The origins of disruptive innovation theory
You’d be forgiven for believing that Christensen’s 1997 classic The Innovator’s Dilemma was the first to detail the phenomenon in all its applecart-overturning glory: in fact it was explored in 1939. Watch this incisive lecture.
“A railroad through new country… upsets all conditions of location, all cost calculations, all production functions within its radius of influence; and hardly any “ways of doing things” which have been optimal before remain so afterward” Joseph Schumpeter, Business Cycles
Here’s an extract I put together from the Wikipedia article on Schumpeter:
Joseph Alois Schumpeter (8 February 1883 – 8 January 1950) was an Austrian-American economist and political scientist. He popularized the term “creative destruction” in economics
A recent huge and highly regarded Schumpeter biography: Prophet of Innovation: Joseph Schumpeter and Creative Destruction by Harvard’s Thomas McCraw (2007)
Innovation
Schumpeter identified innovation as the critical dimension of economic change. He argued that economic change revolves around innovation, entrepreneurial activities and market power and sought to prove that innovation-originated market power could provide better results than the invisible hand & price competition.
He argues that technological innovation often creates temporary monopolies, allowing abnormal profits that would soon be competed away by rivals and imitators.
He said that these temporary monopolies were necessary to provide the incentive necessary for firms to develop new products and processes
His legacy
For some time after his death, Schumpeter’s views were most influential among various heterodox economists, especially European, who were interested in industrial organization, evolutionary theory, and economic development, and who tended to be on the other end of the political spectrum from Schumpeter and were also often influenced by Keynes, Karl Marx, and Thorstein Veblen.
Robert Heilbroner was one of Schumpeter’s most renowned pupils, who wrote extensively about him in The Worldly Philosophers.
Other outstanding students of Schumpeter’s include the economists Nicholas Georgescu-Roegen and Hyman Minsky and former chairman of the Federal Reserve, Alan Greenspan.
Robert Solow, Nobel Prize in Economics, was his student at Harvard, and he expanded on Schumpeter’s theory.
Today, Schumpeter has a following outside of standard textbook economics, in areas such as in economic policy, management studies, industrial policy, and the study of innovation.
Schumpeter was probably the first scholar to develop theories about entrepreneurship.
For instance, the European Union’s innovation program, and its main development plan, the Lisbon Strategy, are influenced by Schumpeter.
The International Joseph A. Schumpeter Society awards the Schumpeter Prize.
The Schumpeter School of Business and Economics opened in October 2008 at the University of Wuppertal.
According to University President Professor Lambert T. Koch, “Schumpeter will not only be the name of the Faculty of Management and Economics, but this is also a research and teaching programme related to Joseph A. Schumpeter.”
On 17 September 2009, The Economist inaugurated a column on business and management named “Schumpeter.”
The publication has a history of naming columns after significant figures or symbols in the covered field, including naming its British affairs column after former editor Walter Bagehot and its European affairs column after Charlemagne.
The initial Schumpeter column praised him as a “champion of innovation and entrepreneurship” whose writing showed an understanding of the benefits and dangers of business that proved far ahead of its time.
As with all innovation (including economic theory innovation), building on the past is an essential part of creating the new. While the notion of creative destruction and the innovator as an engine of economic growth was described by Schumpeter, he did not identify that there was a specific type of innovation that was primarily responsible for the creative destruction, nor did he specify how it happened and theorize why. Your subhead seems to imply that everything Christensen wrote was a regurgitation of what came before, but it clearly wasn’t. Until very recently, we didn’t isolate the kinds of innovation that add significant value from those that simply keep you in the game. Although disruption is perhaps the most talked about theory of innovation, it is still grossly misunderstood and rarely applied properly. Even Christensen, and especially his consulting team, is sometimes inconsistent and confuses the core issues. Your main head gets it right — this is the origin of the theory. Your subhead is exaggeration and hype, and an apparent misrepresentation of the truth.
Hi Paul, I’m glad to hear that you share my view that Schumpeter was the originator of innovation theory. However, I was surprised to note that you believe that my claim that The Innovator’s Dilemma is what people would imagine was the first book on Innovation Theory was exaggeration and hype and a misrepresentation. I think people’s understanding of the nuances between different types of innovation would not have changed their belief about which book was the first on the nature of innovation. Thus I don’t see how what I was saying was anything other than a reflection of the layman’s understanding of the literature on the subject. However, I do acknowledge that your expertise in this field may reveal far more detail than I am personally acquainted with and so these distinctions may indeed be perfectly valid. There’s something to say about the difference between Schumpeter’s and Christensen’s understaning of the nature of innovation, such that although Schumpeter may be the “Father of Innovation Theory”, Christensenss role in developing Innovation Theory may be something you wish to take issue with.
By the way Paul, have you had a chance to look at Christensen’s new book:
http://www.youtube.com/watch?v=c9huVzYRdxw
Hi Debbie:
I don’t believe that Schumpeter was the “originator of innovation theory”. Innovation is as old as time — the word derives from the Latin “innovare” which means to renew or change, so clearly they thought about these things a few thousand years ago. Schumpeter did articulate much of our modern understanding of it’s role in business.
And, his work was definitely a precursor to Christensen, as the the headline “The origins of disruptive innovation theory” suggests. As to the claim you make that some people believe Christensen’s “Innovators Dilemma” was the first book on Innovation Theory — I don’t see that claim anywhere in your article. I’d be surprised if anyone seriously thought that, but I suppose it’s possible.
What I was taking issue with is the subhead “You’d be forgiven for believing that Christensen’s 1997 classic The Innovator’s Dilemma was the first to detail the phenomenon in all its applecart-overturning glory: in fact it was explored in 1939.”
This clearly refers back to the original heading “The origins of disruptive innovation theory”, and when you put the two together, the only way to read it is that Schumpeter was actually the first to describe disruptive innovation, which is a false statement. If your intent was actually to say that people think Christensen was the first to talk about innovation, then I guess the headlines are poorly written, because that isn’t what they say.
I’ll leave it to you to surmise what laymen think about innovation, although I’d be surprised if most people thought about it any more deeply than “the creation of new things”. Hopefully though, the readers of an innovation investment journal aren’t laymen, and the differences matter to them. It’s certainly been my observation that most “real” business growth is due to disruption, and that other forms of innovation, while important and useful, mostly just keep you in the game.
Hi Paul, I’ve been looking at your website and was interested to see that you’re offering free download of your ebook “Disruptive Confusion Unraveled”:
http://www.innovativedisruption.com/disrupt-this/
I’ll certainly be downloading it and it will be interesting to learn why there are so many misconceptions of disruption theory. Just a quick thank you for making this available as a free download
.
Thanks for calling out my site Debbie — I was trying to not make this a commercial plug for myself, but I appreciate you pointing out the eBook. The link you posted is the main link to my blog. Here is a persistent link to the eBook download page.
http://www.innovativedisruption.com/disruptive-innovation-matters/
As to the main reason for confusion, I think it comes down to a) media, consultant, analyst and pundit misinformation, and b) the majority of people are not innovation practitioners and don’t see the need to distinguish between different kinds of innovation. The reason it’s important to distinguish between the disruptive and non-disruptive varieties accurately is what disruption means for growth and value. Accurately predicting disruption gives a huge edge to making the right investment and divestment decisions because disruption directly impacts valuation (and which investment bets win or lose), no matter what the market conditions.
The eBook not only explains this in more detail, but offers data to back up these assertions.
[...] was Schumpeter whose acute insights about disruptive innovation and entrepreneurship are still present with us in works of Christensen, Drucker, [...]
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