How Schumpeter's Influential New Combinations and Creative Destruction Concepts Foster Innovation - Assignment Example

How Schumpeters influential new combinations and creative destruction concepts foster innovation Place Introduction Severe competition between modern companies is called by the globalization and also the new emerged markets with their trade opportunities and labor force full of new skills and capabilities. All such conditions have raised a great concern for the businesses in their willingness to obtain competitive advantage over others. Such concern is entailed by the capability to attract new customers and retain the existing ones. Targeting the expansion of new consumers, companies have already realized the importance of innovation as the trigger in their development. That is why companies use knowledge, skills and abilities of their workforce to develop new innovative ideas that would give organizations to obtain the competitive advantage. Urbancová (2013) displays that through innovation and knowledge it is possible to achieve competitive advantage, which in the current century is the critical prerequisite to the business success. Besides, the importance of innovation is recognized as the ability of employees’ knowledge, qualification and experience to be used for the purpose of continuous development and research of the entire organization (Knight and Cavusgil, 2004). However, only effective managing of innovation can bring competitive advantage to the companies. Thus, while operating on the global scale, organizations leverage innovativeness and knowledge to obtain a considerable market success. The importance of innovation lays in the strong relationship between performance of the company within certain market and new products it represents there. Besides, new products help to keep market shares and thus improve profitability of the organization. While company’s efficiency depends also on such non-price factors as design and quality, ability to shorten the product lifecycles, the innovation of these processes is critical for company’s success. The first who developed the term of innovation was Austrian- American economist, Joseph Schumpeter, who defined innovations as certain changes that if they do not come from new discoveries, but from a combination of already existing ones and can be applied anew (Urbancová, 2013). The following paper will investigate the term of innovation in connection with Schumpeter’s theories of disequilibrium and creative destruction, the role of new combinations and also will examine the theory of new combinations. Further the paper will illustrate whether an innovation is able to disturb the equilibrium and will identify the new combinations that enabled innovation. What is Schumpeter’s theory of disequilibrium or creative destruction? Schumpeter emphasized a special central role of entrepreneur as a prerequisite to the wealth of the society, however, defined one as disequilibrium of the global economy. While entrepreneurs were believed to accelerate changes, they were also “creative destructors and innovators in general”. (Lukeš, 2013). That is why creative destruction is considered the main threat to the existing order. The introduction of new products, markets with all their new methods of production and innovations in the way products and services are delivered have called the capitalist engine to move. According to McCraw (2007), entrepreneurs do not usually use the existing knowledge for rediscovery of products and services. Moreover, they do not need to be the inventors, however, they need to want to be inventors. Schumpeter focused on the depending of innovation on economic leadership and intelligence is not always the major factor in innovation process. Moreover, it is believed that while entrepreneurs should be driven with the vision and commitment to succeed with the innovation. When such advantage is recognized, entrepreneur receives exceptional profit and is able to change the existing product or service and introduce something new to the market and industry in general. Therefore, Schumpeter’s theory of “creative destruction” can be seen here as heroic entrepreneurship (The Roles of the Entrepreneur, n.d.). In addition, the real driving force of capitalism was considered as disequilibrium or the opportunities that came from the demands and thus brought innovation (Thurm, 2007). The phenomenon of disequilibrium represented novelty and instability and also put an emphasis on the profit possibilities in the disequilibrium markets that used entrepreneurs with high motivation of using such opportunities. While the creative destruction aim is to build something that will be new regarding old routines and structures, each novelty will be an innovation to some extent. Therefore, it will touch all the levels of human activities, which are the individual, companies where they work and society in general or the national interests. With the ability of human to adhere the familiar thoughts and abide well-set behavior patterns, the appearance of something new would be perceived as a problem of creative destruction. Such is called by the anatomic condition of the human brain, because the person tends to be on the safe side in any conditions and under different circumstances. Therefore, every innovative idea or state is a creative destruction of the model. If to consider the company level of innovation, it also can experience the state of losing innovative abilities, by which the business loses its direction in the certain market therefore can disappear. Instead, when the theory of creative destruction is use, e.g. different policies are implemented and revised, new rules and regulations are used, the company obtains an opportunity to open its productive potential fully. From the national perspective, the disequilibrium is best achieved if all the systems and spheres are experiencing the novelty and innovation and therefore create a competitive advantage of certain government over other countries. Thus, the Danish Innovation Council was implemented to identify the main sectors in the society with the opportunities in the global knowledge community. Since 2008, the Council had been working on implementing innovative reform to help to translate visions of Danish government to reality (Dinitzen, 2010). By such a notion as creative destruction, the entrepreneurs open new ways to follow, they challenge the workforce with the new variations of the existing products or services and thus the old structures are destroyed and new productive sources are opened. The real importance of this notion lays in the business’s possibility to impact their workforces with the recognition of innovation and thus opens new ways to obtain competitive advantage (Mathews, 2006). What is the role of new combinations? Adler (2009) states that entrepreneurship is comprised of such productive factors as new combinations with the emphasis on the selection mechanisms for appointing leaders and social interaction. While selection mechanisms trigger entrepreneurs to demonstrate their behavior, they produce the new combinations. Social interaction is also a source of new combinations, since the society has different processes within it. Schumpeter provides with the notion of new combinations that should be applied to the economic process and to the entire economic system. The role of new combinations lays in the business capability to represent the explicit thing that would be recognized for ages (Swedberg, 2007). However, a new combination is not the invention of something, because while the inventions are not carried into practice, they are not relevant. Instead, new combinations are the sources, materials, means of production that can be utilized all together in some new way, thus, building blocks in the economy. Another point that Schumpeter argued was that due to the new combinations, there appeared a constant source of disruptive change that made existing markets, industries and economies to adjust themselves to the alterations. While some industries and firms are in the entrepreneurship regime, they play an important role in the process of evolution, where new combinations are organized by the entrepreneur’s opportunities and based on the ideas to represent new ideas of innovation (Carayannis, Kaloudis and Mariussen, 2008). Entrepreneurs create new source combinations, while managers are able to utilize the resource combinations in order to create sets of goods and services. Therefore, entrepreneurship and innovation are very similar notions. Giving the pattern to the supply of all that entrepreneurs produce and represent, the important question lays in what is the role of one in the marketplace. The same answer would be for the importance of new combinations. When Schumpeter applied new combinations to the entrepreneur, one acts as the trigger to the economic change. That is why new combinations are responsible from the rise and decay of capitalism (Link, 2007). What comprises new combinations? While new combinations are carried by the enterprise, the individuals who carry them are the entrepreneurs. Carayannis, Stewart, Sipp and Venieris (2014) in their book illustrate the Schumpeter’s new combinations as the introduction of the new good. Such good is not familiar to the consumers, however, the product itself contains certain new quality. The new combination is also the introduction of the new method of a production, however, such innovation was not also tested. Such new combination is scientifically new one and can exist in the new way of handling commercial product. Besides, the new combinations include the opening of the new market. Such novelty is a market where the certain manufacturing division or branch was not represented. Schumpeter considers that a conquest of a new source of supply of raw materials or goods is also one of the components of the new combination, notwithstanding the fact if it already exists or not presented in the market. New combination can be displayed in the form of new firm or industry that creates or breaks monopoly within certain area (Carayannis, Stewart, Sipp and Venieris, 2014). Despite the level of the present of innovation, each new combination will vary. Therefore, recognizing the degree of innovation is critical for the entrepreneur to start one’s business or not. The level of innovation will be prerequisite to the creation of new combination of products or services in certain category. Wherever the new combination level is low, there is a huge risk for the new entrepreneur to start business until that new combination problem is solved. If an enterprise is operating and the level of new combination is still low, it calls for certain actions and changing of strategy of the entrepreneur in order to improve one’s business. Such strategies can include the discovery of combinations of products and services, search for circumstances to fit the market (Mitchell, R. n.d.). Case Data The heritage of Schumpeter was interpreted by many scholars into analytical approach which had led to the main results. First, there was created an introduction of the new technology’s ability to bring the higher unemployment and reduction of productivity. In addition, due to the industry confrontation with the current technological changes, some practices of monopoly would need to be revised because the market demands are determined by the content of technology and the profile of that demand (Gaffard, 2008). While equilibrium is defined as a state when market offer similar products and services and the returns on the market share are getting similar, it is critical for the business to start to rethink the new ways how to compete the main players. In the well-developed companies there is no such problem, because of the successful operations and performance of the firm or no executive seeks to solve such a problem if one does not see that an issue at all. Instead, the notion of disequilibrium is much more dynamic and when a company creates certain prerequisite for not following the set template, it discovers the new way for taking advantage in the certain market. Such companies that think outside the box are often become the source of envy among the competitors in the given sector, since they can show others that despite the overall state in the industry they are able to give something special and prove their business advantage. One of the recent examples of the company that introduced its disequilibrium into market and received the unexpected returns is Blockbuster Video, an American provider of the home movie and video games rental services. Despite the competition from other companies and the lost in its revenue, Blockbuster is a demonstration of a success in which it capitalized on a form of disequilibrium that helped to create its image for long years. The provider entered the movie rental industry in the late 80s into the market that was already familiar with the rental services. Despite the falling of price on such a business, the evidence of which was displayed by different movie rental store owners, the Blockbuster was out of that group of enterprises. With the well-organized spaces and wide selection of hundreds of new titles, the company built the extensive customer database. It gave Blockbuster opportunity to optimize the mix of titles in its each store. With such offer and its size, it gained a great advantage over others. Besides, Blockbuster’s excellent model gave the company to keep the existing customers from other smaller stores and to attract new customers. The disequilibrium of Blockbuster’s was in changes that captured the consumers’ demand that did not exist before. Such demand-side changes were enabled by some sort of technology shift that the company could afford to itself, however, due to the same change, Blockbuster suffered itself and failed to compete with such new player as Netflix (Rangan and Hirsh, 2014). In the modern world the Schumpeter’s creative destruction innovations find their reality in disruptive technologies and discontinuous innovations. Due to the results of the past times and companies that existed in the last century, modern companies use the potential in technological innovation fully. Thus, only in Canada, there are about more than hundred certified B corporations, the aim of which is to meet the rigorous social and environmental standards. Using innovation of using the power of business to handle important social and environmental issues, many entrepreneurs are running their business in improving their communities as on the local as on the global scales. The innovation is in the targets that modern social enterprises want to expand throughout different operations, policies and initiatives. The innovation here is in achieving their organizational goals which is the impact investing in growing the best future (Cohen, 2014). However, with that equilibrium theory that modern old systems are leaving now, most social enterprises deal today, such as lack of finance and underestimating of their possibilities, they are at great risk and cannot be fully developed. The way out for such social business is to invest in the early stages of the ventures, which in long term will give such enterprises to create a mature pool of a strong company with the competitive advantage. While the creative destruction theory states that a cheaper product with lower-quality is able to overtake entrepreneurs by taking their customers, there are no chances for the one to defend oneself. However, with the big disruption, the offer of innovation differs with not only cheap prices but also with the higher quality, more convenient. When considering the case with Blockbuster, its innovative approach seemed unbeatable for years. The estimated number of stores was about a ten thousands with more than five billion dollars in 2002. However, due to the severe competitiveness with Netflix, the company first in its history faced serious rival with a distribution model of mailing DVDs to customers through the low-cost American postal service. The obvious advantage for Netflix was also because of convenient retail stores and no late fees, like in Blockbuster were used. Therefore, the innovative model of performing business of Netflix cost Blockbuster its customers and then business itself. Besides, with the coming of digital service, that Netflix used, it created another advantage for the company, but brought Blockbuster more problems. With the creative destruction such as technological innovation and cheaper capabilities, it became possible for the competitor Netflix to take the first place in the hearts of customers ( Larry Downes Paul Nunes 2013). While the world of technology became closer to all spheres of human life, the entrepreneurship is not an exception with its different enterprises. Thus, social entrepreneurs use theory of Schumpeter of new combinations while creating new and more opportunities for caring the environment and society in general. The global marketing campaigns, different competitive analysis tools and regulations are developed recently that allow social enterprises to track the emerging consumers topics, protect consumers’ rights and test and track global movements (McCollam, 2014). Conclusion The entrepreneur plays an important role in Schumpeter’s researches. He considers that only entrepreneur is responsible for all the changes, innovations and implementations that move the progress (Jones and Wadhwani, n.d.). With the developing of new combinations, each entrepreneur is capable to may a great impact on the level of innovation developed individually, in terms of organization or even in terms of the entire society. The paper examined and explained the notion of innovation in terms of entrepreneurship and with regard to Schumpeter’s theories of disequilibrium and creative destruction. It represented the notion of equilibrium and how it can be changed due to different factors such as development of modern technologies and changeable customers’ demand. Works cited Adler, P., 2009. The Oxford Handbook of Sociology and Organization Studies: Classical Foundations, Oxford Handbooks Online Carayannis, E., Kaloudis, A. and Mariussen, A., 2008. 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