What Is Creative Destruction?
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Creative Destruction refers to the process by which new innovations destroy the value of older technologies and ways of doing business. Joseph Schumpeter coined the term to describe how capitalism involves constant structural changes to firms, industries, and economies driven by innovations. New technologies, products, services, and organizational methods disrupt existing businesses and markets. While disruptive, this process of "destruction" also creates new economic value and opportunities elsewhere. It poses challenges for firms, industries, and societies to adapt but also drives long-term economic growth through new jobs and industries that replace those made obsolete.
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What Is Creative Destruction?
- 2. Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.
- 3. The value of the old is destroyed by the new.
- 4. The value of old technologies…
- 5. … is destroyed by new technologies
- 6. You know the song ”Video killed the radio star”? That’s Creative Destruction!
- 7. The term Creative Destruction was used by Joseph Schumpeter, an Austrian economist.
- 8. To Schumpeter capitalism leads to eternal structural changes in firms, industries and economies. And he argued that Innovation is what drives this process…
- 9. Quote Schumpeter: ”In capitalist reality … it is not that kind of competition (price) which counts but the competition from the…
- 10. … the new commodity…
- 11. … the new technology…
- 12. … The new source of supply…
- 13. …the new type of organization…
- 14. - Competition which … strikes … existing firm … at their foundations and their very lives…
- 15. … this kind of competition is … much more effective that the other … and [is] the powerful lever that in the long run expands output” (End of long quote) Old and New computer Performance? Resources?
- 16. Quote Schumpeter: ”A railroad through new country, i.e., country not yet served by railroads, as soon as it gets into working order upsets all conditions of location, all cost calculations, all production functions within its radius of influence; and hardly any ’ways of doing things’ which have been optimal remain so afterward”.
- 17. Why does it look like this along a small country road in Alabama?
- 18. If a new highway (an innovation) is built next to the country road, noone’s going to drive on the old road…
- 19. … The value of the old is destroyed by the new creation…
- 21. Well, actually it is not! The photo is taken in New Orleans after the terrible Hurricane Katrina…
- 22. The views are terrible and strikingly similar! Innovations can create the same kind of views as a hurricane disaster…
- 23. And now a little game… The next slide contains 4 photos 2 are from Hurricane New Orleans 2 are from old country roads Guess which ones are from New Orleans!
- 24. Don’t cheat =)
- 27. TENNESSEE NEW ORLEANS COUNTRY ROAD NEW ORLEANS ALABAMA COUNTRY ROAD Amazing how hard it is to tell the difference! Innovation is really about Creative Destruction!
- 28. Yesterday’s and today’s capitalist economy is all about Innovation and Creative Destruction.
- 29. Innovation was what drove the 19th century economy… The telegraph Railway and the steam engine Iron and steel New energy (coal)
- 30. … And it drives today’s global economy as well Oil The container The transistor Plast
- 31. ”From the steam engine to the search engine”
- 32. Surviving Creative Destruction is a challenge for firms…
- 33. … Surviving Creative Destruction is a challenge for industries…
- 34. …a challenge for societies
- 35. It’s a challenge for people… The tractor innovation destroyed the peasant’s job
- 36. Other innovations create new jobs somewhere else in the economy…
- 37. So, Innovation and Creative Destruction drive structural change in society Share of Swedish population working in agriculture, industry and services over time.
- 38. Summing it up… Innovations Destroy value at one place, and Create a larger economic value somewhere else.