Tuesday, September 19, 2023

Oh No! Is Creative Destruction Dead?

 Oh No! Is Creative Destruction Dead?

For years, I made a federal case out of Schumpeter’s theory. As a university professor, the theory supported my position that:

1. Disruption is the way in as a Unicorn. 

2. Disruption is your biggest danger as a business owner.

3. Your economic Moat is in place to protect you from being the Disrupted.

As a dramatic support mechanism, I used the Hindu Trinity to illustrate the Circle of Life and the inevitability of the proposition that, for something new to be born, something had to die. Netflix and other examples presented themselves as easy examples.

Known in Sanskrit as “Trimurti,” the process represented is the inevitable influence of the trinity: Brahma, the Creator; Vishnu, the maintainer; and Shiva, the destroyer. One representation of the trinity looks like this:


They look innocent enough, and maybe that’s the point: the constant regeneration is not a bad thing, but the reason life continues.

In business, there are so many stories that we all know that seem to support this theory- Sears, JC Penneys, Toys R Us all became irrelevant because something else came to take their place, such as Amazon; Walmart replaced countless small local shops; Smartphones, Apple replaced everything that came before them. And more.

This explains everything very neatly and is a lesson to all students and businessfolks to absorb, lest they be absorbed.

In 2005, W. Chan Kim and Renee Mauborgne of INSEAD came along with Blue Ocean Strategy, which supported the age-old principles of Sun Tzu by declaring that the way to success was to “make the competition irrelevant” which dovetailed with Sun Tzu’s principles like “Win All Without Fighting,” “Attack Weakness Not Strength,” “Shape your Opponent,” etc. 

They also seemed to shed new light on Michael Porter’s Competitive Advantage which seemed to (but really didn’t) visualize markets as bordered and to be defended from within the castle by recognizing the Five Forces that challenge firms, which has at its center Rivalry Amongst Competitors.

Most importantly, finding new market space which is a Blue not Red Ocean of competition seemed to reinforce the thought that those companies who created new market space were setting up the eventual demise of those incumbents in the previously established space. Creative Destruction- yeah!

Now, in their new book entitled “Beyond Disruption,” Mauborgne and Kim have come up with the concept of “Nondisruptive Creation,” which states that, as they notice from their work to date, that new markets and businesses can be layered on top of existing markets without disrupting them.

They stated that “Among the cases that had been added to our original database over time, a few had triggered no disruption or displacement at all.” After researching their findings, they believe that “Nondisruptive creation is distinct from existing innovation concepts and can be defined as “the creation of a brand new market outside or beyond the boundaries of existing industries.”

Wait—isn’t that what Blue Ocean Strategy was supposed to do? Where was it written that BOS only applied to disruptive opportunities. Many of the examples given in the original book didn’t seem to depend on putting someone else out of business. An example of this is Yellow Tail Wine, which they described as wine for the non-wine drinker. The customers of Yellow Tail are probably customers the traditional wine sellers would not have gotten anyway, so does not threaten them with disruption.

I think if you want to nitpick you can contend that nondisruptive creation is a subset of Blue Ocean Strategy. And, as book sellers, if they positioned it that way, they would limit their audience versus saying it is a new thing.

That said, the concept has its own validity no matter if it is a distant cousin or a brother of BOS.

The idea that new markets can be created in a red ocean that gets redder every day is a bright light shining on the future that allows new businesses, enhanced production and new demand to be layered on the well-being of society without anyone having to lose their jobs (such as the inevitable result of disruption).

So does that mean I have to stop teaching about Creative Destruction? I don’t think so because disruption will continue to exist as a force in business, especially when companies lose their relevance through poor merchandising or failed leadership ( you can think of lots of these).

But- the concept seems to offer opportunities above and beyond what has gone before. Still making the competition irrelevant? Maybe, but also creating new demand for which there is no competition. And, as the authors say, “nondisruptive creation opens a positive-sum approach to innovation and growth that allows business and society to thrive together.”

I have not read the book yet, but as usual with Mauborgne and Kim, it is well and broadly explained on the internet. I will comment further once I read it.

Bottom line for me as a professor is that I can keep teaching Creative Destruction but have to add Nondisruptive Creation as a new opportunity.

 Michael Serwetz 2023

Link to Mauborgne and Kim’s web page for the concept and book.

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