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Technology and creative disruptionBlock 2Technology and creative disruptionWhy this course? understanding the role of innovation in markets and society understanding how new technologies create new markets and disrupt or destroy existing ones understanding how technologies are not only driven and sh...

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Technology and creative disruption Block 2

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Technology and creative disruption

Why this course? - understanding the role of innovation in markets and society - understanding how new technologies create new markets and disrupt or destroy existing ones - understanding how technologies are not only driven and shaped by markets but also socially shaped - critically apply concepts and theories on the media markets and industries

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Key concepts week 1 Capitalism A form or method of economic change with change as the one constant. -> Capitalism is the perennial for creative destruction as the pursuit of self-interest ignites the progress that makes other better off (anti-thesis is gift economy) Creative destruction The opening up of new markets that destroy the old ones. -> Capitalism is the perennial for creative destruction as creative destruction recognises change as the one constant in capitalism Paradox of progress You have to accept that some people might be worse off in a creative destruction society as attempts to soften harsher aspects of creative destruction lead to stagnation and decline. Invisible hand Market shifts resources from declining sectors to more valuable uses that seek the highest returns. Principles of disruptive innovation Set of rules that managers can use to judge when the widely accepted principles of good management should be followed or not. Gift economy Mode of exchange where digital valuables are circulated freely without an agreement for monetary rewards so that people are able to participate within ‘interactive creativity’. Innovator’s dilemma Logical decisions of management that are critical to the success of their companies are also the reason why they lose their position of leadership. -> Good management practice results in the failure of successful firms Sustaining technologies Improving existing products/services. Disruptive technologies Underperform established products in mainstream markets. -> 4 principles of disruptive technology - Companies depend on customers and investors for resources - Small markets don’t solve the growth needs of large companies - Markets that don’t exist can’t be analysed - Technology supply may not equal market demand!

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Readings week 1: Creative destruction and disruptive innovation 1. The Process of Creative Destruction — Schumpeter! " Capitalism is by nature a form or method of economic change and not only never is, but never can be stationary. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organisation that capitalist enterprise creates. " " The opening up of new markets and the organisational development from the craft shop and factory to big concerns illustrate the same process of industrial mutation that increasingly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of creative destruction is the essential fact about capitalism. " " In capitalist reality, only the competition from the new commodity, the new technology, the new source of supply, the new type of organisation counts — competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their lives. " " 2. Creative destruction — Cox & Alm" " Joseph Schumpeter introduced the paradoxical term “creative destruction” and economists have adopted it as a shorthand description of the free market’s messy way of delivering progress. Capitalism as “the perennial of creative destruction” has become the centerpiece for modern thinking on how economies evolve. " " Over time, societies that allow creative destruction to operate grow more productive and richer; their citizens see the benefits of new and better products, shorter work weeks, better jobs and higher living standards. Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. " " Creative destruction recognises change as the one constant in capitalism. Entrepreneurship and competition fuel creative destruction. Entrepreneurs introduce new products and technologies with an eye towards making themselves better off — the profit motive. In another seemingly contradictory aspect of creative destruction, the pursuit of self-interest ignites the progress that makers others better off. " " Producers survive by streamlining production with newer and better tools that make workers more productive. Companies that no longer deliver what consumers want at competitive prices lose customers and eventually wither and die. The market’s ‘invisible hand’ shifts resources from declining sectors to more valuable uses as workers, inputs and financial capital seek their highest returns. " " 3. The innovator’s dilemma: when technologies cause great firms to fail — Christensen " " The list of leading companies that failed when confronted with disruptive changes in technology and market structure is long. A common theme in all these failures is that good management in those leading companies was the most powerful reason they failed to stay atop their industries. " 4

Precisely because these firms listened to their customers, invested aggressively in new technologies that would provide better products, and because they carefully studied market trends, they lost their position of leadership. This implies that many of what are now widely accepted principles of good management are only situationally appropriate. There are times at which it is right not to listen to customers, right to invest in developing lower-performance products and right to pursue smaller, rather than substantial, markets. " " There is a set of rules that managers can use to judge when the widely accepted principles of good management should be followed and when alternative principles are appropriate. These rules called ‘principles of disruptive innovation’ show that when good companies fail, it is often because their managers ignored the principles or chose to fight them. " " 4. Disruptive technology: how Kodak missed the digital photography revolution — Lucas" " Investing in disruptive technologies is not a rational financial decision for senior managers to make because disruptive technologies are initially of interest to the least profitable customers in a market. The highest-performing companies have systems for eliminating ideas that customers do not ask for, making it difficult for them to invest resources in disruptive technologies. By the time lead customers request innovative products, it is too late to compete in the new market. The main cause of the failure to adapt to disruptive technologies is that the company practiced good management. The decision-making and resource-allocation processes that make established companies successful cause them to reject disruptive technologies. !

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Lecture week 1: Creative destruction and disruptive innovation Technological determinist perspective: how the iPhone changed society Theories of technological change: how society influences technology Joseph Schumpeter (1883-1950) - Austrian economist who emigrated to the US - Era of mass production - Economy as a discipline came up, like other big fields of research and socialism - Ideas of markets were implemented - Major work: Capitalism, Socialism and Democracy (1942) - Influenced by the thinking of Karl Marx, but opposed Marxism - Capitalism is “the perennial gale of creative destruction” -> everlasting, very strong wind of creative destruction Creative destruction - Economic principle - The opening up of new markets that destroy the old ones - Creative destruction is inherent to capitalism; it moves it forward but also creates discontent among “intellectuals”. It will ultimately lead to 1. corporatism (oligopoly: small amount of corporations that produce everything) 2. resentment against corporatism, free market and private property 3. the creation of a welfare state 4. ultimately the collapse of the capitalist system Cox & Alm Over time, societies that allow creative destruction to operate grow more productive and richer, their citizens see the benefits of new and better products, shorter work weeks, better jobs and higher living standards. Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. -> Inherent inequality in a system driven by creative destruction The fundamental impulse that sets and keeps the capitalist engine in motion comes from the consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organisation that capitalist enterprise creates. Is it really true that societies that allow creative destruction are better off? What is the role of the state in creative disruption? (market regulation) Can there be creative destruction without a market system? Clayton Christensen (1952) - Harvard business theorist - highly influential in business administration and management, from the steel industry to Apple - capitalist economic thinking: the market and changing consumer needs are the driving force behind innovation (much like Schumpeter) What is technology? - Technology: The processes by which an organisation transforms labor, capital, materials and information into products and services of greater value - Innovation: a change in one of these technologies 6

This is a strictly economic definition of technology based pertaining to capitalist, market-driven economies and societies. Schumpeter argued that large companies are best at anticipating and adapting to technological change. Christensen asks: Why do well-managed, healthy companies still fail? The innovator’s dilemma The logical, competent decisions of management that are critical to the success of their companies are also the reason why they lose their positions of leadership -> good management practice drives the failure of successful firms The failure framework: why do healthy businesses fail? 1. distinction between sustaining and disruptive technologies, inadequate response to the latter 2. “overshooting” the market: giving “customers more than they need or ultimately are willing to pay for” 3. investment strategies are coloured by customers and financial structures. Irrational to invest in disruptive technologies Sustaining vs disruptive technologies - Sustaining technologies - improving existing products or services - incremental: help keep a business in the game, focus on short-term revenue and small changes (updates) - radical: may provide edge on other business, breakthroughs in product design through R&D or customer research (new visions) - Disruptive technologies - Underperform established products in mainstream markets - Products based on disruptive technologies are typically cheaper, simpler, smaller and frequently more convenient to use 4 principles of disruptive technology 1. companies depend on customers and investors for resources - problem: following what most customers and investors want leads to the business being overrun by business driven disruptive technology - solution: start autonomous organisation, revolving around disruptive technology, independent from existing customers and investors -> spread the risk 2. small markets don’t solve the growth needs of large companies - problem: large companies think there is nothing to be gained from new, small markets. This leads them to not see the growth potential of companies revolving around disruptive technology - solution: give responsibility to a small organisation that ‘fits’ the new, small market and helps develop the disruptive technology 3. markets that don’t exist can’t be analysed - problem: large companies invest in market research for sustaining technology. New markets driven by disruptive technology cannot be researched in the same way - solution: discovery-based planning. “Learning what needs to be known,” rather than attempting to know everything before stepping into a new market 4. technology supply may not equal market demand - problem: mainstream, large companies often make products or services today that overshot the needs of tomorrow. I.e. too many features and functionalities. New cheap and simple products often compete with and win from these -> waste of money, time and energy - solution: closely observe how customers actually use the products and services. Note the vacuum that will emerge at lower price points -> All from the perspective of big businesses The biggest innovator Not the market but the state -> they invest in businesses by sponsoring them so that they, in turn, can create new technologies. ! 7

Seminar week 1: Creative destruction and disruptive innovation Does creative disruption have a positive or negative influence on society? Monopoly: only one person or company controls the whole market -> Facebook as well since all the alternatives are owned by Facebook Oligopoly: a few companies control the market -> oil companies Competition - lowers the prices - keeps quality high because of competition Destruction of an old market and the creation of a new one (ice machines in the refrigerator instead of ice makers) -> creative destruction as a natural force of capitalism. Innovation in a communist society: the state determines when and where technological progress takes place In Schumpeter’s view, creative destruction itself destroys corporatism because people get to vote every 4 years and thereby have the opportunity to change the way their society is organised -> Socialism (the welfare state) destroys the motor behind capitalism Creative destruction is inevitable -> capitalism changes and is not a given, the mover of that evolution is creative destruction Disruptive innovation You have a market and a new company that comes in from below changes New technology eventually pushes out old established firms, even though they did not do anything wrong, they just were not able to innovate. Christensen: Organisational structure should be flatter so that everyone has a say or at least can propose ideas. Small companies owned by Google invest in new technologies. They can take risks because they still have a safety net since they are part of this big company. !

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Key concepts week 2 Information society Utopian civilisation for neoliberals where information technologies force the privatisation and regulation of all economic activity. Digerati New ruling class composed of venture capitalists, innovative scientists, hackers and media stars. Technocracy New aristocracy with digerati as ruling class. -> Technocracy of the net will transform the restrictions of Fordism (specialisation is necessary for production) into the freedoms of the information society as autocracy of the few in the short term is necessary for the liberation of many in the long term. Cyber communism Dialectical process of superseding capitalism that is marked by the evolving synthesis of gift and commodity within the Net. -> Alternative form of collective labour Technological determinism Technology develops autonomously and determines to an important degree societal development. -> Determines its social structure and cultural values

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Readings week 2: Technology as an agent of change 1. The emergence of print culture in the west — Eisenstein! ! The advent of printing in the fifteenth century was a complicated innovation which involved a cluster of different changes. The consequences of this innovation appears to be even more variegated and remarkably elusive. The formula image-to-word only holds for a limited set of phenomena, for printing also endowed graven images with a new lease on life. To set the stage for the scientific revolution, we must be prepared not just to discard the formula, but to turn it around. In the area, print led towards an increased use of the image and diminished use of the word. " " When dealing with these transformations it is important to strike the right balance between the uninformed enthusiasts who assume printing changed almost everything and the scholarly skeptics who hold it changed nothing. The enthusiasts overestimate the initial changes wrought by print and forget that preliterate folk were not much affected. The skeptics do not appreciate the danger that comes from underestimating its true dimensions. What is new in the fifteenth century in Western Europe is not “the coming of the book” but rather the coming of a new process for duplicating books. Three major movements affected by the development of this new process were: the Renaissance, the Reformation and the rise of modern science. " " 2. Cyber-communism: Americans are superseding capitalism in cyberspace — Barbrook! " Reflecting the extravagance of the new media, the spectre of communism takes two distinct forms: the theoretical appropriation of Stalinist communism and the everyday practice of cybercommunism. Each of them desires the digital transcendence of capitalism, yet at the same time, even the most dedicated leftist can no longer truly believe in communism, as it seems like a relic from the past. " " The ideologies of American neoliberalism have seized this opportunity to lay claim to the future. They have been predicting that new technologies were about to create a utopian civilisation: the information society. Their post-Fordist future was the return to the liberal past where information technologies would force the privatisation and deregulation of all economic activity. " " American neoliberalism can successfully combine economic progress with social immobility. Over the long run, continual industrialisation slowly erodes class privileges. Fearful of losing their limited privileges, some working class professionals become enthusiastic supporters of reactionary modernism. Instead of fighting for social equality, they dreamt of founding a new aristocracy: the technocracy. " " For almost three decades, conservative gurus have been predicting that the new ruling class would be composed of venture capitalists, innovative scientists, hacker geniuses, media stars and neoliberal ideologies: the digerati. Over time, this new technocracy of the net will transform the restrictions of Fordism into the freedoms of the information society. In the Californian ideology, the autocracy of the few in the short term is necessary for the liberation of the many in the long term. " " Gift economy was the complete antithesis of capitalism. When digital gifts are freely circulated, people are able to participate within ‘interactive creativity’. Although appreciating the benefits of e-commerce, Americans are enthusiastically participating within an alternative form of collective labour: cyber communism. " " " 10

The dialectal process of superseding capitalism is marked by the evolving synthesis of gift and commodity within the Net. Now, in the age of the Net, the exchange of commodities is being both intensified and prevented by the circulation of gifts since Americans are no longer solely motivated by monetary rewards. The gurus of the Californian ideology emphasise the survival of social hierarchy within these hybrid productive relations of the Net. " " 3. Here comes everybody: The power of organising without organisations — Shirky" " The story demonstrates how dramatically connected we have become to one another. It demonstrates the ways in which the information we give off about ourselves has increased our social visibility and made it easier for us to find each other but also to be scrutinised in public. It shows how a story can go from local to global in a heartbeat and it demonstrates the ease and speed with which a group can be mobilised for the right kind of cause. " " New t...