Creative Destruction
The article titled “Schumpeterian competition and diseconomy of scope; illustrations from histories of Microsoft and IBM” by the authors Bresnahan, Greenstein and Henderson is a great attempt to address the creative destruction problem that face organizations mostly in the technology-led and innovation-based industries. In that respect, this paper is a reaction to the authors’ arguments with a view on their focus on diseconomy of scope in addressing the possible cause of the creative destruction problem. To achieve that objective, the argument begins by reviewing the author’s argument and introducing a counter argument that is then supported by a further review of their argument’s validity as well as the strength of the counterargument. (Bresnahan, Greenstein & Henderson, 2011)
Authors’ view
Schumpeter’s view of competition is that companies’ innovation is continuously destructive to processes and assets. In that respect, new technologies displace the older ones making way for greater growth than in the conservative and stable markets. The authors’ review of the failure by IBM and Microsoft provides a good description of that Schumpeterian competition and diseconomy of scope. In that analysis, the author’s address the question on the causes of creative destruction through which they challenge the view that failure in new technological areas by companies that have been successful in theindustry is explained by two scenarios. One being that the companies fear the cannibalization hence ends up under-investing in the new market. The other explanation challenged is that the companies tend to develop cognitive frameworks and organizational capabilities that slow their identification and response to new opportunit...
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...077, (2011): 1-69.
Marsili, O. The Anatomy and Evolution of Industries. Cheltenham: Edward Elgar, 2001.
Nerkar, A. Paruchuri, S. “Evolution of R&D capabilities: role of knowledge networks
within a firm”. Management Science, 51.5, (2005): 771-785.
Works Cited
Breschi, S., Malerba, F. & Orsenigo, L. “Technological regimes and
Schumpeterian patterns of innovation”. The Economic Journal, 110, (2000): 388-410.
Bresnahan, T. Greenstein, S. & Henderson, R. “Schumpeterian competition and diseconomies of scope; illustrations from the histories of Microsoft and IBM.” Harvard Business School, Working Paper 11-077, (2011): 1-69.
Marsili, O. The Anatomy and Evolution of Industries. Cheltenham: Edward Elgar, 2001.
Nerkar, A. Paruchuri, S. “Evolution of R&D capabilities: role of knowledge networks
within a firm”. Management Science, 51.5, (2005): 771-785.
During his absence, with John Sculley in power, the focus shifted to maximization of profit, and product design suffered. Steve Jobs theorized that is was one of the reasons companies decline. “My passion has been to build an enduring company where people… make great products… the products, not the profits, were the motivation. It’s a subtle difference, but it ends up meaning everything”.
In his analysis, Charles Fine goes on to note that as the speed of an industry accelerates, the advantage one company may gain shortens – advantages are temporary. This conclusion is somewhat intuitive since the research and development to production cycle gets s...
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Porter, M. E., 1999. The Five Forces that Shape Competitive Strategy. Harvard business review, p. 80.
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Hendersern and Stern 2000, ‘Untangling the origins of competitive advantage’,Strategic Management Journal, Vol. 21, pp. 1123-1145.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 25-40.
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