More than fifty years ago, economist Joseph Schumpeter described the dynamic pattern in which innovative upstarts unseat established firms through a process he called “creative destruction.”1 While most twentieth century economists have focused on competition under conditions of static equilibrium, Schumpeter insisted that disequilibrium was the driving force of capitalism. The theme of creative destruction has received growing attention ever since.2
There is now little doubt that the economy is driven by firms that are able to capitalize on the “new combinations” described by Schumpeter: Coal Age technologies gave way to Oil Age technologies that are now giving way to Information Age technologies. With each change, the technological and economic infrastructure of society experiences dramatic transformation, with new institutions, enterprises, and geographic patterns of development created. During periods of dramatic change, incumbent firms have not been successful in building the capabilities needed to secure a position in the new competitive landscape, for example, manufacturers of horse carriages, sailing ships, vacuum tubes, steam locomotives, and propeller engines.
Not surprisingly, the notion of creative destruction makes many managers uncomfortable — and it should. Frequently, incumbent firms have either discounted the significance of an emergent technology or have reacted to changes by becoming more committed to existing products and markets. Incumbents that survive episodes of... To read the complete article, login or sign-up using the form below.
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