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Copyright 2001 Globe Newspaper Company  
The Boston Globe

April 17, 2001, Tuesday ,THIRD EDITION

SECTION: BUSINESS; Pg. C1

LENGTH: 674 words

HEADLINE: DAVID WARSH;
WELCOME TO THERMIDOR

BYLINE: BY DAVID WARSH, GLOBE STAFF

BODY:
When, a couple of hundred years ago, the greatest new era of them all dawned, so moved were its citizens by its novelty that its publicists abolished the Gregorian calendar and made up one of their own. The French Revolution had begun in mid-September:  the next 30 days became Vendemaire, named for the wine harvest. October was Brumaire, the misty month. Spring began with Germinal, on March 21. And the 11th month, the hot month that began July 19, was Thermidor.

When the Revolution turned overripe in the summer of 1794 and began to kill even the radicals who had presided over the Terror, the militants who led the roundups were called the Thermidoreans.

   The dot-com revolution may be entering its own Thermidor.

The announcement yesterday after the market closed that Cisco expected a second bad quarter in a row may precipitate a new wave of dot-com closings. So far it has been staved off only by the unwillingness of venture capitalists to write off as worthless their investments. By some estimates, as many as two-thirds of the dot-coms in Silicon Valley may close their doors.

That means that soon we may be able to get back to talking about business as usual - meaning big business. A good place to start is with a fascinating new book out of McKinsey and Co. by Richard Foster and Sarah Kaplan. Good Thermidoreans that they are, Foster and Kaplan, in "Creative Destruction: Why Companies That Are Built to Last Underperform the Market - and How to Successfully Transform Them," have taken aim at two of the most successful business books of the last 20 years, "In Search of Excellence" and "Built to Last."

It was in 1982 that McKinsey consultants Tom Peters and Robert Waterman lionized a series of companies including IBM, Johnson & Johnson, and McDonald's for achieving blue-chip status by pursuing eight key principles. The book was a phenomenal bestseller - just in time to see many of its prime examples get in trouble or go broke altogether.

Then in 1994, Stanford professors James Collins and Jerry Porras published "Built to Last," a celebration of 18 companies that outperformed the market by concentrating on some fundamental social purpose rather than simply making money. Whether it was Hewlett-Packard in computing, Merck in medicine, or 3M in innovative engineering, the best companies did well by ignoring the short term and concentrating on building their businesses.

Foster and Kaplan's subtitle is, of course, a sly dig at the latter book. Foster himself in 1986 had published "Innovation: The Attacker's Advantage," a prescient analysis in its own right of the economic advantages of attackers in times when technology was changing fast. But try as he might, he could find few innovators who were able to sustain their advantage. Almost as soon as a company was praised in the general management literature as super-durable, its position began to deteriorate.

Probing deeper in an extensive database, what they found was a psychology of continuity among the chieftains of successful businesses that set them up for a certain kind of fall. They quote the president of the mighty Anaconda Mines Co. "This company will be going strong one hundred and even five hundred years from now." Three years later it was bankrupt.

A dozen chapters of war stories and analysis make fascinating reading. "Creative Destruction" seems headed for exactly the kind of success as the earlier volumes whose dogma it seeks to overturn. Redesigning corporations to change at the pace and scale of capital markets themselves is the answer, they say.

It's for that reason that General Electric is so widely admired (and highly valued). It's for this reason, or something like it, that Boeing Corp. recently announced that it planned to move its headquarters away from isolated Seattle. Boeing may have been right. But in Foster and Kaplan's be-ready-to-turn-on-a-dime philosophy, one senses the beginning of another and even more dreamful fad.

David Warsh can be reached by e-mail at warsh@globe.com.

LOAD-DATE: April 17, 2001