Creative Destruction Joseph Schumpeter In capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power. 3 8 February 1883 – 8 January 1950
Creative Destruction Successful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialised by competing entrants. 4
The Use of Knowledge in Society Friedrich von Hayek Two types of knowledge: scientific knowledge, “knowledge of the particular circumstances of time and place” 5
The Use of Knowledge in Society Practically every individual has some advantage over all others in that he possesses unique information of which beneficial use might be made” 6 8 May 1899 – 23 March 1992
The Use of Knowledge in Society because every individual only processes a small piece of the puzzle, no central planner can ever run the economy efficiently. 7
The Use of Knowledge in Society Market mechanisms serve "to share and synchronize local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization." 8 8 May 1899 – 23 March 1992
The greatest danger to liberty today comes from the men who are most needed and most powerful in modern government, namely, the efficient expert administrators exclusively concerned with what they regard as the public good. Hayek and Taiwan (and China) 9 inefficient
Paradigm Shift Thomas Kuhn (July 18, 1922 – June 17, 1996) A scientific revolution occurs when scientists encounter anomalies which cannot be explained by the universally accepted paradigm. 11
Paradigm Shift When enough significant anomalies have accrued against a current paradigm, the scientific discipline is thrown into a state of crisis, according to Kuhn. 12
Paradigm Shift 13 for early 20th century physics, the transition between the Maxwellianelectromagnetic worldview and the EinsteinianRelativistic worldview was neither instantaneous nor calm.
Paradigm Shift 14 "a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.“ Thomas Kuhn quoting Max Planck
Wikipedia One can't understand my ideas about Wikipedia without understanding Hayek. When information is dispersed (as it always is), decisions are best left to those with the most local knowledge 16
Age of Discontinuity In an “age of discontinuity,” as Drucker called the currentera, entrepreneurs couldfindsignificantopportunitiesto create or transform organizations if they were willing to get ahead of societal changes. 18
Age of Discontinuity Drucker said that the best way to predict the future is to invent it. Discontinuities provided gaps in society that could be filled with creativity. Innovators should be attuned to unmet needs that did not yet show up in market research. 19
Михаил Александрович Бакунин Mikhail Alexandrovich Bakunin The passion for destruction is also a creative passion. 20
Karl Marx Infrastructure determines superstructure 21
New Market DI Model Sustaining strategy Performance Low-end disruption Time Performance New market disruption Time Non-consumers 35
Shaping ideas to become disruptive (How to Beat Our Most Powerful Competitors) 36
Explore whether the idea can become a new market disruption
Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and
as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?
Explores the potential for a low-end disruption
Are there customers at the low end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price?
Can we create a business model that enables us to earn attractive profits at the discount prices required to win the business of these over-served customers at the low end?
Is the innovation disruptive to all of the significant incumbent firms in the industry? If it (the innovation) appears to be sustaining to one or more significant players in the industry, then the odds will be stacked in that firm’s favor, and the entrant is unlikely to win. 39
Competing Against Non-consumption The logic of competing against non-consumption as the means for creating new-growth markets seems obvious. Despite this, established companies repeatedly do just the opposite. 41
What Makes Competing Against Non-consumption So Hard? Not see disruption coming in. Even if, Threat rigidity - Threat elicits more intense and energetic response than opportunity, and then focus on countering the threat to survive. 42
How to Avoid Hard Non-Consumption Competition First, get top-level commitment by framing a threat as an innovation during the resource allocation process. ex. Newspapers embraced online editions to give existing customers additional choice 43
How to Avoid Hard Non-Consumption Competition Later, shift responsibility for the project to an autonomous organization that can frame it as an opportunity. ex. Place the responsibility to commercialize the disruption in an independent unit for which the innovation represents pure opportunity – newspaper’s online group 44
Immelt’s approach Shift power to where the growth is. Build new offerings from the ground up. Customize objectives, targets, and metrics. Build the DI unit from the ground up, like new companies. Have the DI unit report to someone high in the organization. 45
Two Articles from HBR The world is in constant disruption – new technologies create new platforms John Hagel III, John Seely Brown, and Lang Davison, “Shaping Strategy in a World of Constant Disruption,” Harvard Business Review, October 2008. The big emerging markets provide good chance for disruptive technologies Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble, “How GE Is Disrupting Itself?” Harvard Busness Review, October 2009. 47