Creative Destruction – Page 14

Nasar Gives Compelling Portrait of Joseph Schumpeter and His Vienna

Source of book image: http://luxuryreading.com/wp-content/uploads/2011/10/grand-pursuit.jpg

(p. C31) Ms. Nasar gives us Belle Époque Vienna — infatuated with modernity and challenging London in the race to electrify with new telephone service, state-of-the-art factories and power-driven trams — and then a devastating picture of Vienna at the end of World War I: war veterans loitering outside restaurants waiting for scraps, and desperate members of a middle class that saw inflation wipe out all its savings trading a piano for a sack of flour, a gold watch chain for a few sacks of potatoes.
. . .
Among the more compelling portraits in this volume is that of Joseph Alois Schumpeter, the brilliant European economist who argued that the distinctive feature of capitalism was “incessant innovation” — a “perennial gale of creative destruction” — and who identified the entrepreneur as the visionary who could “revolutionize the pattern of production by exploiting an invention” or “an untried technological possibility.”

For the full review, see:
MICHIKO KAKUTANI. “BOOKS OF THE TIMES; The Economist’s Progress: Better Living Through Fiscal Chemistry.” The New York Times (Fri., December 2, 2011): C31.
(Note: ellipsis added.)
(Note: the online version of the article is dated December 1, 2011.)

Pixar as a Case Study on Innovative Entrepreneurship

Source of book image: http://murraylibrary.org/2011/09/the-pixar-touch-the-making-of-a-company/

Toy Story and Finding Nemo are among my all-time-favorite animated movies. How Pixar developed the technology and the story-telling sense, to make these movies is an enjoyable and edifying read.
Along the way, I learned something about entrepreneurship, creative destruction, and the economics of technology. In the next couple of months I occasionally will quote passages that are memorable examples of broader points or that raise thought-provoking questions about how innovation happens.

Book discussed:
Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

Creative Destruction Helps Us Be Well

WSJ review quoted and cited below.

Dr. Eric Topol’s credible and thought-provoking comments on the over-use of stents appeared in entries in this blog in August 2006 and in December 2006.

(p. A15) “The U.S. government has been preoccupied with health care ‘reform,’ but this refers to improving access and insurance coverage and has little or nothing to do with innovation,” even though, as Dr. Topol notes, adopting new approaches would improve care and lower costs. . . .
. . .
“The Creative Destruction of Medicine”–an allusion to economist Joseph Schumpeter’s description of “creative destruction” as an engine of business innovation–is a venture capitalist’s delight, describing dozens of medical technologies that show great promise. The book also provides colorful anecdotes about Dr. Topol’s own sampling of these products, as both a doctor and stand-in patient.
. . .
. . . , full adoption of the new tools will require the Food and Drug Administration to alter the way it evaluates products. The FDA, he says, should allow the testing of drugs on patients who are selected for their prospect of deriving a benefit. Right now, the FDA usually requires drugs to be tested in a scattershot fashion on large populations. With drugs being tested on cancer patients, he notes, the “FDA insists on a body count to be able to quantify how much and how long the new drug improves survival”–even though diagnostic markers can sometimes reveal in advance which patients are unlikely to gain a benefit.
Dr. Topol worries that doctors will resist technologies that empower patients because the tools will also diminish the doctors’ gatekeeper role. The American Medical Association, for example, battled firms that provide genetic information directly to patients. “This arrangement ultimately appears untenable,” the author writes, “and eventually there will need to be full democratization of DNA for medicine to be transformed.”

For the full review, see:
SCOTT GOTTLIEB. “BOOKSHELF; Digital Doctoring; It’s hard to fake sleep to avoid your spouse’s bedtime chatter when a ‘Zeo clock’ is displaying your real-time brain waves.” The Wall Street Journal (Fri., February 3, 2012): A15.
(Note: ellipses added.)
(Note: the online version of the review has the title “BOOKSHELF; Digital Doctoring; The digital revolution can spur unprecedented advances in the medical sciences, argues Eric Topol in “The Creative Destruction of Medicine”.”)

The book under review is:
Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.

How to Slow Down Creative Destruction

(p. 356) This catallaxy will not go smoothly, or without resistance. Natural and unnatural disasters will still happen. Governments will bail out big corporations and big bureaucracies, hand them special favours such as subsidies or carbon rations and regulate them in such a way as to create barriers to entry, slowing down creative destruction. Chiefs, priests, thieves, financiers, consultants and others will appear on all sides, feeding off the surplus (p. 357) generated by exchange and specialisation, diverting the life-blood of the catallaxy into their own reactionary lives. It happened in the past. Empires bought stability at the price of creating a parasitic court; monotheistic religions bought social cohesion at the price of a parasitic priestly class; nationalism bought power at the expense of a parasitic military; socialism bought equality at the price of a parasitic bureaucracy; capitalism bought efficiency at the price of parasitic financiers.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Is “The Replicator” the Personal Fabricator of Gershenfeld’s Dreams?

The Replicator 3-D printer. Source of photo: online version of the NYT article quoted and cited below.

Back in 2005 technology “visionary” Neil Gershenfeld predicted the soon to be seen day when personal fabricators would follow the path of computers which progressed from mainframes costing millions to mini-computers costing hundreds of thousands to personal computers costing a couple of thousand. Well apparently that day is here.
Now we will see if the implications are as far-reaching as Gershenfeld predicted.

(p. B7) By now you may have heard about the Replicator, a $1,750 3-D printer made by the Brooklyn start-up MakerBot, due next month. If not, the significance of the Replicator is that it is the first 3-D printer to break the $2,000 barrier. Here’s more about what the Replicator can and can’t do.

Q. What does a 3-D printer use?
A: Spools of coiled A.B.S. (acrylonitrile butadiene styrene) plastic that costs about $45 each per kilogram. This is the same materials that is used to make Lego blocks. It is strong, safe and comes in many colors. One spool can make about 176 chess pieces.

For the full story, see:
WARREN BUCKLEITNER. “Gadgetwise; A 3-D Printer for Under $2,000: What Can It Do?” The New York Times (Thurs., January 26, 2012): B7.
(Note: bold in original.)
(Note: the online version of the article was dated January 23, 2012, and had the title “3-D Printing for the Masses: MakerBot’s Replicator.” The online version differs in several places from the print version. Where they differ, I quote the print version.)

The Gershenfeld book discussed above is:
Gershenfeld, Neil. Fab: The Coming Revolution on Your Desktop–from Personal Computers to Personal Fabrication. New York: Basic Books, 2005.

Creative Destruction Creates as Many New Jobs as It Destroys

(p. 113) It was Joseph Schumpeter who pointed out that the competition which keeps a businessman awake at night is not that from his rivals cutting prices, but that of entrepreneurs making (p. 114) his product obsolete. As Kodak and Fuji slugged it out for dominance in the 35mm film industry in the 1990s, digital photography began to extinguish the entire market for analogue film – as analogue records and analogue video cassettes had gone before. Creative destruction, Schumpeter called it. His point was that there is just as much creation going on as destruction – that the growth of digital photography would create as many jobs in the long run as were lost in analogue, or that the savings pocketed by a Wal-Mart customer are soon spent on other things, leading to the opening of new stores to service those new demands. In America, roughly 15 per cent of jobs are destroyed every year; and roughly 15 per cent created.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Companies Can Grow to Greatness in Brutally Turbulent Environments

(p. 118) All that said, there remains a question: what about “the perennial gale of creative destruction” as described by the famous twentieth-century economist Joseph Schumpeter, wherein technological change and visionary entrepreneurs upend and destroy the old order and create a new order, only to see their new order destroyed and replaced by an even newer order, in an endless cycle of chaos and upheaval? Perhaps all social institutions in our modern world face disruptive forces so fast, big, and unpredictable that every entity will fall within years or decades, without exception. Can we still stave off decline in the face of severe turbulence?

While working on How the Mighty Fall, my colleague Morten Hansen and I have been simultaneously working on a six-year research project to study companies that grew from vulnerability to greatness in severe environments characterized by rapid and unpredictable change in contrast to others that did not prevail in the same brutally turbulent environments.

Source:
Collins, Jim. How the Mighty Fall: And Why Some Companies Never Give In. New York: HarperCollins Publishers, Inc., 2009.
(Note: italics in original.)

A&P Sold Consumers Better and Lower-Priced Food

Source of book image: online version of the WSJ review quoted and cited below.

(p. A15) Mr. Levinson’s history centers on the two Hartford sons who followed their father into the business. They would spend their entire working lives at the company being known simply as “Mr. George” and “Mr. John.” Thoughtful and studious, Mr. George’s idea of excitement was a good jigsaw puzzle; Mr. John, somewhat more outgoing, liked the horses but also a daily lunch of milk and crackers. Together the brothers, neither of whom had finished high school, built what would be, for 40 years, the largest retail outlet in the world.

The brothers’ business philosophy was simple, writes Mr. Levinson: “If the company keeps its costs down and prices low, more shoppers would come through its doors, producing more profits than if it kept prices high.” The more stores they could open, the greater the take.
But the Hartfords had a public-relations problem. Since the nation’s earliest days, small family stores had served as community anchors. There were thousands across the country. Mom and pop knew every customer who came through their door; they extended credit to families down on their luck. If low-priced chains drove out such stores, what would happen to small-town America?
In fact, many mom-and-pop operations were inefficiently and incompetently run. A&P might be coldly corporate by comparison, but it offered consumers far more variety and fresher, better-quality goods at less cost to the family budget.

For the full review, see:
PATRICK COOKE. “BOOKSHELF; How a Grocer Bagged Profits; At its peak, the chain had nearly 16,000 stores. Critics charged it with competing unfairly by offering too-low prices.” The Wall Street Journal (Mon., AUGUST 29, 2011): A15.
(Note: ellipsis added.)

The book under review is:
Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.

Entrepreneur Jobs Was an Exemplar of Creative Destruction

The clip embedded above from the CNBC web site, was broadcast on CNBC on Weds., Oct. 5, 2011.

I watched several commentaries on Steve Jobs after his death was announced today (Weds., Oct. 5). I think the one above, from CNBC, was one of the best.
It highlights many important aspects of Jobs’ life. That he came back from failure, that he brought us products we didn’t know we needed until he showed us what they could do, that his products disrupted the status quo of whole industries, that at his death he owned more shares of Disney than anyone else. (Steve Jobs and Walt Disney were two of the greatest “project entrepreneurs” of all time.)

McKinsey Finds 30% of Employers Will Drop Health Coverage in Response to Obamacare

McKinsey is probably the best known business consulting and forecasting firm in the United States. Many well-known management gurus, and corporate executives, have spent time working for McKinsey (as did Chelsea Clinton). One of their senior partners (Foster) co-authored a useful book called Creative Destruction.

(p. A2) A report by McKinsey & Co. has found that 30% of employers are likely to stop offering workers health insurance after the bulk of the Obama administration’s health overhaul takes effect in 2014.
. . .
Previous research has suggested the number of employers who opt to drop coverage altogether in 2014 would be minimal.
But the McKinsey study predicts a more dramatic shift from employer-sponsored health plans once the new marketplace takes effect. Starting in 2014, all but the smallest employers will be required to provide insurance or pay a fine, while most Americans will have to carry coverage or pay a different fine. Lower earners will get subsidies to help them pay for plans.
In surveying 1,300 employers earlier this year, McKinsey found that 30% said they would “definitely or probably” stop offering employer coverage in the years after 2014. That figure increased to more than 50% among employers with a high awareness of the overhaul law.

For the full story, see:
JANET ADAMY. “Study Sees Cuts to Health Plans.” The Wall Street Journal (Weds., JUNE 8, 2011): A15.
(Note: ellipsis added.)

The Foster book is:
Foster, Richard N., and Sarah Kaplan. Creative Destruction: Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them. New York: Currency Books, 2001.