The Construction of a Visual Model to Examine the Interactive Dynamics Between Creative Destruction and Corporate Longevity

Abstract

Richard Foster and Sarah Kaplan introduced Corporate Longevity as a graph that follows the rolling seven-year lifetime average of companies listed on the S&P 500 Index , which they propose to decline over time due to the capitalistic process named Creative Destruction . This research aimed to understand why or how the Foster Corporate Longevity Wave assumed the shape of a perfect sinusoidal wave with a consistent wavelength and reduction in amplitude, which is quite unique for a wave that should be random due to random events. With the hypothesis that Creative Destruction is responsible for the shape of the Foster Corporate Longevity Wave, a systems modelling methodology was used to construct a single visual model to examine the dynamic influence Creative Destruction may have on the shape of the Foster Corporate Longevity Wave. Creative Destruction is represented by innovation, economic and civilization waves. During the construction of the visual model, the following observations were made: (1) the Foster Corporate Longevity Wave has a consistent oscillating wavelength of 20 years and also a consistent longevity delta reduction of approximately 10.5% in wave amplitude after each wave cycle, (2) there is a significant interactive dynamic relationship between the innovation and the economic waves, which went through a wave phase shift during World War II, (3) the innovation and economic waves are in perfect harmonic phase with the Foster Corporate Longevity Wave until 2020. With the corrective extrapolation to keep the innovation and economic waves in phase with the Corporate Longevity Wave from 2020 until at least the year 2050, the following changes were made to the propagation of the innovation and economic waves from the year 2010 and onwards: (1) the innovation wave will have to fracture into several wavelets, and (2) the economic wave’s wavelength must be halved to a wavelength of 20 years. They year 2020 was identified as a unique point in time with: (1) the disruption in the harmonious shaping of the Foster Corporate Longevity Wave, (2) the start of a new civilization wave cycle, and (3) also the start for the global economy to move into a recession until 2025 when it will go into a depression.

Keywords: Richard Foster, Nikolai Kondratieff. Joseph Alois Schumpeter, Alvin Toffler, Innovation, Economics, Corporate, Longevity, Survivability, Civilization, Waves, Model, Creative Destruction

JEL Classification: L25, F01, B20