1. Victorious Secret
present:
Week 5 Workshop Questions
- Innovation as Evolution -

2. 1. Evolutionary theory and innovation
 What are the key features of Schumpeter’s approach to innovation?
 What are the main sources of discontinuities in his model?
 What is the role of new combinations of knowledge?
 What do you understand by path dependency?
 What are the main characteristics of disruptive technologies?
 Why might disruptive technologies creep up on established companies?
 What is the relationship between Schumpeter’s discontinuities and Christensen’s
theory of disruptive technologies?
2. Disruptive Innovation
 What are disruptive innovations?
 Why are disruptive innovations usually developed outside established
companies and outside established sectors?
 Identify some examples of disruptive innovations.
 Why were they ignored by established players?
 In what sense can Sony be identified as a market disruptor?
 How do you account for the slowing down of performance of Japanese
companies in the last 20 years?
 How is the development of small new companies important to the economic
prosperity of nations?

3. 1.1 What are the key features of Schumpeter’s approach to innovation?
The model of Joseph Schumpeter is
widely acknowledged as the first
linear model of entrepreneurship
and thus innovation.
Early innovation models such as this
one involved:
 R & D / science push
OR
 Technology pull
Roberts (1988) notes:
Invention Exploitation Innovation
Figure 1: Schumpeter’s Mark 1 model of Innovation
As illustrated in Dodgson (2000)

4. “the opening up of new markets, foreign or domestic, and the organizational development [...] illustrate the same
process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly
destroying the old one, incessantly creating a new one” (Schumpeter, 1934).
He called this process “creative destruction”.
 Innovation can be seen as “creative destruction”
waves that restructure the whole market in favor of
those who grasp discontinuities faster.
 In his own words “the problem that is usually
visualized is how capitalism administers existing
structures, whereas the relevant problem is how it
creates and destroys them” (Schumpeter, 1934)

5. Cantillon first introduced the term “entrepreneur”
= “the agent who buys means of production at certain prices in order to
combine them into a product that he is going to sell at certain prices that
are uncertain at the moment at which he commits himself to his costs”
Entrepreneurship is “an activity that involves the discovery, evaluation,
and exploitation of opportunities to introduce new goods and services,
ways of organizing, markets, process, and raw materials through organizing
efforts that previously had not existed” (Venkataraman, 1997).
In Schumpeter’s own words, “economic life is essentially passive ... so that the
theory of a stationary process constitutes really the whole of theoretical economics ...
I felt very strongly that this was wrong, and that there was a source of energy within
the economic system which would of itself disrupt any equilibrium that might be
attained” (Schumpeter, 1937).
It was this ‘source of energy’, innovation, that he wanted to explain.
He focused in particular on the interaction between innovative individuals, who he called
‘entrepreneurs’, and their inert social surroundings.

6. 1.2 What are the main sources of discontinuities in his model?
Vague relationship between new combinations and macro performance
The existence of overlaps between the Mark 1 stages
Innovation is evolutionary by nature, but Schumpeter disregards this by focusing mainly on discontinuity
In his later work, he changed his view, stating that larger corporations could have an advantage to develop
innovations because they have better resources and more market power than smaller businesses. This shift,
however, lacks the support of proper evidence
Lone innovator
Innovation is deeply rooted in our social and cultural environment, Schumpeter mostly disregards these influences
Falsely assumes that the most advanced innovation is adopted

7. 1.3 What is the role of new combinations of knowledge?
Schumpeter added a definition of innovation (“development”) as “new combinations”
of new or existing knowledge, resources, equipment and so on (Schumpeter, 1934).
He also stressed the difference between innovation and invention.
•a specific social activity (function) carried out within
Innovation the economic sphere and with a commercial purpose
•can be carried out everywhere and without any intent
Invention of commercialisation
Thus, for Schumpeter, innovations are novel combinations of knowledge, resources
etc. which people/firms/organizations then attempt to commercialize or carry out in
practice.

8. IDEAS NEVER STAND ALONE
Typewriter
Binary Data Electricity
USB Computer Plastics
connectors
Keyboard
Written
Circuits
language
Operating
systems

9. In his book, The myths of innovation, Scott
Berkun (2007) discusses how innovations are
simply a recombination of existing elements (
“puzzle pieces”) with an “epiphany” as the
last piece that connects everything and helps
produce the ‘magic’ of something seemingly
so new.
The accompanying image shows various
scattered pieces (with the darker one being
the “epiphany”) and how, stage-wise, they
connect perfectly when the last piece is
introduced and produces a new image /
innovation.

10. 1.4 What do you understand by path dependency?
Path Dependence is similar to the inertia of physics, it might generate dependence to the path which entering,
either good or bad. Established direction of a certain path will obtain self-reinforcing in the future development. It
determines the selection about current or future choice by the decision people used to make. Good path produce
the role of positive feedback to enterprises, and resulting in a flywheel effect (The continuation of oscillations in
an oscillator circuit after the control stimulus has been removed.) through inertia and momentum, so that the
development of business enter a virtuous circle. On the other hand, bad path play a negative feedback role in
enterprises, such as a doom loop, the business become stagnation, because it locked in some kind of inefficient
state. That is to say, business operates without meaning; they can’t catch the direction or set up a target. As a
result, once the choices go into a situation of lock, it may be hard to get out of the state. In my opinion, making
path dependence should have certain advantages, such as develop earlier or the large number of use, and so on.
For example, the modern railway spacing is 4 feet 8.5 inches width derived from the Roman chariot as same as
two horses ass width on a chariot. By the way, the worker who made trams had made carriage previously, so the
standard of tram followed by the normal of carriage’s tread. Furthermore, the early railway is designed by the
people who built tram Tread standard, while four feet and 8.5 inches is the tram. Nowadays, the most advanced
design of transportation system is determined by two horses’ ass width in two thousand years ago.
It could use path dependence to explain all of theory about the custom of people. Based on this, people must find
a right direction in the beginning, thus the negative effect of path dependence won’t occur. Everyone has their
own basic patterns of thinking which lay as early as childhood, this model will decide people’s channel in their life
largely. The power of inertia make the decisions are self-reinforcing continuously. It means people already build
their own life after making the first decision, even if they are unsatisfied. It is difficult to change it, so we should
be careful on choose at the start.

11. 1.5 What are the main characteristics of disruptive technologies?
The concept of disruptive technology is coined by Professor Clayton
M. Christensen (Harvard Business School), in his book, "The
Innovator's Dilemma," to describe an innovative technology that
unexpectedly displaces an existing technology or introduce an
entirely novel concept to society ( Rouse, 2011).
Christensen considered that there are two kinds of innovative
technology: sustaining and disruptive (Christensen, 1997). Sustaining
technology depends on incremental innovation, which improves
established technology. Oppositely, disruptive technology tend to
focus on a “different value proposition than had been available
previously” (Christensen, 1997,p11).
However, disruptive technologies lack of the foundation of existing
technique or knowledge and limitedly appeal to customers. Therefore,
it difficultly competes with established products and services in its
leading market. But in the long term it also has its own advantages:
“Products based on disruptive technologies are typically
cheaper, simpler, smaller, and, frequently, more
convenient to use.”
(Christensen, 1997)
Based on the characters of cheaper and simper, disruptive products generally maintain lower margin rather than purchasing a rich profit
(Christensen, 1997). Because of this, disruptive technologies are able to entrance to emerging or insignificant markets, which can avoid an
intensive competition with large or dominant firms(Christensen, 1997). The main reason is why the leading firms’ most significant
consumers fail to show interest with the products based on disruptive technologies(Christensen, 1997). Generally speaking, a disruptive
technology mostly focuses on “the least profitable customers” in a market. Hence, Christensen (1997) points out those large corporations
excel at judging their markets, maintaining good relationship with their customers, and having practiced principles to update existing
technology. Conversely, they have trouble on seeking the potential efficiencies, cost-savings, or new marketing opportunities created by
low-margin disruptive technologies Rouse, 2011).

12. 1.6 Why might disruptive technologies creep up on established companies?
According to ‘Clayton M. Christensen ‘, the term of disruptive technology is that a kind of technology can create an
original venture into the market and it will dominate and disrupt the market to be the mainstream in years to come.
However, this kind of technology might just some innovative or fit in the market rather than an extremely novel
innovation or evolution.
It has some attractive function such as cheaper than original product or more improver than previous one so that is
it easier to instead of earlier technology. Disruptive technologies also have to experience long time to become
dominate technology and have a deep influence on customer. Moreover, it is easy to be ignored by leading
companies because it is not an incremental or radical innovation technology even has no competitive advantage.
When companies recognize the importance of it, it already invades to the market. As a result, companies need to be
award of the power of the disruptive technologies and develop an accurate insight toward disruptive technologies.
There is an analysis of iPad, which demonstrates the impact disruptive technology for business companies of as
below.

13. At the beginning iPad doesn’t have huge market share due to the issue of function.
 The first issue is costs. Compared with netbook computer, it is not economical.
 Secondly, not as powerful as notebook. It also can’t perform as well as notebook. It
doesn’t have the connection equipment such as mouse, keyboard and other
connective slot to cooperate with other devices.
 Third, In terms of function of portable, it doesn’t have competitive advantage to
match with smart phone.
However, as we can see the amount of sales in different kind of computer, the sales of
apple iPad has grown up considerably from 2010, which can’t be imagine by other
competitors. Moreover, it is be widely accepted by the public, even in the business
propose. We can see the usage of iPad in the various sectors in another figure to prove
that iPod is successful infiltrated and embed into the market of computer and tablet.

14. 1.7 What is the relationship between Schumpeter’s discontinuities and Christensen’s
theory of disruptive technologies?
Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition
Irrelevant, by W. C. Kim and R. Mauborgne is a great combination between Schumpeter’s
discontinuities and Christensen’s theory of disruptive technologies (Poul Houman & Jesper, 2008).
The book is based on the Schumpeterian view that market boundaries and industry structure are
not given but can be reconstructed by the actions and beliefs of industry players (Poul Houman &
Jesper, 2008).
While Hamel sets the scene for industry revolution, the designers of blue ocean strategies provide
the industry revolutionaries with weapons and analytical tools that allow them to break out of the
red ocean of bloody competition and, instead, explore the blue ocean that makes competition
irrelevant (Poul Houman & Jesper, 2008).

15. 2.1 What are disruptive innovations?
Disruptive technology is a term coined by Harvard Business School professor Clayton M. Christensen to describe a
new technology that unexpectedly displaces an established technology.
Christensen separates new technology into two categories: sustaining and disruptive. Sustaining technology relies on
incremental improvements (E.g. the supersonic industries focus on the Concorde) to an already established
technology. Disruptive technology is radical innovation and often lacks refinement, often has performance problems
because it is new, appeals to a limited audience, and may not yet have a proven practical application (E.g. the private
jet which would eventually displace the concord).
Recommended Video:
http://www.youtube.com/w
atch?v=9L66OH-x7a4

16. 2.2 Why are disruptive innovations usually developed outside established companies
and outside established sectors?
In his book, Christensen argues that large corporations innately function to work with sustaining
technologies. They are brilliant at knowing their market, staying close to their customers, and
having a mechanism in place to develop existing technology.
However, they often have trouble capitalizing on the potential efficiencies, cost-savings, or new
marketing opportunities created by low-margin disruptive technologies (Chaniot, 2007). As such
disruptive innovations are not initially perceived as disruptive . Instead they sneak up unnoticed
on established businesses.
It’s interesting that in Gary Hamel’s (2001) book “Leading the Revolution” he asks most of the
fortune 500 companies what they are afraid of? The overwhelming answer was “New start-ups
which break the rules”. Using real-world examples to illustrate his point, Christensen shows how
it is not unusual for a big corporation to overlook the value of a disruptive technology because it
does not reinforce current company goals, or it only caters to a certain niche, only to be
surprised as the technology matures, gains a larger marketshare and threatens to rock the boat
of the industry.

17. 2.3 Identify some examples of disruptive innovations.
2.4 Why were they ignored by established players?
Innovation Disrupted Market How?
The Private Jet Supersonic Transport The Concorde aircraft was the only supersonic airliner in
extensive commercial traffic. However, its target market
was a small customer segment, which could later afford
small private sub-sonic jets. The loss of speed was
compensated by flexibility and a more direct routing.
The current providers missed out as they were too
focused on improving their current procedures.
The Steamboat Sailing Ships The first steamships were deployed on inland waters
where sailing ships were less effective, instead of on the
higher profit margin seagoing routes. Hence steamships
originally only competed in traditional shipping lines'
"worst" markets
Digital Calculator Mechanical Calculator Facit AB used to monopolise the European market for
calculators, but did not adapt digital technology, and as
such failed to compete with digital competitors

18. Innovation Disrupted Market How?
GPS Navigation Navigational Map The old navigational system using maps,
needed pre-existent knowledge of how to
read maps as well as possession of a sextant.
A clear sky was paramount for the calculating
of an exact position. GPS can show the exact
position, either on a projected map or in
degrees N/S/E/W (low end models), in any
weather.
Digital Synthesizer Electric organ / piano Synthesizers were designed to be low-cost,
low-weight alternatives to electronic organs
and acoustic pianos.
However today's synthesizers feature many
automated functions and taken the majority
market share for home and hobby users,
mostly due to refusing to adapt new
technology.

19. 2.5 In what sense can Sony be identified as a market disruptor?
In 1955, Sony Introduced the world’s first battery –
powered pocket transistor radio – Low power
consumption and compactness
Sony thrived in this product because it chose to
compete against non-consumption in new value
network. Sony targeted the teenagers who could
afford big vacuum tube radio.
Then in 1959, Sony introduced 12-inch black-and-white
portable TV with the same strategy. Its costumer
reference point was has no TV or radio at all.
In 1979, Sony released the first portable music player
called Walkman, which was a player which plays
cassette that replaced bulky music player known as
the “boom box” (Sony 2011) this term “ but five years
later in 1984, the first portable CD player was
introduced by SONY and was dominated for long time
(Sony 2011).

20. Trend of Disruption – the case of portable
music player
Period Disruptive Technology Disrupted Note
Technology
1970s Sony Walkman Boom Box In the late 1970s, the boom box was quite popular among the younger
Cassette Player (Ghetto Blaster) generation. Companies were competing on who could produce the
loudest product or the biggest product. In 1979, Sony introduced the
first portable cassette player and it became very popular in a short time
and disrupted boom box players
Late 1980s and The Discman Sony Walkman In 1984, Sony introduced the world’s first portable CD player. This
1990s and Cassette Player invention accelerated the spread of the CD usage. Following this
Portable CD Players invention other large companies started producing portable CD players
which in time disrupted the cassette player market
1990s and iPod Portable CD In the late 1990s, many companies started introducing flash memory
onwards and Player based digital audio players. However, most players were bulky in size,
Other Digital Players had low storage capacity and low battery life. In 2001, Apple introduced
their first iPod model and in 2003 they introduced their online music
store iTunes. In a short time, iPod became very popular as Apple was the
first company who offered customers a legal whole package product.
The new way of online music purchase and the quality of iPods disrupted
portable CD players and became the leader of the digital audio player
market
(Source: Disruptive Product Innovation Strategy: The Case of Portable Digital Music Player)

21. 2.6 How do you account for the slowing down of performance of Japanese
companies in the last 20 years?
The mainstream explanation for Japanese economic decline in 1990’s is a combination of a negative demand shock, an excessive
financial multiplier due to bad feed of loan into broader economy through connected lending and regulatory forbearance, and
severe fiscal and monetary policy missteps turning its debt-deflation
The Question always raised that Japan, world’s leading manufacturing corporations choose to feature an Innovative product,
which has never brought successfully to market nor become any sort of technological standard, as the emblem of its tradition of
industry and technology?
Neither the efforts of corporate public relation nor Japanese culture, are known for their sense of deliberate irony.
Looking back to 2001, after 10 years of slow and negative growth in Japan, there is reason to wonder whether Japanese technical
powers evaporated for some reason, whether national innovation system can be appropriate somehow to capitalize on
particular technology development and not others, or whether perhaps technological innovation alone is insufficient to
guarantee good economic growth.
It was examined that there was relationship between Japanese technological innovation and the sustained declice in Japan’s
growth rate in 1990’s. The three aspects of the innovation and growth were:
1. Radical change in macroeconomic performance without any accompanying change in the inputs to the innovative process.
2. The maintenance of a sustained high level of technological innovation can possibly continue even as economy surrounded by
innovation is suffering
3. Advancement of free flow of information in productivity can remain in a limited number of sectors without diffusing across
the economy.
“Until recently, Japanese enterprises achieved and maintained competitiveness by introducing basic industrial
technologies from Western nations to achieve ‘process innovation’ ”
(NITSDC, 1999)

22. 2.7 How is the development of small new companies important to the economic
prosperity of nations?
After the global downturn of 2008-09, Small new companies and businesses are refered to the backbone of the global economy.
The contribution of Small companies is significant not only in static but also in dynamic term.
Majority of global business are very small (di Giovanni et al.2012). Statistically around 85%-99.9% of businesses are small or medium
out of which 50% of private sector value added and 77% of private sector employment.
It is definite that the contribution on Small businesses to economic fundamentals varies substantially across countries; Rich
countries have larger SMEs than poor countries. The Legal tradition and history plays important role. (Ayyaagari et al 2003)
The small businesses are often said to exist in a Schumpeterian world of continuous creative destruction as the least sustainable
business model weeds out or least successful managers.
In 2002, the Global Entrepreneurship Monitor (GEM) report suggested that 460m adults might be engaged in entrepreneurial
activity – this might lead to creation of around 100m new business (Reynolds et al 2002) which a lot for an economy of nation.
As per the statistic and dynamic of Small businesses on the
economy. It is evident that the Small businesses contributes
maximum towards the national economy and It is very
important for the development of nation to encourage the
Small new companies to grow and contribute to the nations
wealth.

23. The following image portrays the 5 models of dramatic change, as well as, give
examples for each;

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