Hewlett-Packard (HP), the country’s leading personal computer manufacturer, was dumped from the Dow Jones Industrial Index today (Sept. 10) due in part to what consultant Richard N. Foster termed “creative destruction”: the tendency for new technological innovations to put large companies out of business. The rate at which this is happening is accelerating, according to his research of the Standard and Poor’s 500, which represents the 500 most valuable companies traded on the stock market. Today businesses can expect to spend an average of 18 years on the index, compared to an average of 61 years prior to 1958.
What’s the Big Idea?
Obviously, the ability to adapt is key to staying in the game, as the history of the S&P500 demonstrates: The last 10 years have seen the arrival of Amazon, Google and Netflix and the departure of Kodak, Palm and Compaq. HP still has a home at that index, along with many other familiar companies, but given the current turnover rate, “three out of four of those companies will be crushed into obscurity within the next fifteen years.” Interestingly, only one company has stayed on the S&P500 since the index was created in 1926: General Electric.