8-1 Discussion: Vallee
Jennifer Vallee posted Nov 19, 2018 6:34 AM
The text this week does not seem to provide much information on Schumpeter and
“creative destruction” other than to mention it, from what I could find anyway. I did however
find some interesting information online about it. “Schumpeter argued that capitalism exists
in the state of ferment he dubbed "creative destruction," with spurts of innovation destroying
established enterprises and yielding new ones. This view seems far more current than Smith's
Newtonian notion of an "invisible hand" generating stability in the marketplace” (Rose,
2018). The important distinction between Schumpeter and Smith is that Schumpeter centered
on the idea that entrepreneurs drive economies and generate growth through success and
failure which sets business cycles in motion (Rose, 2018). Creative destruction, in essence,
means that through the business cycle products are constantly created to replace the old
ones. “Products based on ideas - music, software, pharmaceuticals - require an enormous
investment to develop but very little to keep making” (Rose, 2018). This then means that the
economic structure is constantly being destroyed and replaced with a new one. “The essence
of Schumpeter’s argument is that firms act and rivals react, and it is in the context of action
and reaction that advantage is created and destroyed. Indeed, if competition is a perennial
gale, every business advantage will eventually be eroded through competition” (Grimm, Lee
& Smith, 2006, p.21).
Strategy as action is like a game plan. The strategy of one player is based on the
actions and reactions of the competition (Grimm, Lee & Smith, 2006, p.70). This is of course
not as simple as it sounds because the players also have to take into account the information
each player has and make a decision of how they each will react in order to time if they
should release a product. Will the competition release theirs sooner? Will they release it at
the same time? Should there be cooperation between the competitors so they both don’t suffer
loss from it? These are all questions that have to be considered as part of the strategy and
action plan (Grimm, Lee & Smith, 2006, p.70-71).
References:
Grimm, C., Lee, H., & Smith, K. (2006). Strategy as action. New York: Oxford University
Press.
Peng, M. W. (2017). Global Strategy, 4th Edition. [MBS Direct]. Retrieved
from https://mbsdirect.vitalsource.com/#/books/9781337655712/
Rose, F. (2018). The Father of Creative Destruction. Retrieved from
https://www.wired.com/2002/03/schumpeter/
Week 8 Discussion
Sean Delaney posted Nov 14, 2018 1:02 PM
I did not see the term “creative destruction” in Chapter 8 of the text nor reference to
Joseph Schumpeter. Perhaps I am rushing trying to finish next week’s deadlines by the holiday.
Outside research was conducted as follows...
Creative destruction is a term defined by Joseph Schumpeter who identified the term as
‘the essential fact about capitalism’. The term refers to the outdated product and process
innovation mechanism by which new production units replace outdated ones. This process is
felt in many macroeconomic indicators and over the long run accounts for more than half of all
productivity growth. Recessions are sometimes intensified as restructuring is typically
conducted during economic downtimes (MIT, n.d).
An example that I could give to a friend would be the extinction of the newspaper
business. The decline started in the mid-1990s as internet usage was starting to gain more
mainstream traction. In the mid-1990s when The New York Times launched its web presence a
reporter had suggested that the paper would become a primary information provider in the
digital age, which would lead to cost cutting for newsprint, delivery, and labor. Internet sites
such as Craigslist offered classified ads for free and 40% of newspaper’s advertising revenue
dropped as a result (Kennedy, 2016). In this case creative destruction would refer to the
transformation from digital to print. Other examples that come to mind (perhaps to a lesser
degree) would be laptops, tablets, and smartphones replacing the desktop computer.
Strategy as Action refers to the fact that the essence of strategy is interaction, which
consists of actions and reactions leading to a competitive advantage (Peng, 2017). In 2011, Brad
Greenberg of UCLA law school constructed an essay advocating for the temporary exemption
from the collusion and price-fixing prohibition in Section 1 of the Sherman Act stating that an
exemption would allow executives in the industry to collaborate on a sustainable online
business model for the press ultimately saving newspaper reporters’ jobs. This would stabilize
the contributions of news and ideas which would slow the consolidation and concentration of
newspaper ownership (Greenberg, 2011). There was no temporary lift to the act which caused
many acquisitions in the industry. In 2015, 70 daily newspapers were sold for a combined $827
million including the Chicago Tribune acquiring the San Diego Union Tribune. Newspapers
need to acquire smaller publications and cut costs to survive all while attempting to transition
to a digital subscription model that will earn them revenue (Smith, 2016).
References
Greenberg, B. (2011). The News Deal: How Price Fixing and Collusion Can Save the
Newspaper Industry-and Why Congress Should Promote It. Retrieved November 14, 2018,
from https://www.uclalawreview.org/pdf/59-2-4.pdf
Kennedy, D. (2016, January 26). Print is Dying, Digital is no Savior: The Long, Ugly Decline
of the Newspaper Business Continues Apace. Retrieved November 14, 2018, from
https://www.wgbh.org/news/2016/01/26/local-news/print-dying-digital-no-saviorlong-ugly-decline-newspaper-business-continues
MIT. (n.d.). Creative Destruction. Retrieved November 14, 2018, from
https://economics.mit.edu/files/1785
Peng, M. Global Strategy. Cengage, 2017.
Smith, G. (2016, March 29). Newspapers gobble up one another to survive digital
apocalypse. Retrieved November 14, 2018, from
https://www.chicagotribune.com/business/ct-newspaper-consolidation-20160329story.html
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