POST #23: The ‘I’ Word

Hey guys! I am sitting in bed with a sore throat feeling very sorry for myself. I hope you are all having a better day than me 🙂

So; let’s crack on! What is the ‘I’ word? The answer: Innovation.

For a dictionary definition, it can mean: a new method, idea, or product; a new way of doing things. This is what we probably immediately think of when we hear the word.

Although it can also mean, in a Business School setting:

Change, but not just any kind of change; innovation is a dramatic, sweeping change, one that’s usually undertaken in a short amount of time. – Robert Maurer, PH.D.

So; sounds good, right? Feeling positive about this? Well I’m not… exactly.

Throughout history, new ideas and products have always caused harm as well as good. Take the Luddites for example; when the Spinning Jenny was introduced in 1764, many skilled, artistic weavers were replaced by the machine. Because of the decrease in quality the machines provided, and the speed at which they could produce fabric, huge amounts of people lost their livelihoods, and took to smashing up factories and rioting as a result of the unfairness.

spinning jenny

But it is fair to say that the mechanising of the textile industry was overall hugely beneficial to the world. The advances made increased efficiency, and meant that many more people could buy cheaper clothes and so spend money on other needs. Without these advances, perhaps we would still be making our own individual clothes in our own cottages today.

This concept is called Creative Destruction, and is one well known to Behavioural Economists. It’s the process by which innovation, or something new, destroys whatever came before. I think of it in the same way as inflation; perfectly healthy for the world when kept at a low rate and in balance, but problematic when it spirals out of control.

I recently read a paper by John Komlos entitled, ‘Has Creative Destruction Become More Destructive?’ and it brings to light some interesting points. His view is that the rise in ‘disruptive technology’ such as online shopping (e.g. Amazon contributing to the disappearance of 1,200 Borders bookshops and their subsequent loss of jobs), means that even though the same amount of money is being spent by the public on this, the companies need to employ fewer people and so contribute less to the economy, and so there is more net destruction.

Komlos references the (rough) replacement of the camera company Kodak with Apple. At the height of its popularity, Kodak employed 145,000 people, and yet even though Apple is ranked fifth on the Fortune 500 list today, it employs about a third of that figure; 47,000 workers. And what about Facebook, one of the most successful and popular companies around today? A measly 7,000 employees.

For one more example, take a look at this graph:

graph
http://searchcio.techtarget.com/opinion/Creative-destruction-and-the-cloud-Why-its-a-good-thing

This idea of a more destructive Creative Destruction is definitely worth thinking about (I will provide a link to the paper below). We tend to view this sort of innovative change as only a positive thing; conventional wisdom dictates the ‘creative’ part is always much larger than the ‘destructive’ bit. But what if now, as we experience the Digital Revolution, innovation only contributes to destruction?

FURTHER READING:

http://www.freakonomics.com/media/Has%20Creative%20Destruction%20Become%20More%20Destructive.pdf

http://www.infometrics.co.nz/has-creative-destruction-become-more-destructive/

The Spirit of Kaizen by Robert Maurer – [Among other things this awesome book describes alternatives to innovation. Read it!]

http://freakonomics.com/podcast/how-safe-is-your-job-a-new-freakonomics-radio-podcast/

A Disclaimer: I am not fully convinced that we have an economic apocalypse on our hands through this sort of destruction. I just think it’s something to ponder, and worth highlighting to you readers 🙂

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