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Creative Destruction

Creative Destruction is the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old old , incessantly creating a new one”. – Joseph Schumpeter

According to this theory, new innovative products or processes change the market and at the same time break the old order.

It is like an arsonist that knocks a house down before setting fire to the rubble, then goes on to build a bigger and better house.  Ok, maybe I have overstated with that example but it is a fact of capitalism (creative destruction) and the circle is shorter in creative enterprise.

What did the smartphone do to the other phones, cameras, walkmans, watches, calendars and cybercafes, laptop computers?

To understand this better, let us look at some examples.

MPESA vs MONEY COURIERS / TELEGRAPHIC MONEYORDER

Once upon a time, sending money was a tedious, time consuming affair. Easy coach and Akamba were some of the biggest players in the money transfer business. They were actually registered and certified to transfer money on behalf of their clients. Posta was a part player with the telegraphic money order too. If you never sent money using a courier then you haven’t lived in Kenya long enough. You actually put money in an envelope and sent it to your destination 3-12 hours away. Instant was nothing.

Then came MPESA and poof! Creative Destruction happened to the money courier business and I can guarantee you, that one is for the history books. The MPESA  process was safer, easier and best of all instant.

AMAZON VS PUBLISHERS

If you ask the book readers, amazon is the best thing that happened to reading. If you ask publishers, expect expletive accompanied by a gesture and a passionate explanation of why it is the worst thing to happen to books. Truth is book publishing process benefits the publisher more than the author at the expense of the reader. Given a chance to own 10 e-books for $50 or one hardcover for $50, people have chosen ebooks over and over. Again, this is game over albeit in slow motion for publishers. The authors are happy to publish direct to amazon, earn a few dollars per copy but at least keep most of the earnings. Amazon destroyed the process and the product, now you don’t need to invest in a shelf to have a library.

CLOUD VS ENTERPRISE COMPUTING

There’s a revolution in the clouds. Have you heard? Companies are spending less and less of their budget on hardware and software licences and looking to cloud based service providers for solutions. Instead of buying software licences for all 500 pc’s in your company or upgrading the PC’s and servers every 2 years. Leave it all to the cloud and access the best solutions in computing without breaking your bank. Companies like DELL are having sleepless nights because the creative destruction power of the cloud cannot be stopped.

KODAK VS DIGITAL CAMERAS

There isn’t much to say about this except that KODAK invented the first digital camera in 1975. Why didn’t they take it to the market then? They saw the creative destruction power, and chose to sit on it to protect it’s film business. The market has not been forgiving on the other hand, and cameras are everywhere. The film business will be all but forgotten in the near future.

As an entrepreneur, embrace creative destruction as a way of life. Tough actions may be necessary to survive the destructive wave even when it looks like the current business model will suffer.

The implication of the actions taken, in time ensure the transformation of the business and guarantee survival.

Can you see where the destruction is coming from in your industry?

Send us a comment below and lets kick off this debate…

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