Economics wasn’t my strongest subject at school which explains why I don’t remember the term ‘creative destruction’ coined by economist Joseph Schumpeter in his book Capitalism, Socialism and Democracy (1942). It essentially means......
.....a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. Schumpeter said that the "process of creative destruction is the essential fact about capitalism”.
Put another way, creative destruction takes place when something new replaces something old. It’s when new technologies, new kinds of products, new methods of production and new means of distribution emerge to make old ones obsolete, we see the old companies being forced to quickly adapt to the new environment or fail.
This happened in the personal computer industry when Microsoft and Intel destroyed many mainframe computer companies and changed the face of the computer industry.
In any industry creative destruction is necessary for the old to make way for the new. It’s like a renewal process to allow the fittest to survive and innovation to emerge. Certainly for many entrepreneurs, they operate to destruct old industries and create game changing products or services. Just look at industries that have been disrupted and the disruptors –
- hotels by Airbnb
- taxis by Uber
- department stores by online retailers like Netaporter
- movie houses by Netflix
- venture capital by Crowdfunding websites
- airlines by Virgin
Destruction is like any change - we know it’s a certainty and that it can be uncomfortable. When change has to happen, it’s best to bring it about quickly to minimise the business shock or personal impact. Whether you call it change or creative destruction, it's still necessary for innovation and new thinking or ways of working to come into being,
