Guru of creative destruction's four steps to success

By ELLEN READ

New Zealand must take four drastic steps if it is to hook into the knowledge wave.

One of the leading business participants at the Catching the Knowledge Wave conference said the country must strengthen the performance of its companies and internal capital markets, invest in physical infrastructure to attract foreign capital and focus its development of industries on the periphery and not on science alone.

Dick Foster, a senior partner and director with international business consultancy McKinsey and Company in New York, is the co-author of Creative Destruction, which argues that one of the fundamental tenets of American business - that a company must be designed to stand the test of time - is seriously flawed.

Corporations can outperform capital markets and maintain leadership only if they creatively and continually reconstruct themselves, say the authors.

"In the 1920s, the assumption of continuity was the only defensible assumption; now the assumption of discontinuity is the only defensible assumption," Dr Foster told the conference.

"And you would never design a corporation to operate on a continuous basis in a discontinuous environment, or vice versa."

If this discontinuity trend held up, in 15 years three-quarters of the Standard and Poor's 500 would be companies not yet heard of, he said.

"The processes of creative destruction are not effectively working in New Zealand, and that's an issue you have to deal with."

The four steps he proposed would allow the knowledge economy to flourish.

Dr Foster said the high number of New Zealand firms disappearing from the stock exchange through foreign takeover was of concern.

"It isn't so much creative destruction within New Zealand as creative destruction of New Zealand by the outside corporations, and it's an issue I think you must address."

Local corporate and Government bonds presented better investment opportunities than the stock exchange, which was "tiny and illiquid", he said.

"Many New Zealand companies dream of the day they can be listed on the Nasdaq. That's not production for the [local] economy.

"They should dream of the day they can be listed on the New Zealand Stock Exchange."

Dr Foster was followed by Xerox chief scientist John Seely Brown.

Dr Brown, former director of Xerox's Palo Alto research centre, believes economic and social wealth are increasingly dependent on knowledge creation.

A focus of his research has been human learning and the creation of knowledge ecologies for nurturing radical innovation.

Using Silicon Valley as a model of innovation, he said New Zealand could learn from the factors in its success.

The continual interaction between universities and firms, which enhanced the knowledge of both; the risk-reward culture; the quick births but lack of slow deaths among valley firms; the learning through the deaths that did occur; and the informal benchmarking that took place everywhere, from bars to soccer fields, were integral to Silicon Valley's success, Dr Brown said.

The interaction between research facilities, universities and corporations suggested that we should move away from the mechanistic model of innovation and think of it more in terms of ecology.

He said the arts would play an increasing important role in innovation by helping us all to push our boundaries out.

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