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Resistance to Innovative Entrepreneurship: Schumpeter

During the last decade or so, the theories of Joseph Schumpeter have gone through a revival, and much attention has been devoted to his work. By now many economists and commentators value his work highly, especially what he says about entrepreneurship and creative destruction.

While this work on Schumpeter is very valuable, one might also adopt a different attitude towards him. Instead of trying to explicate and apply his ideas, one may more freely use Schumpeter’s intuitions to construct new theories and approaches to economic topics.

Two Key Intuitions: The Notions of Combination and Resistance to Entrepreneurship

Two of Schumpeter’s core ideas, present already in the first edition of his great classic, The Theory of Economic Development (1911), are the notions of combination and resistance to entrepreneurship. Individually, these are potent ideas. Together, they are even more so and can produce a new (Schumpeterian) theory of entrepreneurship.

Two of Schumpeter’s core ideas are combination and of resistance to entrepreneurship.

The notion of combination stands at the center of Schumpeter’s theory of entrepreneurship. Indeed, he famously defines entrepreneurship as a new combination:

To produce means to combine materials and forces within our reach. To produce other things, or the same things by a different method, means to combine these materials and forces differently… Development [or entrepreneurship] in our sense is then defined by the carrying out of new combinations. (Theory of Economic Development, 65–66; emphasis added)

This quote also shows that Schumpeter sees the whole economic process as a combination. The existing economic situation is a combination; when this is recast into a new combination, you produce an innovation.

Schumpeter also provides the reader of Theory with his famous list of the five main types of innovations: “a new good,” “a new method of production,” “a new market,” “a new source of supply of raw materials,” and “the carrying out of a new organization of any industry” (Theory, 66; emphasis added).

We also realize why entrepreneurship is so hard and complex. Maybe the person who conceives of the iPod does not know how to produce it—or market it, or profit from it.

At this point we may stop for a moment and ponder a peculiar fact. If we take these five innovations and lay them next to each other, so to speak, we notice that they compose a whole economic process. First, the raw material is needed, then the process of production, then the new product, and finally its marketing.

Did Schumpeter do this consciously? It matters little, but does point to an interesting ambivalence in how Schumpeter speaks about innovations. We already know he argued that separate parts of the economic process can be seen as innovations (a good, a method of production, and so on). But it is clear that he also felt that the whole economic process itself could be seen as a combination—and this implies a much broader approach to innovations, namely as a process starting with a conception, continuing over production, and ending with a sale. The figure below spells out the difference between the two approaches.

The conventional way of looking at an innovation sees it as a distinct and novel item; say, a new good or new technology. This is how most of us look at innovations, and it makes sense. But there is also a second view that Schumpeter seems to have sensed but never fully spelled out. This views the whole process as the innovation: conceiving the good, producing it, marketing it and, importantly, making a profit.

According to the conventional view of innovations, you conceive of, say, an iPod, and you have an innovation. According to the second and amended Schumpeterian view, to innovate you not only have to come up with the idea of the iPod, but also to produce it, market it, and make a profit. Once spelled out, it is clear that this second version is more realistic. We also realize why innovation is so hard and complex: maybe the person who conceives of the iPod does not know how to produce it—or market it, or profit from it.

A New (Schumpeterian) Theory of Entrepreneurship

The notion of combination is Schumpeter’s master concept, and we are not yet through with it. It cannot only be used to produce a novel concept of innovation, but also a novel theory of entrepreneurship.

We have already suggested that an innovation may be viewed as a combination in the sense that it constitutes a full mini-economy of its own (you must have raw material, produce the good, market it, and make a profit). The reader may also know that Schumpeter pays much attention, in Theory, to the notion of resistance to entrepreneurship. What makes innovation and entrepreneurship so hard, he says, is the strong resistance to it. This resistance can be manifested in three ways: The entrepreneur, like many of us, mentally resists doing something new; it is always hard to carry out a new task; and society is hostile to novelties.

What makes it so hard to be innovative and entrepreneurial, Schumpeter says, is the strong resistance to entrepreneurship.

But what about Schumpeter’s argument regarding combinations? Remember that every economy, according to Schumpeter, can be seen as a combination. Also, what Schumpeter calls resistance can also be described as habits, norms, common ways of doing things, and the like. This means that what causes resistance is the existing combination. How we habitually combine things, to phrase it differently, has become so entrenched in people’s minds that it cannot change without a huge effort: it offers resistance.

Schumpeter’s two concepts of combination and resistance, which are independent of one another in his work, can link to each other organically. Under certain conditions, an (existing) combination creates resistance to a new way of doing things. To innovate, in other words, means to break up an existing combination—to break through the resistance it creates, and to replace it with a new combination.

Earlier, when discussing the concept of innovation in Schumpeter’s work, we mentioned that an innovation was not “finished” once produced and marketed; it also must produce a profit. While Schumpeter does not discuss profit in connection with his five types of innovations, the concept plays a central role in his theories. He had his own concept of “entrepreneurial profit,” which was especially important to his work on the business cycle.

One may summarize Schumpeter’s notion of entrepreneurial profit as follows: The entrepreneur innovates and is rewarded with profit. This sets off a process that will ultimately create a wavelike movement in economic life. Since the innovation is so profitable, others will imitate it; first only a few other entrepreneurs, who are all amply rewarded for their effort. But others will also want to get into the game, until the profit is gone and the new way has become the standard.

It is clear that Schumpeter felt that the whole economic process itself could be seen as a combination—and this implies a much broader approach to innovations, namely as a process starting with a conception, continuing over production, and ending with a sale.

What has happened if we summarize this cycle but instead use the terms “combination” and “resistance”? We began the whole process with a combination that creates resistance because all the economic actors accept and take it for granted. The entrepreneur now emerges and suggests a different way of doing things. He or she must face all the resistance head-on and, if successful in dealing with all obstacles, is rewarded with full entrepreneurial profit. Then come the first imitators, followed by a whole flock of imitators. The new way of doing things is soon not so new any longer. Eventually, the new and radical combination becomes the common and existing combination. All the entrepreneurial profit is by now gone, and things are back to where they started.

The process we have just presented constitutes a full theory of entrepreneurship, as illustrated in Figure Two (see below). From this perspective, entrepreneurship can be defined as the act of creating a new combination that ends one economic order or way of doing things and clears the way for a new one.

This article has purposed to show the richness of Schumpeter’s work, but not by stating what Schumpeter says or by applying his theories to some empirical case. While these are both valuable ways to deal with Schumpeter’s work, we have instead wanted to focus on Schumpeter’s core ideas and to play with them: break them up, extend them, add to them. A great thinker’s contribution not only appears in his or her finished works and arguments, but also within the rich intuitions or core ideas that underlie the arguments.

Richard Swedberg is a professor at Cornell University and Thorbjørn Knudsen is a professor at the University of Southern Denmark. See their work in the October 2009 issue of Capitalism and Society, an electronic journal published by Columbia University.

FURTHER READING: Robert Fairlie discusses “The Importance of Family for Entrepreneurial Success,” and Jeffrey Friedman’s “Capitalism Without Romance” looks into the financial crisis and its implications for the future of capitalism. Marian Tupy recalls in “The Road From Serfdom” the last time countries tried socialism with gusto. And AEI’s Kevin Hassett describes how “Obama Flunks Schumpeter Creative Destruction 101.”

Image by Darren Wamboldt/Bergman Group.

via american.com

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Innovation and Competitive Advantage: High-Speed Nike Running Suit Inspired By The Golf Ball [Pics]

Just recently, Nike unveiled the TurboSpeed suit that can shave off 0.023 seconds from an athlete’s time in a 100-meter sprint. The superhero-like full body suit has small dimples covering the arms and and along the shoulders and back. These holes are inspired by the texture of golf balls that provide more aerodynamic movement and speed.

The new suit will be worn by runners from USA, Germany, Russia, and China at the London Olympics. Nike predicts that the high-tech sportswear could break personal best and world records.

Nike

via psfk.com

Hire Jim Woods to Speak to Your Organization 

Innovation, Growth, & Hypercompetition Consultant/Speaker/Business Coach 

 Website: InnoThink Group 

Request a consultation: Office: +1 719.649.4118 or complete our form.   

  

Innothink Group is a strategic management, innovation and business coaching consultancy.  

Our Guarantee. Where many consulting firms are reluctant to bear risks or tie their rewards to project outcomes, we decided to build a better model. We align our success with yours. We’re outcome obsessed, outcome paid, putting nearly two thirds of our fees at risk subject to hitting predetermined milestones. More than a guarantee we wanted from the outset to create true partnerships with shared responsibility. See a few of our clients.    

We provide broad ranging advice covering innovation, commoditization, competitive advantage, business policy and strategy, as well as global strategy and implementation. 

 

5 Secrets to Creating a Winning "Mad Man" Pitch : Innovation

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Two of television's most popular shows right now are "Mad Men" and "The Pitch." And the appeal, according to Madison Avenue adman-turned-author Kevin Allen in a recent interview, is that there is a "constant and universal fascination with seemingly powerful people coming up with ideas, slogans and jingles that sell an awful lot of soap powder to an awaiting public. There is a sort of inherent marvel as to how these folks conjure up the winning idea."

Just how to do that conjuring is the subject of Allen's new book, The Hidden Agenda: A Proven Way to Win Business and Create a Following. Allen is one of the advertising industry's most accomplished professionals, with over two decades of experience on the front lines at ad giants McCann Worldgroup, Interpublic Group and Lowe Worldwide. He was an early part of Rudolph Giuliani's mayoral election team.

Allen's unique approach to pitching and securing hundreds of millions of dollars in new billings has little to do with traditional selling. Rather, it rests on making an authentic connection with an audience that links their personal hopes, ambitions, desires and beliefs with your professional assets.

"Having seen hundreds of 'Mad Men' and women at work," says Allen, "the brilliant ones are those who have the emotional intelligence to sense what is in the heart of their audience and figure ways to ignite it."

Allen draws from his own experience in pitching to the likes of Nokia, Marriott and Johnson & Johnson, among others, and lays out these five steps to what he calls the "Allen Key" system.

1. Identify the conceptual target

 The conceptual target is the crystallization of a community of individuals who share common human truths. It allows you to hone in on and speak to exactly what your audience cares about. In pitching to the highly analytical, high-tech company Ericsson, Allen uncovered the company's strong need to be appreciated for making a difference in the lives of people around the world and created "Everyday Miracles," as the campaign came to be called. By strategically drawing out in discussion what your subject is really about, the conceptual focus of an effective pitch becomes clear.

2. Tune in to the "hidden agenda"

The search for the "hidden agenda" is essentially a search for desire. At Johnson & Johnson, Allen encountered resistance to younger people (such as himself) bringing new ideas and critiques to the table. The conceptual target was clear: respect for the traditional ways of the company. From this, the "hidden agenda" was teased out: a desire to proceed not from irreverent criticism, but respectful optimism. Allen developed what his team dubbed the "Possibility Agenda” ad campaign and won Johnson & Johnson's business.

3. Take inventory of your core and connect it with your target

 Your core reflects the special abilities and assets you possess and how you add value for others. Uniformly proud of its superiority as an airline carrier while simultaneously hesitant to boast or appear aggressive in asserting this, Lufthansa was a difficult potential client to decipher. By knowing his own company's core, its unique and defining attributes, Allen was able to connect with Lufthansa’s real essence–genuine excellence–and lead them to address concerns for truthfulness and modesty with a campaign featuring a slogan that simply stated, "There's no better way to fly."

4. Communicate your credo

 Your credo is your belief system that drives your actions. Clearly communicate that credo, emphasizing your values with those of your audience, to forge a bond. Marriott faced the challenge of defining itself in an overdeveloped hotel market with competitors wielding fancier architecture and up-market cache like Hyatt and Westin. The key to staying in the game was connecting to Marriott's real values and presenting those effectively to the world. Allen discerned, through an investigation of the everyday interactions between Marriott employees and customers, a culture based on the honor and nobility of service. This became the basis of a highly effective pitch, "The Spirit to Serve."

5. Discover your target's real ambition

Real ambition, as Allen defines it, is the human desire to grow and to add something to the world where nothing previously existed. South African Airways sought a new direction at a pivotal time in the country’s history. Feeling the eyes of the world upon them, they were deeply concerned to do the right thing in all aspects of their business–not just for themselves, but for their nation and its reputation. A pitch connecting the real ambition of every individual in the room–hope for a peaceful and prosperous South Africa–to the aims and pride of South African Airways moved everyone and won the day.

“We don’t really persuade anybody to do anything,” says Allen. "Businesses hire you and people follow you not because they've had their arm twisted, but because they see that you understand them. At the end of the day, behind every decision is an unspoken, visceral, emotional motivation. Tap that, and you win."

Photo credit: Courtesy author

via openforum.com

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Jim Woods is president and founder of InnoThink Group; a leading Strategic Management and Innovation Consulting Firm in Denver, Colorado. He is an author, speaker, and a strategic innovation and hypercompetition expert to profit, non-profit organizations and municipalities. He advises clients with an objective view of their competitive capabilities and defines a clear course of action to maximize their innovation return on investment to achieve profitable growth. Build a capability for ongoing competitive innovation across your company. Call 719-649-4118 or complete our form: contact us for more information on hiring Jim to advise or speak for your next event.

Emil Kolawole: From a virtual Tupac to a healing force: Innovation and hip-hop

A holographic image of Tupac Shakur during day 3 of the 2012 Coachella Valley Music & Arts Festival on April 15, 2012. (Kevin Winter - Getty Images for Coachella) It has been an interesting start to the week for hip-hop. It’s not every day that technology brings one of the genre’s most popular artists, Tupac Shakur, back to (virtual) life in front of a packed house and then reportedly sends him on tour. But hip-hop and innovation have gone hand-in-hand from the genre’s very beginning.

At least part of that history has been tackled by rapper and “Law & Order” star Ice-T, who made his directorial debut with the documentary “Something from Nothing: The Art of Rap,” in which he explores hip-hop’s creation and early evolution. The film premiered at the Sundance Film Festival in January and is set for a theatrical release in June.

Based on the trailer and reviews of the film following its premier at Sundance, “Something from Nothing,” looks at not only the technological innovations in the genre, including the incorporation of the turntable and the latest in audio editing software, but the very act of creating the rhyme — an inherently innovative undertaking. During an interview with Billboard.com in January, Ice-T mentioned how queries about hip-hop rarely focus on its most basic element:

I’ve been doing interviews about rap for 20 years and no one ever asked us how we do it. They talk about the music, but they don’t go, “How do you write a rhyme?”

In light of this, an exploration of hip-hop’s creation may be a good source of inspiration for anyone interested in fostering an innovation-rich environment. At its core, innovation is the creation of “something from nothing” — or at least from elements that no one had ever thought to combine before, whether it be the marriage of a rhyme and a new beat or the re-purposing of a record player.

Then there’s the genre’s ability to foster inspiration and empowerment — key ingredients for fostering innovation in any field. U.S. Army Sgt. Jeff Barillaro, also known as “Soldier Hard,” has been leveraging this as he struggles with severe PTSD following his service in Iraq. All Things Considered’s Daniel Zwerdling posted Barillaro’s moving story and the role rap has played in his and others’ healing process. Zwerdling writes:

There are other troops who sing about their battles in Iraq and Afghanistan. Some do it with hip-hop, some with country music. But Barillaro focuses on his battles since he's come home. He can hardly sleep. His memory is shot: He'll talk with someone and then forget what they said. He binge-drinks and pops Percocets; he yells at family members for no apparent reason. His songs come almost straight from his medical records.

Now, let the record show, I am far from hip- hop’s biggest fan. I’ve found the frequent objectification of women in music videos and promotional materials to be, at best, unappealing and, at worst, blatantly offensive. But that doesn’t mean one shouldn’t take the opportunity, when possible, to look past the “parties and booties and girls,” in the words of Ice-T, and recognize the role the genre has played, and can continue to play, not only as a fertile seedbed for innovation and a partial reflection of American culture, but as an outlet for creativity and, ultimately, healing. via washingtonpost.com

Need an Innovation Speaker or Advisor? Jim works confidentially with start ups, governments as well as profit and for profit enterprises. 

Jim Woods is president and founder of InnoThink Group. A global management consulting firms specialized solely in helping organizations of all sizes in all industries catalyzing top line growth through strategic innovation and hypercompetition. Jim has over 25 years consulting experience in working with small, mid size and Fortune 1000 companies. He is a former U.S. Navy Seabee and grandfather of five. To arrange for Jim to speak at your next event or devise an effective Innovation and hypercompetition strategy email or call us at 719-649-4118 for availability. Subscribe to our innovation and hypercompetition newsletter.   

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Snap a photo of physical junk mail, become unsubscribed

Snap a photo of physical junk mail, become unsubscribed

Seattle-based Readabl’s PaperKarma mobile app lets users submit a photograph of each piece of junk mail they’d like to stop receiving, and then works to make that happen.

30th March 2012 in Life Hacks.

No one likes junk mail, and the average US household receives some 850 pieces of it over the course of a year. Whereas French Pubeco aims to shift such communications to the online sphere, Readabl’sPaperKarma mobile app lets users submit a photograph of each piece of junk mail they’d like to stop receiving, and then works to make that happen.

Roughly 44 percent of unsolicited mail in the US ends up in landfills each year without ever being opened, according to Seattle-based Readabl. Aiming to help address that problem, the company’s PaperKarma app enables users to simply snap a picture of an unwanted piece of junk mail and press “send” to become unsubscribed from the mailing list that generated it. The company explains: “We work closely with the source companies to help you unsubscribe from catalogs, magazines, credit card offers, etc. and optionally – i.e., if you explicitly choose to – convert you to the corresponding online (email) versions.” Launched earlier this year, the free PaperKarma app is now available for Android, iPhone, and Windows Phone.

Of course, unwanted mass mailings aren’t just a problem for consumers — such fruitless effort also represents a significant waste for the companies that send them. How can your brand help to reduce the many resources wasted this way?

via springwise.com

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As the CEO and founder of InnoThink Group, Jim can help your organization enhance the strategic innovation and competitiveness of your business policy and strategy, with an emphasis on increasing top line growth.  

 If you’re interested in having Jim speak at your next event, simply use this form to send us your details and speaking requirements, and we’ll be in touch shortly. Or you may call us at 719-649-4118.