Wednesday, January 25, 2012

When capitalism and corporate self-interest collide - By John Kay

Adam Smith understood the difference between policies that favoured free trade and policies that favoured established business. “The interest of the dealers in any particular branch of trade or manufacturers,” he wrote, “is always in some respects different from, and even opposite to, that of the public.” He went on to observe that any proposals coming from business “ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention”. Information and communications technology today is dominated by Microsoft and Intel, Apple, Amazon and Google. The oldest of these, Intel, was founded in 1968; at about that time the British government sponsored a merger of the computer divisions of electrical companies to create a national champion able to compete in world markets. Every big European country put an entrant into the same race. They all fell before the post – and so did IBM.

Content was king, they said: but digital publishing was to be dominated not by Time Warner, EMI or Columbia Pictures, but by Apple and Amazon. Rapid innovation is everywhere associated with market entry. Google occupies the position that only a decade ago people expected would be occupied by Yahoo and AOL, just as Facebook displaced MySpace. What became of Sirius (the Exxon subsidiary that made the first personal computer I ever used) or CompuServe (which provided its communications)?

Joseph Schumpeter applied the term “creative destruction” to the dynamic of the market economy. Not only does the new technology displace the old: the new company displaces the old. Innovation mostly comes from entrepreneurs outside established businesses, engaged in an endless succession of experiments. Most fail, but not all. Bill Gates, Andy Grove, Jeff Bezos and Steve Jobs were talented people, but most of all they were lucky people.


Related book: The Innovator's Dilemma

Related previous post: Clayton Christensen Presentation: Reinventing IT

Related videos:

Disruptive Innovation - Clayton Christensen (Part 1)

Disruptive Innovation - Clayton Christensen (Part 2)

Disruptive Innovation - Clayton Christensen (Part 3)

Disruptive Innovation - Clayton Christensen (Part 4)