Excursion 57
Business Model Innovation and Creative Destruction
Business models change for the same reason that everything else about business changes. Schumpeter’s vision of “creative destruction” (Link 14.3) is more evident and vibrant now than it has ever been. New ideas, technologies, and processes generate a continuous churn of resources, transactions, and values. As some products and services become more popular, others must be abandoned.
In reality, entrepreneurs have been changing and innovating business models for as long as there have been business models-- in other words, for as long as there have been businesses.
Half a Century Later, Economist's 'Creative Destruction' Theory Is Apt for the Internet Age: Schumpeter: The Prophet of Bust and Boom
Henry Ford’s adoption of mass production in automobile manufacturing was effectively a business model innovation, because it radically changed the economics of the industry and created entirely new markets. Similarly, the real innovation behind Edison’s light bulb wasn’t the bulb itself, but the infrastructure required to facilitate a business model for providing electricity to homes.
Creative destruction is a process in which new technologies, new kinds of products, new methods of production and new means of distribution make old ones obsolete, forcing existing companies to quickly adapt to a new environment or fail. Sharon Reier, writing in the New York Times
When Innovations Meet Institutions: Edison and the Design of the Electric Light, Andrew B. Hargadon and Yellowlees Douglas. Administrative Science Quarterly. Vol. 46, No. 3 (Sep., 2001), pp. 476-501
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