Creative destruction: Innovation and change

Creative destruction, first introduced by Austrian-born American political economist Joseph Alois Schumpeter, occurs when innovation deconstructs long-standing arrangements and frees resources to be deployed elsewhere

This month, I got an opportunity to visit Amazon Go grocery store in Seattle, where I bought products without any cashier or checkout station. This is only one such store around the globe based on technologies, including computer vision, learning algorithms and sensor fusion to automate much of the purchase, checkout and payment steps associated with a retail transaction.

Shopping at the Amazon Go store itself is quite interesting – no queues, no cash; and only cameras, lots of them. The ceiling has multiple cameras. The store shelves have weight sensors -- to detect which item(s) a customer took. If a customer takes an item off the shelf, it will be added to the buyer’s virtual cart. If they customer places the item back on the shelf, it is “taken out” of the virtual cart. Shortly after, the shop will send a receipt and charge to buyer’s Amazon account.

When a buyer arrives, she/he uses the app to enter the store. Once inside the store, no need to check the phone again. Then just browse through and shop like you would at any other grocery store. Once you’re done, you’re on your way! No lines, no checkout.

Customers, however, must download the Amazon Go app for iOS and Android, which is linked to their account, before shopping at the store. The app allows users to add others to their Amazon account, so children and a spouse’s purchases can be charged to the same bill.

The store is seen as a new revolutionary model of “creative destruction” -- how modern technologies are replacing old ones. This concept would certainly change the prevailing retail shopping concept by adopting innovative technologies. “Creative destruction” denotes to the repeated product and process innovation mechanism

by which new production or creation replace outdated ones. The new inventions of technology and innovation in trade, industries and other economic developmental aspects are affecting everyday life of human being.

“Creative destruction” was coined by Joseph Alois Schumpeter, an Austrian-born American political economist, who was one of the most influential economists of the 20th century. Creative destruction occurs when innovation deconstructs long-standing arrangements and frees resources to be deployed elsewhere.

Everybody wants to adopt innovative technology and concepts. For example, we are using e-mail, word processors, answering machines and other modern office technologies, which have cut the number of secretaries and clerks but raised the ranks of programmers.

Transportation provides a dramatic, ongoing example of creative destruction at work. After roads and airports construction, we have immensely benefited, just as horses and mules gave way to cars and airplanes. Each new mode of transportation took a toll on existing jobs and industries. This is positive instance of creative destruction.

Entrepreneurs introduce new products and technologies with an eye towards making themselves better off — the profit motive. New goods and services, new firms and new industries compete with existing ones in the marketplace, taking customers by offering lower prices, better performance, new features, catchier styling, faster service, more convenient locations, higher status, more aggressive marketing, or more attractive packaging.

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.

In 1900, nearly 40 of every 100 Americans worked in farming to feed a country of 90 million people. A century later, it takes just two out of every hundred workers. Despite one of history’s most thorough downsizings, the country has not gone hungry. The United States enjoys agricultural plenty, producing more meat, grain, vegetables and dairy products than ever, thanks largely to huge advances in agricultural productivity.

Access to cheaper, faster, more easily accessible goods and services (smartphones and online education); new employment opportunities (social media manager, data miner, app developer); higher wages and higher standard of living; greater range of choices are positive examples whereas unemployment, industrial downsize; business closures; loss of value in a previously acquired skill; need to invest time and money in learning new skills and move to new geographic areas because older established areas have lost their previous advantage are negative examples of the creative destruction.

A country reflects itself highly developed, developing and least developed based on its capacity to develop most modern technology and its adoption worldwide in considerable scale.

As for instance the highly developed countries like the United States of America and the European Union nations have developed more modern sophisticated technologies replacing old ones globally compared to developing countries like China and India. We are among the least developed countries because we are still highly dependent on conventional traditional concepts of productions.

Shrestha, a former under-secretary at Ministry of Finance, also served at UNDP in South Sudan and Sierra Leone