains but will not address the challenges they will face in business from emerging markets.

Engineering teams in the developing world, working for local companies are addressing local needs. Often simple low cost solutions like the Nano will make a huge difference to the quality of life to a large number of people. There are a number of companies in developing countries that are successful, but not on the radar screens of large corporations who are perceived market leaders in their fields. Look at the Indian in the infrastructure electronics space , the Chinese in the solar energy space, the Malaysian in the fuel cell space. These companies and many more initially cater to the developing world, which in effect forces them to frugally engineer products, they build tremendous mass – all under the radar of the established players, and then are in a position to be truly global companies. Ghosn and the like should be spending energy on understanding the customer needs in the developing world as opposed to just reducing the cost of engineering. On a parting note, I think the next phase of business success will entail the globalization of frugally engineered products. These products will initially be tremendously successful in the local developing markets, and then there will be enhancements to meet the needs of the customers in the developed world.