Creative Destruction Examples–driving prosperity through reinvention

 In his seminal 1942 book, Capitalism, Socialism and Democracy, Prof. Schumpeter introduced Creative Destruction in explaining Wealth creation, accumulation, and annihilation dynamics. He argued that creative destruction is crucial to capitalism; it is a vital tool for eroding monopolies and expanding wealth creation. But what are creative destruction examples? How can entrepreneurs succeed in causing creative destruction by discovering new combinations of existing resources that replace older ones? How does capitalism increase living standards through creative destruction despite destroying current products, jobs, and firms? This article presents 12 creative destruction examples to shed light on such queries. The underlying force of these examples distills from praxis–the inherent urge of recreation.

In simple terms, creative destruction occurs through the Reinvention of existing products (both goods and services, for brevity, we will just call these products). The reinvention takes place due to the replacement of mature technology cores of existing products with emerging ones. The invention of new technology cores is the underpinning of creative destruction examples. But those technology cores emerge in primitive form, offering inferior reinvented alternatives. Hence, the mainstream markets reject them. This is why incumbent dominant firms, having a monopolistic position in mature technology products, avoid pursuing reinvention. However, some emerging technology cores exhibit high amenability to progression. It is through this process that entrepreneurs succeed in creating reinvented products that are better alternatives to mature ones. Once the wave of reinvention reaches the inflection point, mature products using outdated technology and dominant firms busy producing them suffer from a loss of demand and profitability, resulting in suffering from creative destruction.

Key takeaways from creative destruction examples

• Reoccurring patterns–creative destruction examples reveal reoccurring patterns.
• Maturity of incumbent products— candidate incumbent products must reach maturity due to the natural limit reached by underlying technology cores.
• Necessity of emerging technology cores–suitable technology cores, having unique quality and cost attributes, must emerge to make it feasible to reinvent existing matured products, starting new waves.
• Creating scale effect through refinement–the rise of new waves to unleash creative destruction effects on existing matured products demands the creation of scale effect through refinement of adopted emerging technology core.

Benefits and implications of creative destruction–lessons from examples

Despite destructive effects, reinvented products succeed in offering better alternatives for Getting jobs done. A competitive opportunity to make a profit out of reinvention is the driving force. Hence, capitalism succeeds in leveraging creative destruction to provide us with increasing living standards. Furthermore, creative destruction through reinventions also weakens national-level supremacy as it shifts the Innovation epicenter. In offering us better alternatives, such a reality keeps uncovering winners and losers in the reinvention race. To get further clarity, let’s look into twelve examples of creative destruction.  

Creative destruction examples–twelve of them

The LED Light Bulb:

The filament technology core of incandescent light bulbs has been changed in giving birth to the LED light bulb. As opposed to Thomas Edison’s original light bulb heating filament, the LED light bulb excites semiconductor junctions with electric voltage to produce light. This method of light production is as high as 80% more efficient than using a heated filament. Hence, LED light bulbs have largely destroyed the demand for filament and even fluorescent light bulbs, another intermediate technology core. Subsequently, jobs and firms producing light bulbs using older technology cores suffered from destruction if they did not retool to the new technology. While challenging for the industry, LED light bulbs have enhanced our quality of life, as they use less energy and produce higher-quality light.

It is essential to note that, despite their superior performance, LED lighting sources emerged in a rudimentary form in the 1960s. Even its inventor, General Electric (GE), the dominant manufacturer of incandescent light bulbs, overlooked it. Instead, aspiring Nichia envisioned its possibility and sponsored research to nurture the latent potential. Hence, globally dominant incandescent and fluorescent light bulb makers, like GE and Philips, lost their Monopolistic market power to Nichia.

By the way, the history of light source advancement reflects a series of creative destruction examples. The incandescent light bulb caused creative destruction to arc lamps, hurricanes, and oil lamps of their time. As noted, fluorescent lighting partially contributed to the decline of incandescent light production.

The Digital Camera:

This is one of the most cited creative destruction examples. Camera invention went through a long journey reaching the Kodak camera. Over almost 100 years, Eastman Kodak perfected film-based photography and its silver halide strategy. Through this journey, this company also emerged as a globally dominant firm, having substantial monopoly capacity. Nevertheless, in the 1980s, Eastman Kodak suffered from severe destructive effects from the rise of the digital camera.   

The digital camera is a reinvention of the film-based one through the change of celluloid film with an electronic image sensor. The journey began with the invention of the charge-coupled device (CCD) technology core, for converting photons into electrons in 1969, at the Bell Labs. Soon after, among others, Sony embarked on leveraging CCD for reinventing the camera. But the technology core was quite weak, giving birth to a highly inferior digital camera. Hence, though it developed the prototype of the first digital camera in 1974 and secured a patent for it, Kodak did not pursue this reinvention.

However, Sony continued to pursue R&D on CCD, hoping to improve electronic image sensors beyond the capabilities of film. Sony introduced digital cameras out of electronic image sensors in the 1980s. Still, they were inferior. However, the technology core demonstrated amenability to further progress, indicating potential superiority over film. Hence, Sony continued to release successive, better versions of digital cameras, even at a decreasing cost. As a result, the wave of digital cameras, once inferior, grew into a destructive force for film camera makers. Among others, Kodak suffered colossal destruction, leading to its bankruptcy filing.  Among many lessons, this example of creative destruction has given rise to the concept of the “Kodak Moment.”         

Electric Vehicles:

In the 1990s, entrepreneurs started contemplating reinventing automobiles by changing the polluting gasoline engines to meet increasingly stringent emission regulations. The initial attempt was to use the fuel cell-based hydrogen engine to power clean vehicles. There were also attempts to use the electric battery to replace the internal combustion engines (ICEs). But the batteries were quite inferior to ICEs to make electric vehicles (EV) a better alternative. Hence, Toyota released the hybrid electric vehicle, Prius, in 1997. However, the rise of the lithium-ion battery, instead of Prius’s nickel-metal hydride battery, started showing the prospect of the plugin electric vehicles.  

Among others, a small Silicon Valley startup, Tesla Motors, established in 2003, began the journey to reinvent the automobile. The target technology core was the lithium-ion battery. Subsequently, in 2008, Tesla Motors released its first vehicle–Roadster. Unlike many other creative destruction examples, incumbent automobile makers neither did avoid nor did take a long time to join this reinvention journey. For instance, in late 2010, the Chevy Volt of GE and the Nissan LEAF came into the U.S. market. Like many other reinventions, the electric vehicle also emerged as an inferior alternative to gasoline automobiles. But due to the continued advancement of the battery technology core, the EV wave is about to reach the inflection point. Hence, soon, it will likely cause destruction to ICEs and companies involved in producing them.

By the way, unlike Kodak, perhaps, gasoline automobile makers will escape the destruction from EV due to their rapid response to join as opposed to avoiding. Nevertheless, gasoline engines will suffer from the effect of creative destruction of the electric vehicle. Apart from it, a new entrant like China has been emerging as a dominant player in the global EV market.  

e-Mail:

e-mail is another great member of creative destruction examples. It emerged, in 1971, as a means to send mail between users on different hosts across the ARPANET. But due to limited access, its effect as creative destruction to writing and sending letters through postal service was negligible. But the proliferation of personal computers in the 1980s and the rapid Internet diffusion in the 1990s kept fueling the wave of e-mail to grow as a powerful creative destruction force. Further push came from the democratization of mobile Internet.

Hence, by 2010, e-mail became such a powerful force of creative destruction that the postal service departments started asking the question of their relevance in modern society. In addition to postal service, facsimile and telegram services also suffered from the creative destruction effect of e-mail. Notably, the facsimile became redundant due to the availability of the scanners and the option of e-mail attachments for sending scanned documents.        

Cellular Phone:  

Although telephone invention opened a new era in communication, people felt restrictions due to the tethered connectivity. Hence, as early as 1908, inventors came up with the idea of reinventing the telephone by changing the wire with the radio wave. But the reinvented wireless or radio phone, precursors to cell phone, remained in primitive form for a long time. As opposed to being a creative force of destruction to wireline telephone, it kept growing as a special purpose instrument. But the situation started changing with the debut of Motorola Dynatec in 1984. Soon after its release, a race of keep improving the handset and rolling out cellular network accelerated. Subsequently, by 2010, Cellular Phone grew as a solid alternative to wireline telephone or land phone. Hence, state-owned monopolies in offering wireline telephone services suffered from the creative destruction of cellular telephones.   

Smartphones:

The fusion of feature phone handsets and personal digital assistants has given birth to smartphones. It also emerged in a primitive form in 1994 as IBM’s Simon. Due to the loss-making beginning, although IBM discontinued Simon, by the late 1990s, both the cellular handset and PDA makers started joining the race of developing their own version of smartphones. Subsequently, with the release of the iPhone in 2007, smartphones gathered enough momentum to be a vital member of creative destruction examples. It has caused destruction to once mobile handset dominant players like Nokia and RIM. It also caused destruction to PDA makers like Palm. Besides, it caused destruction to an array of products and firms in making them. For example, iPod and portable MP3 music players became the victim. Most importantly, it caused destruction to digital cameras—both still and video.   

LCD Television:

The invention of the liquid crystal display took place as early as 1888. Almost after 100 years, it reached the state to fuel commercial innovations. It began the journey in a primitive form as the wristwatch displays. As the technology was flexible to progression, competition kept rapidly improving, making it suitable for mobile handset displays in the 1990s. The improvement race continued to enhance both the resolution and size. Eventually, the LCD became suitable to reinvent television by changing the bulky CRT. Like many other examples of creative destruction, LCD television also emerged in primitive form. But the situation kept improving rapidly, making it a strong force of creative destruction to CRT and its makers.   

Word Processing Software:

For word processing, inventors came up with the idea of the typewriter in 1867. However, its root is in the invention of “scrittura tattile“, a machine to impress letters in papers, in 1575. The mechanical technology core was replaced by electrical and electronics to ease word processing. To take it forward further, the software took over the technology core. Like all other reinventions, the initial software word-processing machine also showed up in a primitive form in the 1970s—an expensive dedicated computer. Hence, its effect on mechanical, electrical, and electronic typewriters was far less than creative destruction.

But the situation started rapidly changing with the diffusion of personal computers in the 1980s, and the arrival of Word processors as an installable software application, instead of a dedicated computer. The rapid progress of PC and the 3^rd party software applications led to making word processors a robust creative force of destruction to all kinds of typewriters by the late 1990s.         

Pen Drive and Solid-State Disk:

In 1956, IBM rolled out its great invention: a 5MB hard disk drive weighing 1 ton. Soon after it, the race started in making it smaller, better, and cheaper. But the significant change began to form by the invention of alternative technology core in the 1960s. Subsequent to the development of the MOS Transistor in 1959, two Bell Labs scientists developed the floating-gate MOSFET, in 1967, which could store data. After almost 20 years, this advancement of transistor technology became the seed for flash memory, a type of floating-gate memory. In 1987, Toshiba began commercially producing flash memory.

Hence, it became a new technology core to reinvent portable computer storage like CD ROM. Within 15 years of its release, a pen drive made out of flash memory became a creative destruction force to CD ROM. The continued progress of flash memory led to the hard disk drive reinvention by changing its electromagnetic technology core. Subsequently, it has led to the gradual extinction of magnetic disk drives. In retrospect, there have been several creative destruction examples in the evolution of computer storage.

Transistor Radio and Television:

In the 1950s, Japanese electronics makers started to surface. In the early days, their products were primitive, far inferiors to the products made by American and European firms. Many people perceived them as poor imitations. Surprisingly, by the late 1960s, those primitive Japanese electronic products started to become far better or also superior. Even American and European consumer electronics products—like Radio and Television–and firms producing them began to experience creative destruction force from Japanese firms. Many of them went bankrupt. Even American RCA got crippled by the 1970s. Despite the invention of Television by RCA and having 80+ Television set makers in the USA in the mid-1960s, only one was left by the 1980s.

What was the underlying reason? Was it due to cheap labor? Or, is it due to Japanese firms’ infringement of intellectual properties in imitating American and European products? To our surprise, the answer is NO. It’s due to the reinvention of consumer electronics by changing the vacuumed tube technology core by Transistor. After the invention in 1947, Transistor was in a primitive state in the mid-1950s and also in the early 1960s. Hence, Sony’s Radio out of Transistor emerged as an inferior alternative to RCA’s bulky one, made out of vacuum tube technology core. Similarly, Sony’s Television in the 1960s was also primitive. But the rapid progression of Transistor made Japanese Radio, Television, and other electronics products far superior to similar products made by American and European firms. Hence, transistor radio and television became great members of creative destruction examples.  

Contrary to common belief, reinvention underpins Japan’s success.  In retrospect, through fueling Creative waves of destruction, Japan created instances of succeeding as a leader by being a late entrant.       

Lessons from Creative Destruction Examples:

These creative destruction examples spell out Prof. Schumpeter’s thesis of creative destruction. However, new combinations of existing resources, invariably, entail the invention of technology cores and their continued refinement in making embryonic reinvention wave a creative force of destruction. They are known as Disruptive technologies. Sometimes, the invention of those technology cores and their subsequent improvement may demand Nobel Prize-Winning Scientific discoveries. By the way, in addition to causing creative destruction, often, growing reinvention waves lead to the migration of inventions across the boundaries of firms, industries, and countries.   

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