Creative destruction and disruptive innovations

The world is witnessing a new wave of innovation. Present principle is that every business entity should innovate or apply scientific invention in to the business field in a perpetual manner to survive.

Artificial intelligence, robotics, internet of things…all have changed our economic activities and way of life. Most innovations in the digital field are disruptive or the one which displaces an existing product or method. There were different observations and concepts about innovations and its relationship with economic activities. The earliest one is the concept of creative destruction coined by economist Joseph Schumpeter and the recent one is the concept of disruptive innovation.

Schumpeter – Creative destruction

The first systematic attempt to connect inventions and economic development was made by economist, Joseph Schumpeter. In his entrepreneurial theory of development, Schumpeter has narrated the origin, evolution as well as the disintegration of the capitalist system centered on the involvement of the entrepreneur. The life cycle of an economy is explained through changes in the level of innovation activities.

According to Schumpeter, competition under capitalism is not fundamentally about decisions on price or quality of goods. Rather it is related with the race to discover new technologies and ways of doing business that expand the range of available products, change daily life and destroy existing industries.

For Schumpeter, creative destruction implies the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”

Schumpeter had depicted entrepreneur as the change agent. Development is initiated by the innovating entrepreneur who is the hero of capitalist drama of development. Entrepreneur is a man of vision, imagination and drive and it is leadership and not ownership that matters.

For Schumpeter, capitalism disintegrates when entrepreneur becomes irrelevant as entrepreneurial activity becomes reutilized and institutionalized.

Recent history and trends shows the quick invention and innovation cycle across the world leading to rapid disappearance of old technologies and the establishment of new ones. For a company to survive, it has to be a perpetual innovator. Technological progress in electronics and IT is indicative of a new trend described as ‘disruptive innovation’.

The idea about disruptive innovation was first coined by Harvard Professor Clayton Christensen in his book ‘The Innovator’s Dilemma (1997)’. Christensen adapted Schumpeter’s idea into the present day world and classified innovations and new technologies as either sustaining or disruptive. Sustaining innovation improves existing products and technologies whereas disruptive innovations challenges established firms, products and business models.

How computers have displaced typewriters and how mobile phones have displaced mobile music devices are classic examples for disruptive innovation. Similarly, how artificial intelligence and robotics are going to replace human labour and services in future – all these shows the trend of disruptive innovation.

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