It is a harsh reality of business that sooner or later healthy economies tend to destroy most established enterprises due to the continuous onset (and onslaught) of new means of creating ever-greater value. Dealing with this ongoing economic devastation should be a focus of managing even at the founding of a new enterprise and continuing, well, basically forever. For successful managing must produce the wealth needed to fund the exploration, exploitation, and orchestration every enterprise needs to develop new ways of creating value (while terminating outmoded ones).
In Enrich Humanity we covered the fifth law of managing addressing what value the enterprise creates - the enriching of humanity through offerings provided to customers by the businesses of the enterprise.
Now the last question regarding successful managing arising from Kipling’s famous “six honest serving-men”: When does the enterprise create value? The answer: with every decision acted on, the result of which ultimately becomes manifest in the operation conducted by the enterprise. Therefore, managing functions to produce wealth in order to conduct operation, the wealth-producing domain of enterprise value creation where the rubber meets the road in all that takes place within the enterprise. And in order to survive, if not thrive, the operation must be profitable by making wealth-producing decisions.
The Creative Destruction First Principle:
Our search for first principles here led us to discover the sources of wealth for enterprises and the economies within which they operate. In regard to economies we found the creative destruction first principle described by Joseph A. Schumpeter in his famous book, Capitalism, Socialism, & Democracy. Here Schumpeter noted that economies evolve, produce wealth, and remain vital when the process of ever-changing markets, offerings, and enterprises “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” He referred to this process as “the perennial gale of creative destruction,” identifying it as “the essential fact about capitalism.”(1)
The Destructive Recreation First Principle:
Now what part of the economic structure succumbs to this gale and gets destroyed? Enterprises. And what part forms this tempest of ever-increasing value? You guessed it – enterprises again. So which one of these do you want to be, the one creating or the one destroying? The easy answer here is actually wrong; you want to be both. For in order to produce new wealth from new means of economic value creation you must destroy the old ways that no longer make economic sense lest they become a stumbling block to further advancement.
Realizing this, we form the complement to Schumpeter’s creative destruction principle of economies with the destructive recreation first principle pertaining specifically to the enterprise. For that is exactly what any enterprise must do to withstand the Schumpeterian gale, destructively recreating itself over and over again by innovating within the enterprise at least as much as is going on in its ecosystems. Anything less and the enterprise will eventually get blown over by others moving faster, operating better, and creating greater value.
Schumpeter’s creative destruction and our destructive recreation first principles then bring us the sixth law of managing:
The Law of Vitality
Only the enterprise that attains vitality,
through its incessant destructive recreation,
produces the wealth necessary to survive.
Just as the other laws must be manifest in each practice of managing, this law calls for managing practices to be infused with vitality. For instance, the fifth law calls for the enrichment of humanity, setting the ultimate standard of true economic value creation, which, with the addition of the law of vitality, now also produces the profitability absolutely essential to vitalizing the enterprise. In another instance, the third law calls for the liberation of creativity in order to mold ecosystems. But in the process of doing this, the related discovery practices must also reflect and adhere to the law of vitality in that they must discover new wealth-producing opportunities.
The contrast with traditional managing becomes immediately evident. While managing according to the laws vitalizes the enterprise, traditional managing tends to optimize it. It generally avoids destructive re-creation at all costs, at least up until bankruptcy looms on the horizon or a buyout occurs. On the other hand, the law of vitality recognizes the ever-present threat of creative destruction and instead of defending against it incorporates it into the very managing of the enterprise. By destructively recreating itself, the enterprise turns creative destruction into its own competitive advantage.
Against this backdrop, the law of humanity then indicates this managing imperative:
Imperative to Produce Wealth: Attain Vitality
In adherence to the law of vitality, managing must attain
vitality, following a trajectory of endless potential,
new-to-the-world offerings, and continual enterprise
transformation, in order to produce the wealth
necessary to survive.
Compare this imperative to conventional managing, with its intent to optimize the enterprise by seeking stable results and attempting to produce predictable outcomes at the expense of long-term vitality. Enterprises with such an intent do not intentionally fall into mediocrity and eventually fail, but that is exactly what happens as the gales of creative destruction in due course sweep aside the weak and the strong alike. Only those enterprises with an intent to vitalize themselves have the hope – no, have the will – to forego short-term profits and the means to survive and even thrive over the long-term. A vitalization intent focuses on long-term viability, innovating offerings faster than the enterprise’s ecosystems, and continually re-creating its businesses in concert.
Optimization, a somewhat natural proclivity of managers, must be supplanted by a disciplined intent to vitalize the enterprise. This discipline requires continually employing the whole person, seeking and adhering to a meaningful purpose, persistently exploring for new possibilities and orchestrating opportunities into operation, cannibalizing existing offerings, forming new businesses, and innovating managing practices sooner rather than later, in order to take on new ventures whose risks are indeterminable up front, all while enriching humanity. That’s no small task, obviously, but it is exactly what’s required of managing any enterprise that seeks to thrive, and do so indefinitely.
With this chapter on the law of vitality, we have now covered all the laws of managing dealing with the who, why, where, how, what, and when aspects of enterprise value creation. But there is one more law, one collectively addressing all these aspects as a whole. That is the task of the law of coherence.
(1) Joseph A. Schumpeter, Capitalism, Socialism, & Democracy, Third Edition (New York: Harper Perennial, 1950), pp.