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date: 11 December 2019

Creative Destruction, Technology Disruption, and Growth

Summary and Keywords

The origins of modern technological change provide the context necessary to understand present-day technological transformation, to investigate the impact of the new digital technologies, and to examine the phenomenon of digital disruption of established industries and occupations. How these contemporary technologies will transform industries and institutions, or serve to create new industries and institutions, will unfold in time. The implications of the relationships between these pervasive new forms of digital transformation and the accompanying new business models, business strategies, innovation, and capabilities are being worked through at global, national, corporate, and local levels. Whatever the technological future holds it will be defined by continual adaptation, perpetual innovation, and the search for new potential.

Presently, the world is experiencing the impact of waves of innovation created by the rapid advance of digital networks, software, and information and communication technology systems that have transformed workplaces, cities, and whole economies. These digital technologies are converging and coalescing into intelligent technology systems that facilitate and structure our lives. Through creative destruction, digital technologies fundamentally challenge existing routines, capabilities, and structures by which organizations presently operate, adapt, and innovate. In turn, digital technologies stimulate a higher rate of both technological and business model innovation, moving from producer innovation toward more user-collaborative and open-collaborative innovation. However, as dominant global platform technologies emerge, some impending dilemmas associated with the concentration and monopolization of digital markets become salient. The extent of the contribution made by digital transformation to economic growth and environmental sustainability requires a critical appraisal.

Keywords: technological change, digital disruption, creative destruction, open innovation, growth and sustainability

Digital Transformation and New Business Models

This article concerns the technological transformation of the contemporary economy. Since the birth of human civilization technological change has precipitated profound change in economies and societies. The process of technology-related change accelerated with the arrival of the industrial era. The 21st century will be typified by the dramatic impact of digital technologies propelling the pace of social and economic change. The disruptive impact of new digital networked technologies upon the transformation of enterprises and industries extends to a disruption of the processes of innovation itself, encompassing the nature of innovation concepts, theory, research, and practice (Lester, 2018). This suggests we need to rethink our ideas on innovation as we enter what has been described as the second machine age of big data, supercomputers, and broadband communication (Brynjolfsson & McAfee, 2016).

New product technology platforms and open source software have reduced the technological barriers and risks to product innovation. The evolution of big data combined with powerful data algorithms creates the capacity to discern patterns in complexity integral to the creation of new knowledge. Big data tools are being applied across all scientific disciplines and industries and businesses (Clarke & Lee, 2018a, 2018b; Daugherty & Wilson, 2018; Lester, 2018). This analysis aims to examine the origins of modern technological change, to investigate the impact of the new digital technologies in the section “Technology Transformation and Creative Destruction,” and to explore the phenomenon of “Digital Disruption” of established industries and occupations. The analysis will consider some dilemmas associated with the concentration and monopolization of digital markets in the section “Tech Start-Ups and Winner-Take-All Dynamics.” Finally, the article will consider the contribution made by digital transformation to economic growth (sections “Disruptive Innovation” and “Critique of Digital Disruption”) and environmental sustainability, in the section “Technological Change for Sustainability.”

Joseph Schumpeter most graphically conveyed the idea of waves of creative destruction punctuating progressive stages of development with dramatic new technologies, beginning with the steam engine in the 18th century and the railroads in the 19th century. A pertinent question is whether, in the array of new digital technologies confronting us today, there are any which promise to have an equal or even more pervasive impact? Contemporary digital technologies may be classified into a number of non-mutually exclusive categories:

  • efficiency technologies (e.g., cloud technologies),

  • connectivity technologies (e.g., 5G technologies and Internet of Things),

  • trust disintermediation technologies (e.g., Blockchain), and

  • automation technologies (e.g., big data and artificial intelligence).

Whether any of these technologies will transform industries and institutions, or serve to create new industries and institutions, as individual technologies, or in combination, will unfold in time (Anderson & Tushman, 1990; Clarke, 1991; Lanzolla et al., 2018; Schwab & Davis, 2018). The implications of the relationships between these pervasive new forms of digital transformation and the accompanying new business models, business strategies, innovation, and capabilities are being worked through at global, national, corporate and local levels.

As in the past, technological change has brought structural change in the economy and among corporations. Excitement about the future mingles with nostalgia for the stability of the past. While many historically eminent U.S. corporations are no longer in existence, this could be simply part of a dynamic process of industrial change:

change and not stability is the permanent feature defining these very important institutions of capitalism . . . Turbulence is the future, just as it was in the past of these giant firms . . . Economies, firms and social actors are part of a sweeping process of change . . . And this is both the condition and the opportunity for progress.

(Louçã & Mendonça, 2002, p. 840; see also Chandler, 1977, 1990)

Whatever the technological future holds it will be defined by continual adaptation, perpetual innovation and the search for new potential (Anderson & Tushman, 1990; Arthur, Durlauf, & Lane, 1997). Central to this quest of navigating technological change will be corporations, which, despite evidence of individual corporations’ ultimate demise (Davis, 2016), have demonstrated a remarkable resilience and capacity for structural and strategic change in response to technological change: “The corporation is a remarkably adaptive mechanism for stimulating innovation, production, and capital investment in many different societies and under many different political systems. . . . Corporate innovation is at the heart of the value creation process in increasingly internationalized and competitive market economies” (Clarke, O’Brien, & O’Kelley, 2019, p. 1).

Technology Transformation and Creative Destruction

Technological change has transformed the world in the last two centuries. Recurrent waves of innovation have brought mechanization, steam power, railroads, steel, electricity, the internal combustion engine, petrochemicals, electronics, aviation, digital networks, information technology, biotechnology, big data, the industrial Internet of Things, cloud computing, renewable energy, and green technology. Kondratiev (1984) saw a pattern to these technological transformations, typifying them as great waves of innovation impacting on economies and societies with resulting long cycles of expansion, stagnation, and recession (Figure 1). In turn Schumpeter characterized these waves of innovation as “the perennial gale of creative destruction” (1975, p. 84). Radical technological change is an enabling agent for many other changes allowing the pursuit of new opportunities, new social and economic organizations, new products and processes. Technological innovation has proved the subject of much fascination to economists, notably in the early chapters of Adam Smith’s Wealth of Nations.

Creative Destruction, Technology Disruption, and Growth

Figure 1: Waves of innovation.

Most technological change consists of progressive modifications of existing technologies, but radical technological transformation brings discontinuous change, altering whole technological systems, a phenomenon Kuhn (2012) referred to as paradigm shifts (Clarke & Clegg, 2000a). These systemic changes Freeman (1987) refers to as “changes in the techno-economic paradigm.” That is, systemic change in technology leads to large-scale revolutionary changes:

The “creative gales of destruction” . . . are at the heart of Schumpeter’s long wave theory. They represent those new technological systems which have such pervasive effects on the economy as a whole that they change the “style” of production and management throughout the system. The introduction of electric power or steam power or the electronic computer are examples of such deep-going transformations. . . . Not only does this type of technological change lead to the emergence of a new range of products, services, systems and industries in its own right – it also affects directly or indirectly almost every other branch of the economy . . . The changes involved go beyond specific product or process technologies and affect the input cost structure and conditions of production and distribution throughout the system.

(Freeman 1987, p. 130)

Presently, we are experiencing the impact of waves of innovation created by the rapid advance of digital networks, software, and information and communication technology systems that have transformed workplaces, cities, and whole economies. These digital technologies are converging and coalescing into intelligent technology systems that facilitate and structure our lives, as smart phones become intimate appendages of our existence, and work increasingly involves the processing of information:

Viewed from a Schumpetarian perspective, all manufacturers and suppliers of software and service and business users are engaged in a process of creative destruction on a grand scale to engineer, integrate, and synthesize all of these technologies into a kind of infrastructure to mediate the design, development and production of all products, equipment, and machinery, the trading and exchange of all goods and services, as well as the all-important information processing, communication and decision making activities that are so integral to the way organizations, economic systems, and society operate and are structured.

(Estabrooks, 1995, p. x)

Digital technologies fundamentally challenge existing processes, routines, capabilities and structures by which organizations presently operate, adapt and innovate (Delemarle & Larédo, 2014; Ford, 2015; George & Lin, 2017; Sovacool & Hess, 2017). In turn, digital technologies stimulate a higher rate of both technological and business model innovation, with design thinking and multidisciplinary teams and networks; moving from producer innovation to a more user- and open-collaborative innovation (Baldwin & Von Hippel, 2011; Chesbrough & Bogers, 2014; Logue, 2019; Markides & Sosa, 2013). The World Wide Web and social media are providing the resources for transforming identities, roles, and organizations. However, as we enter the mature stages of the wave of digital technology and digital disruption with big data, the industrial Internet of Things and cloud computing, there are new and demanding technological challenges regarding the ecological sustainability of industrial civilization which require urgent resolution. These environmental challenges will concentrate minds for decades to come, with the application of advanced green technologies intended to create a balance between industry and the ecology.

Digital Disruption

Meanwhile, continuous advances in technology present rich possibilities for new pathologies of globalization, intensifying automation and the powerfully disruptive impact of the digital revolution (MGI, 2016; OECD, 2017b; Reuver, Sorenson, & Basole, 2018). Though now underway for half a century, digital transformation has entered a new phase, built on high-speed and mobile connectivity: an era of cloud computing and the rise of the platform economy (Kenny & Zysman, 2016). Cloud computing releases digital platforms, big data, and computational-intensive automation, which enable the re-conception of firms, institutions, and markets (MGI, 2017). As the OECD (2017b, p. 196) comments, “Underpinned by information and communication technology (ICT) investment, business dynamism, entrepreneurship and data-driven innovation (DDI), traditional goods and services are increasingly enhanced by digital technology, new digital products and business models emerge, and more and more services are being traded or delivered over online platforms.”

Digital platforms provide a new basis for business ecosystems with many possibilities, as even small businesses can become micro-multinationals employing platform technologies. Emerging digital business eco-systems will disrupt traditional value chains. Greenberg, Hirt, and Smit (2017) suggest three types of ecosystem emerging for businesses with different sources of value creation and competition:

  • Linear value chains: Linear value chains dominated for most of the 20th century, comprising value-adding steps with the goal of producing and selling products, most notably with automotive assembly.

  • Horizontal platforms: Horizontal platforms gained prominence due to the rise of personal computing and the Internet, cutting across value chains. Companies with horizontal platforms own hard assets and sophisticated architecture, with value-added software and technology stacks.

  • Any-to-Any Platforms: Recently, any-to-any platforms have emerged, for instance Uber and Airbnb, which operate based on existing platforms, but are themselves asset-light while providing valuable services internationally (Greenberg et al., 2017; OECD, 2017b).

Creative Destruction, Technology Disruption, and Growth

Figure 2: Technologies transforming industrial production.

The OECD remarks how this technology is creating a new sharing and collaborative economy,

Online platforms not only scale fast while gaining little mass through matching several networks in two, or multisided, markets, which fuels high valuation of the operating companies; they also lower transaction costs to a point at which individuals can compete directly with firms, in particular in service markets.

(OECD, 2016, p. 5)

The hegemonic transcendence of new business ecosystems with their distinctive business models is nowhere clearer than in the domination of the U.S. stock exchanges by platform-oriented companies: in January 2019 Amazon ($829.3 billion), Microsoft ($826.19 billion), Alphabet (Google) ($770 billion), Apple ($741.7 billon), Facebook ($431.1 billion), Tencent ($414.2 billion), and Alibaba ($407.2 billion) were seven of the eight largest corporations by market capitalization in the Nasdaq (Figure 2). The universality of Microsoft was achieved decades ago, but the more recent arrival of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) to such platform hegemony has astonished the world and overwhelmed the U.S. public stock market.

Yet they are not alone. Once Silicon Valley appeared to have a monopoly on platform technology, but Asia is now demonstrating that it too can innovate in this space. In China a start-up culture is developing rapidly, and meteoric success is occurring with the BAT (Baidu, Alibaba, and Tencent) (Lucas & Wells, 2017). Alibaba and Tencent are now far larger than Samsung (with Huawei the major international rival to Apple) in market capitalization and are chasing their vast Western counterparts. Though smaller, with a market capitalization of $59.7 billion in January 2019, the shift of Baidu from being simply a search engine to artificial intelligence in China’s booming advanced engineering industry is an important sign of the Internet of Things to come. The hegemony of the Western platform corporations may not last forever. Already Tencent and Alibaba in China are growing exponentially to rival their U.S.-based counterparts, and in January 2018 Tencent achieved a larger market capitalization than Facebook. The uptake of financial technology for transactions in China far exceeds the United States market by many trillions of dollars, which indicates how rapidly China is going digital (Wildau & Hook, 2017).

The fast-cycle innovation, technological transformation, and growth of corporations throughout the emerging economies, and particularly of Asian corporations, represents a profound shift in economic power in the global economy (Clarke, Chelliah, & Pattinson, 2018; Clarke & Lee, 2018a). Digital innovation may now prove a new source of competitive advantage for China, Korea and other Asian economies, in the way in which Japan led technological innovation in key electronics sectors in earlier decades. A renewed commitment to science, technology, and innovation has led to outstanding achievements including the Shenzhou space program, and in supercomputing. Major gaps in information and communication technology are being filled, together with significant advances in energy, environmental protection, advanced manufacturing, and biotechnology. China has made great strides in building science and technological capabilities and is on track to becoming the world’s top R&D spending country by 2019, though there remain some serious doubts regarding the institutional openness of the Chinese economy and society, without which nurturing a culture of creativity will be much more difficult (Clarke & Gholamshahi, 2018; Clarke & Lee, 2018).

The transformation to a digital world is accelerating rapidly, with the exponential increase in data flows internationally far exceeding any increase in international trade. Online connectivity is becoming universal, with estimates of 26 billion connected devices in the world by 2020 providing the infrastructure for the Internet of Things (Greenberg et al., 2017). This compounding connectivity combines to promote further innovation and connection (Arthur, 2009; Yoffie, 1997). The new digital technologies, smart applications and other innovations in the digital economy can improve services and help address policy challenges across all sectors in a wide range of areas, including health, agriculture, public governance, tax, transport, education, and the environment, among others. Information and communication technologies contribute not just to innovation in products but also to innovation in processes, organizations and capabilities (Clarke, 2013, 2014; Logue, 2019; OECD, 2017a).

In Germany the confluence of these multiple trends has come to be known as Industry 4.0, the fourth industrial revolution. That is as robotics, 3-D printing, data analytics, the Internet of Things, and digital fabrication are joined together they integrate the physical and virtual worlds in productive endeavor (Deloitte, 2015).

Creative Destruction, Technology Disruption, and Growth

Figure 3: World’s largest corporations by market capitalization in US$ billions (January 2019).

In this compounding, technological transformation sensors, machines, workplaces, and information technology systems are connected along the global value chain, far beyond single enterprises (Figure 3). These densely connected systems interact with each other using standard Internet-based protocols using real-time data to predict failure, configure themselves and adapt to changes. In this way Industry 4.0 makes it possible to gather and analyze relevant data across multiple remote machines, enabling faster and more flexible processes to produce higher-quality goods at reduced cost (Gerbert et al., 2015; OECD, 2017b, 2018). This will enable an era of mass customization of high-quality products and services.

Technological components of this integrated system include Big Data and Analytics optimizing production quality and saving energy; Autonomous Robots that are flexible and interactive, which may adjust their actions, and which can work alongside humans; Simulation, beyond the 3-D simulation of products, will leverage data to simulate the physical world virtually, allowing operators to test and optimize machines, reducing set-up times and improving quality; System Integration, enabling full integration across departments across functions and capabilities, creating more coherent and cohesive universal data integration; Industrial Internet of Things allowing more devices to be enriched with embedded computing and connected, permitting enhanced communications enabling real-time responses; Cybersecurity providing sophisticated identity and access management of machines and users; The Cloud, allowing extending data sharing across sites and company boundaries in milliseconds, supporting more data-driven services for production systems; Additive Manufacturing moving beyond prototype production of 3-D printing to produce batches of customized products with construction advantages such as complex, lightweight designs, enabling reduction of stock and transport costs; Augmented Reality supporting a range of services including parts selection and repair instruction over mobile communication to improve work procedures (Clarke & Clarke, 2009; Gerbert et al., 2015; OECD, 2019c, 2019d).

Disruptive Innovation

The almost universal experience of apparent creative destruction and technological disruption across many countries and industries, has reawakened the stark injunction of H. G. Wells in A Short History of the World: “Adapt or perish, now as ever, is nature’s inexorable imperative.” An urgent sense of the need to respond quickly and profoundly to the challenge of the potential of technological transformation was conveyed insistently to a generation of industrial managers by consultants, information technology companies, and academics in recent decades. The message of this digital Darwinism was that established firms across a range of industries including retail, steel, computers, and engineering failed to remain dominant in their respective markets due to a failure to negotiate effectively disruptive innovation (Clarke & Clegg, 2000b; Goodwin, 2018; Henderson, 1993; Tushman & Anderson, 1986).

In the influential book The Innovator’s Dilemma (1997), Christensen highlighted central components of disruptive innovation. As technological progress outstrips customers’ immediate needs, incumbent companies add advanced features to their products, which leaves a gap in the market for more basic products provided by new entrants. Secondly, firms tend to engage in sustaining innovations that improve products and services in ways mainstream customers value, which enables the incumbent companies to sell more products at higher margins. However, there is another form of innovation, disruptive innovation, that is rarer but more profound in its impact (Kumaraswamy, Garud, & Ansari, 2018). Disruptive innovations can create products with novel features for fringe customers; for example, making the products more accessible, cheaper, or with different functions. With an existing customer base and established business models, investments in innovations may not be appealing to established firms when the innovations promise lower margins or target smaller markets, and perhaps offer inferior products (Christensen, McDonald, Altman, & Palmer, 2018).

Originally, disruptive innovations were associated with the lower tiers of established markets, which new entrants take hold of before attempting to move upmarket, but there are examples of innovations competing in entirely new markets (Markides, 2006). In fact, the innovations that are most disruptive occur with new products in new markets where customers have not used an earlier generation of related products. These are disruptive market entrants competing for entirely new customers, which incumbents often initially ignore, but then find more difficult to compete with. Examples of this disruptive innovation which is seen at first as a sideshow and then felt as an overwhelming wave of technological change is the development of the miniaturization of radio by Sony, or the advance of the early personal computer market (Anthony, Johnson, Sinfield, & Altman, 2008; Charitou & Markides, 2003). It is these vital new innovations that incumbents miss because they are outside their normal frame of reference. As Christensen et al. (2018) observe “when technological regimes do not conform to incumbents’ prevailing business models (i.e., how they currently generate revenues and profits), organizational inertia results. Thus, technologies and business models go together—disruptive innovations must be evaluated relative to a firm’s business model” (p. 1050).

Companies face challenges when they attempt to support a disruptive new technology promising returns in the future, within businesses geared to securing maximum returns from existing technologies and current business models. March (1991) explored this dilemma in the tension between exploration and exploitation that exists in most organizations responding to the potential of new technology, products, and markets. To respond effectively, established firms and organizations need to retire, transform, redeploy, or invent new capabilities in the form of new products, services, business models, strategies, organizations, and ecosystems (Helfat & Peteraf, 2003). Companies may have to develop several capability-building strategies simultaneously, improving existing capabilities as well as acquiring entirely new capabilities and integrating them with their existing base (Berggren, Bergek, Bengtsson, Hobday, & Söderlund, 2011). One solution is the ambidextrous organization, but organizational dissonance can result, or the isolation of the disruptive innovation in a separate and sometimes remote subsidiary (O’Reilly & Tushman, 2013).

Another potential restraint on established companies is that they may be deeply embedded in business ecosystems along supply chains. These linkages with interdependent firms are highly valued, and a disruptive technology may not only disrupt the incumbent product, but the whole ecosystem built around the product, and the initial reaction may be to defend the ecosystem rather than to abandon it. (Adner, 2012; Kapoor & Lee, 2013; Moore, 1996; Wareham, Fox, & Giner, 2014). When eventually they do take action, the inclination of incumbents is to attempt to fit disruptive innovations into their existing business model, as myopia gives way to hesitancy (Figure 4). Incumbent companies normally outperform with innovations that sustain existing products but cannot perform as well with new disruptive innovations (Christensen, 1997). Established businesses instinctively favor sustaining innovations, that is new product initiatives that promise higher margins in large markets, rather than disruptive new products aimed at smaller markets with less defined customers (Ansari & Krop, 2012; Christensen et al., 2018; Markman & Waldron, 2014). As new entrants reach critical mass, the incumbents may attempt to race to compete, but are outmaneuvered by the focus and scale of the new players as they impact in the market place with a determining new technology and ascendant new business model (Burgelman, 1996; Burgelman & Grove, 2007).

Creative Destruction, Technology Disruption, and Growth

Figure 4: Digital disruption: acceleration industry impact.

Tech Start-Ups and Winner-Take-All Dynamics

The real excitement of the new digital technologies is in the entrepreneurial start-up culture that entices generations of bright young people to launch their own companies. The heroic mythology of the digital economy is that it is a laboratory for entrepreneurship and incubator of business dynamism which enables new firms to quickly emerge and grow. The Internet provides a base which makes it easier to start, grow and manage a business with lower fixed costs and benefitting from outsourcing to remain agile and responsive to the market (OECD, 2017a, p. 119). The Internet makes it much easier for small businesses to communicate with suppliers, customers, and employees, encouraging the transformation of business models.

A low-cost digital infrastructure facilitated the launch of Microsoft, Apple, Amazon and Google, all of which famously started in suburban garages. The dot com crash which followed illustrated there is often a hair’s breadth between a vision and an hallucination, as a mass of web-based companies demonstrated it was easier to raise finance than it was to fashion a viable business model. Commentators have suggested more recent events including the crypto-currency bubble (which surpassed all other technological bubbles) and ensuing crash, have exhibited similar sentiments (Haigh & Lam, 2018; Heskett, 2014; Smales, 2018).

The energetic start-up mode of liberated business dynamism appears to have declined somewhat over the last decade, not just in the United States, but in many other countries. The OECD (2017a) records pronounced falling company entry rates in information and communication technology producing sectors. A concern highlighted by Davis (2017) is that entrepreneurial young technology companies are avoiding public listing because of both the regulatory rigors involved, and the insistent demands of external shareholders.

It now appears that the new digital technologies favor large firms, providing benefits to the larger frontier firms, with easier scalability due to decreased marginal costs of production and communication of digital services (Brynjolfsson & McAfee, 2011). A trend towards early acquisition of successful start-ups by large technology companies limits the incentives for young firms to make long-term investments. The increased dominance in many markets of platform technology companies demonstrates the increasingly prevalent winner-takes-all dynamics (Evans & Schmalensee, 2016; Moazed & Johnson, 2016). The distinction between winner-take-all dynamics and monopoly power becomes academic.

Platforms connect two or more distinct groups, with possibly the provision of different services for different groups, for example search services for consumers, and advertising for commercial firms.

A platform is a business based on enabling value-creating interaction between external producers and consumers. The platform provides an open, participative infrastructure for these interactions and sets governance conditions for them. The platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services or social currency, thereby enabling value creation for all participants.

(Parker et al., 2016, p. 5)

This simple innovation has involved almost unbelievable network effects for companies such as Google, Amazon, Facebook, and Alibaba, combined with rapid scale and immense impact (OECD, 2019a, 2019b). The Internet proved the unlimited power of network effects as a phenomenon where vastly increased numbers of participants enhance the value of a good or service both directly through use and indirectly where increased usage leads to the creation of valuable complementary goods such as content (Arthur, 1994). As the OECD (2019b) highlights, the major platform companies have seized hold of network effects, and combined this with powerful brands, embedding themselves in the market, and immense scale. Given digital technology enables connectivity and sharing of knowledge, why are the great platform corporations heavily concentrated and clustered in specific geographic areas largely in the West coast of the United States (Lanzolla et al., 2018)?

In the early stages, as digitalization eroded national and geographic boundaries, it enhanced competition with new products and services, for example as in streaming services for film and television. But as local competitors were quickly weakened or eliminated altogether, the impression of greater competition is often replaced by the sense of greater concentration and market power of the international platform companies. Network effects and the capacity to achieve “scale without mass” drives winner-take-all outcomes. “Scale without mass” refers to the ability to reach new customers at virtually no cost and occurs because these digital firms do not need to invest in new plants or materials. Digital bits may be scaled up quickly and distributed at little cost expanding a customer base without expanding capital outlay. This has led to the hypergrowth and huge influence of the dominant platform companies. It took 75 years for the telephone to reach 100 million users worldwide, and 16 years for the mobile phone to reach 100 million people. Facebook reached 100 million users within 4.5 years, and its subsidiary WhatsApp took just 2 years and 4 months (OECD, 2017a, p. 136; see also Hoffman & Yeh, 2018; Moazed & Johnson, 2016).

Critique of Digital Disruption

It could be argued that digital disruption is often not the benign force for efficiency and service it claims to be, and these issues are being actively considered by law-makers in both the European Union and United States. Concealed beyond the image of rampant success sometimes lies a more disturbing reality. It is claimed some of the giant platform companies, in particular, have long since moved from their original exploration, innovation, and discovery phase to one of exploitation, domination, and monopoly. In the view of one major regulatory inquiry into the impact of the large digital platforms internationally there are many issues to be addressed including:

Concerns with the ability and incentive of key digital platforms to favour their own business interests, through their market power and presence across multiple markets, the digital platforms’ impact on the ability of content creators to monetise their content, and the lack of transparency in digital platforms’ operations for advertisers, media businesses and consumers. Consumers’ awareness and understanding of the extensive amount of information about them collected by digital platforms, and their concerns regarding the privacy of their data, are also critical issues. There are also issues with the role of digital platforms in determining what news and information is accessed, and how this information is provided, and its range and reliability.

(ACCC, 2018)

In the United States the digital platform companies are under increasing scrutiny regarding privacy and customers’ rights (Zuboff, 2019). In California a new privacy law was passed in 2018, which it is likely will be the precursor of national regulation. Attention in Washington is turning to questions of how much companies have to tell customers about the data they hold, how much control customers retain over the data, and what penalties companies face for data breaches. Regulation will focus on transparency—companies need to give customers clearer information on how they store and use consumer data, and what this is worth; control—to allow customers control over their own information; data breaches—ensuring customers receive notification and compensation where there are serious data breaches (Stacey, 2019).

As commercial ventures the digital platforms have claimed the right to universal access, without necessarily accepting the attendant responsibilities, and have portrayed themselves as model corporate citizens whilst being accused of systemically avoiding taxes in the communities from which they benefit in ever-increasing revenue flows (Clarke & Boersma, 2017; European Commission, 2016b; Foer, 2017; Seabrooke & Wigan, 2017). Abuse of market power is also contended. For example, Margrethe Vestager, the EU’s competition commissioner fined Google USD 2.7 billion in an anti-trust case in June 2017, having issued two “statements of objections,” or formal legal complaints, accusing the company of misusing its market clout in online advertising and shopping. “Google has come up with many innovative products that have made a difference to our lives. But that doesn’t give Google the right to deny other companies the chance to compete and innovate,” she said (European Commission, 2016a).

As Stephens (2017) concludes regarding the implications of the increasing dominance of the platform technology companies:

In truth, of course the anarchic promise of an internet under the benign oversight of entrepreneurs, innovators and well-meaning geeks was always an unachievable ideal. Today’s web is dominated by a handful of global corporations whose self-serving sense of “otherness” has become an excuse to avoid the responsibilities demanded of everyone else. One-time disrupters – think of Amazon – are now rent seekers. This market power – Google has three-quarters of global search; Google and Facebook together account for three-fifths of digital advertising revenues – allows companies to set their own tax rates, to shut out competitors, and to choose what rules to apply.

These giant platform companies prefer to be seen as totally distinct from the rest of corporate America. The proposition is that Silicon Valley provides services everyone can access and usefully employ, whereas Wall Street is where wealth and power is concentrated, and is only really concerned about the interests of the rich. But this image obscures how the platform companies actually work, and where their revenues come from.

We should not see Google, for example, as providing services for free to its users. Rather, it is users who provide Google with the necessary inputs for its production process: their looks on ads and, most importantly, their personal data. In return, they obtain online searches and other services. The bulk of Google’s profits come from selling advertising space and users’ data to firms. If something is free online, you are not the customer, you are the product.

(Mazzucato, 2018, p. 216)

A greater disenchantment with digital disruption is conveyed by Lepore (2014) who takes aim at the lack of humanity inherent in the most vehement of the gospels of technological determinism:

Every age has a theory of rising and falling, of growth and decay, of bloom and wilt: a theory of nature. Every age also has a theory about the past and the present, of what was and what is, a notion of time: a theory of history. . . The eighteenth century embraced the idea of progress; the nineteenth century had evolution; the twentieth century had growth and then innovation. Our era has disruption. (2014, p. 3)

Lepore, is unrelenting:

Everyone is either disrupting or being disrupted. . . Generally, the rhetoric of disruption – a language of panic, fear, asymmetry, and disorder – calls on the rhetoric of another kind of conflict, in which an upstart refuses to play by the established rules of engagement, and blows things up . . . (2014, pp. 2, 3)

Lepore goes on to argue that when the financial services industry disruptively innovated with securities and derivatives it led to the global financial crisis. But that rather than this dimming the fervor for disruption in the finance industry, the theory of disruption survived. The application of innovative disruption to other sectors including education, health, media and the arts industry and infrastructure must be handled with care Lepore claims, as these institutions have professional and social obligations beyond the realms of business, and the commitment must be to the client’s interests.

These sectors are now in the sights of the digital disruptors, who have moved beyond the information and communication industries to a wider canvas. For example, in the health sector there is the promise to save lives as well as money with early interventions and continuous monitoring of patients through sensors permitting finer data gathering and analysis (Murdoch & Detsky, 2013; PWC, 2013). Health care practice is being reconfigured around new disruptive technologies such as robotics, 3-D printing, nanotechnology, hybrid operating rooms, monitoring devices, sensors, and new artificial intelligence based decision-support systems. How new technologies relate to existing clinical practices is being worked through (Mørk, Hoholm, Ellingsen, Edwin, & Aanestad, 2010). But integrating new technologies into sectors such as health requires greater understanding and care than is often displayed.

The rhetoric of disruptive innovation has continued at an intense pace. Firstly there is the assumption that digital disruption is an irresistible force, an impending fundamental change in their lives to which everyone must adapt immediately: “We will prove that digital disruption exists, demonstrate how it can be used by anyone in any industry, and implore you to make yourself as ready – as disruptive – as you possibly can be. Why? Because digital disruptors are turning our world – and your industry – upside down” (McQuivey, 2013, p. 3).

Secondly there is the assertion that only immediate and committed action can succeed, blitzscaling its way to success:

When a start-up matures to the point where it has a killer product, a clear and sizeable market, and a robust distribution channel, it has the opportunity to become a “scale-up,” which is a world-changing company that touches millions or even billions of lives. Often the fastest and most direct path from start-up to scale-up is the hypergrowth produced by blitzscaling. . . Yes, disruption produces losers as well as winners, but, as a whole, it is a vital source of growth and opportunity that you cannot afford to ignore. It’s good to keep in mind that those who extoll the virtues of disruption tend to be—coincidentally enough—the ones in the winner’s circle.

(Hoffman & Yeh, 2018, pp. 9, 13)

This rhetoric leaves little space for thoughtful reflection, or critical examination of the alternatives to, performance of, or consequences from digital disruption. The message—euphoric and emphatic is—“Disrupt yourself now” (McQuivey, 2013). The next technical challenge apparently is conceived as the interface between humans and robots: humanizing robots, the codification of everything, and integrating people into the algorithms and artificial intelligence of the automated world (Clarke, 2010; Fry, 2018; Kelly, 2017; Ross, 2016). In this vein, Harari (2018) presents a rather dystopian view of the disrupted future:

As more and more data flows from your body and brain to the smart machines via the biometric sensors, it will become easy for corporations and government agencies to know you, manipulate you, and make decisions on your behalf. Even more importantly, they could decipher the deep mechanisms of all bodies and brains, and thereby gain the power to engineer life. (p. 227)

In this conflicted context, certainly deeper questions need to be asked about the inevitability of digital disruption in different sectors, how innovation actually occurs, and whether it needs to be digital or not, the impact of digital technologies on jobs, employment and skills, and the results in terms of productivity and growth.

Growth and Productivity

The dramatic transformations across a wide range of industries in recent decades suggests economic growth is driven largely by technological change (Nelson & Winter, 1982, 2002). Innovation occurs from the “interplay between continuity and ruptures in the process of incorporation of knowledge and technology into industrial growth” (Dosi, 1982, p. 161). Drawing upon the work of Schumpeter (1975) and Penrose (1995) a theory of innovation and growth is proposed by Cantwell (2002) that is based on a continuous learning process in firms supported by other institutions. Hence innovation and growth is not a discrete event, whether from an exogenous shock leading to a monopoly or a flash of entrepreneurial genius that requires little resources, nor is innovation normally the implementation of definite elaborated strategy. Innovation in reality is about continuous problem-solving:

Innovation is a problem-solving search that creates and continually renews technological or social capability within firms, and not a search for positions of market power as such. . . Innovation depends on the generation of new capabilities made feasible as the outcome of problem solving and progressive experimentation, the operations of which capabilities adds new value to the existing stream of income, and thereby creates new profits and higher income.

(Cantwell, 2002, p. 216)

Just as earlier waves of innovation not only heralded universal technological change but rapid industrial and economic growth in the 19th and 20th centuries, so, too, the digital age may become associated not simply with the adoption of new technologies globally, but with a sustained period of growth, and accompanying increases in employment, productivity, and prosperity. If earlier technologies enhanced immeasurably human physical power, digital technology potentially enhances human cognitive capacity:

New technologies can leverage human brain capacities and cognitive skills in similar ways to earlier breakthrough technologies, such as steam power and electricity, which magnified human physical strength. This holds the promise of similar or even greater increases in living standards, considering that digitalized information can be reproduced at low cost and used simultaneously thus being far less subject to scarcity.

(OECD, 2017a, p. 17)

The emerging digital technologies are contributing to productivity and growth in various ways.

By being faster, stronger, more precise and consistent than workers, robots have vastly raised productivity on assembly lines in the automotive industry. They will do so again in an expanding range of sectors and processes. The combination of new sensors and actuators, big data analytics, cloud computing and the IoT is enabling autonomous productivity-enhancing machines and intelligent systems. Automated maintenance scheduling, enabled by new sensors, artificial intelligence and machine-to-machine (M2M) communications, will reduce disruptions to production caused by breakdowns.

(OECD, 2017a, p. 14)

Yet the timescales of translating the benefits of new technology into productivity and growth are often overoptimistic and subject to miscalculation, and there is a considerable gap in productivity performance between leading firms and other firms slower to adapt to frontier technologies.

Meanwhile there are widespread concerns that jobs with many automatable tasks will be replaced with new technologies. Social and economic dislocations of adjustment (often needlessly accentuated by a lack of public policy and corporate responsibility) including extensive industrial relocation, the rapid development of global value chains, and falling wages with increasing inequality, has associated the advance of digital technology with insecurity. Skills-based technological change has meant a demand for higher-level skills than those they displace. In turn an increasing share of low-paid low-skilled service jobs has polarized the labor market. Studies suggest a large proportion of occupations could be displaced by technology (Brynjolfsson & McAfee, 2011; Frey & Osborne, 2013).

A significant hollowing-out of employment in many industries is implied.

Those jobs relying on a high proportion of automatable tasks are at high risk of being substituted for by new technologies. Computers and algorithms mainly substitute for easily codifiable, conceptual jobs on the highly skilled end of the skill distribution, or manual jobs at the bottom end of the skill distribution.

(OECD, 2017a, p. 16)

The “gig” economy, with platform companies accessing large pools of potential workers, often employed as independent contractors, is not universally welcomed by workers without established forms of social protection.

But the extent and significance of hollowing-out of employment due to digital technology is challenged on the basis that it is specific tasks that are subject to automation rather than entire occupations. Most occupations will evolve to accommodate new technology, and workers will adapt to changes and develop new skills (Bessen, 2015; Goos, Konings, & Vandeweyer, 2015). The changes that occur in people’s capabilities, cognitive processes, and career choices deriving from digital transformation, and that modify the nature of work and employment, need to be better understood to allow for more useful training and preparation (Lanzolla et al., 2018). How artificial intelligence and big data will influence the strategy and organization of industry remains to be discovered.

Digital technologies may promote social inclusion, creating access to training and education, and offering new opportunities for skill development. In the emerging economies there is considerable evidence that digital technologies are contributing to wider socioeconomic development as well as greater industrial and agricultural efficiency. Mobile telephony can enhance access to key services such as health, banking, and education, and help secure better public services and political participation. Satya Nadella, the CEO of Microsoft reflects on the potential of the new technology:

Restoring economic growth and productivity for everyone is an aim we all share, and technology will play a leading role. . . In a digital age, software acts as the universal input that can be produced in abundance and applied across both public and private sectors and every industry. Regardless of location – Detroit, Egypt or Indonesia – this universal input needs to turn into local economic surplus. Breakthrough technologies, plus a workforce trained to use them productively, multiplied by the intensity of their use spreads economic growth and opportunity for everyone.

In response Klaus Schwab, the Chairman of the World Economic Forum calls for a stakeholder approach to the development and application of the new technological revolution in an inclusive way to reduce the gap between rich and poor nations in their access to productive knowledge (Schwab & Davis, 2018, p. 52; Clarke, 1998). Recognizing the role of digital networks in enhancing the main pillars of development—economic development, social inclusion, and environmental protection, the United Nations included making the Internet universal and affordable as a target of the Sustainable Development Goals (UN, 2015). Yet according to the OECD nearly 60 % of the world’s population, about 4 billion people, remain offline, without access to the Internet, and possibilities it provides to engage in the economy and society. This important social justice aspect of new technology leads to wider considerations of the environmental and social impact of technological transformation.

Technological Change for Sustainability

In the past, technology was almost entirely considered simply with reference to the contribution it could make to material wealth. One consequence of this single-mindedness was that the growing pollution of the environment and communities entailed in many of the new technologies of the 19th and 20th centuries was simply dismissed as an externality. The result is that economic activity and growth of the last two centuries of industrialism and the associated technological transformation have left the planet in a vulnerable state of climate change and environmental danger. Without urgent and immediate action we are placing at risk the environment and the ecology of the world for future generations. The realization that natural capital is not a free good, not an externality to be ruthlessly exploited at will in the generation of financial wealth, is a shock that corporations and governments worldwide have had to absorb (Helm, 2015).

In negotiating the frontiers of technological innovation there will be a need to commit to sustainable directions in environmental and social terms. The imperative for innovation to be sustainable will be increasingly recognized. Achieving global sustainability environmentally and socially will be the greatest inspiration for technological innovation (Newell, 2010). This is necessary to maintain the ecology of the planet which provides for all forms of life. “The Earth’s natural capital yields an annual dividend of resources that form the bedrock of the human economy and the life support system for the planet’s inhabitants. However, as the world’s population grows, its cumulative consumption is increasingly biting into that productive capital” (Hackmann & Boulton, 2016, p. 12).

The impact of human activity is transmitted globally through the oceans, atmosphere, and economy. Conversely these global systems have a local impact that varies according to geography in a complex relationship between social and biological and geophysical processes that have reconfigured the ecology of the world. “On account of multiple interdependences and non-linear, chaotic relationships that unfold differently depending on context, this coupling means that attempts to address a problem affecting one aspect of this ecology necessarily have implications for others” (Hackmann & Boulton, 2016, p. 12). This presents a central challenge to decouple economic growth from any further damaging environmental impact. It is possible to achieve this with the emergence of new renewable forms of energy and other sustainable technologies. For example, the advance of 5G broadband technology, and the Internet of Things and cloud-based storage will allow the building of virtualized network connectivity to multiple devices that will assist monitoring of water availability, use and quality; air quality; energy and transportation; and building design and efficiency. Together these technologies will enable integrated and effective sustainability initiatives (West, 2016).

The advancing phenomena of eco-innovation may be defined as “All efforts from relevant actors that introduce, develop, and apply new ideas, behaviours, products and processes and contribute to reducing environmental burdens or ecologically specified sustainability targets” (Rennings, 2000). Eco-innovation is a broad concept, comprising:

  • innovation in pollution control (new, better, or cheaper abatement technology);

  • green products;

  • cleaner process technologies;

  • green energy, technology, construction and transport technologies, and

  • waste reduction and handling techniques (Kemp & Pontoglio, 2011).

Eco-innovation creates and develops extensive new business opportunities and benefits by preventing or reducing the negative impacts of fossil fuels or other toxic emissions or pollution, or optimizing the use of natural resources. Eco-innovation involves the application of environmental technologies to operationalize the concepts of eco-efficiency and eco-industry (Sarkar, 2013). At the beginning eco-innovation focused mainly on production and processes, but has expanded considerably to include management systems, creating new markets, organizations, institutions and social eco-innovation (Charter & Clark, 2007; OECD, 2009; EIO, 2015).

This amounts to a new sustainability industrial revolution based on renewable energy and green technology which will prove as all-encompassing as earlier industrial revolutions (Clarke, 2019; Lennox & Chatterji, 2018). Progress will be defined by green growth, rather than material growth for its own sake. This will include new green ideas, behaviors, products, and processes contributing to reducing emissions, relieving the environment, and improving the ecology. Corporations will become increasingly engaged in creating the elements of the circular economy, replacing a linear economy that defines its existence by converting natural resources into pollution and waste. In contrast, the circular economy seeks to maintain and enhance the natural environment, through a circular process of using only renewable resources and eliminating emissions and waste (Murray, Skene, & Haynes, 2017; Webster, 2017). This represents a systemic change from an exploitative economy employing environmentally destructive technologies to a regenerative economy utilizing technologies that contribute to environmental and social well-being.

Further Reading

Arthur, W. B. (2009). The nature of technology: What it is and how it evolves. New York, NY: Simon and Schuster.Find this resource:

Berggren, C., Bergek, A., Bengtsson, L., Hobday, M., & Söderlund, J. (Eds.). (2011). Knowledge integration and innovation. Critical challenges facing international technology-based firms. Oxford, U.K.: Oxford University Press.Find this resource:

Brynjolfsson, E., & McAfee, A. (2016). The second machine age: Work, progress and prosperity in a time of brilliant technologies. New York, NY: W. W. Norton.Find this resource:

Chesbrough, H., & Bogers, M. (2014). Explicating open innovation. In H. Chesbrough, W. Vanhaverbeke, & J. West (Eds.), New frontiers in open innovation (pp. 2–28). Oxford, U.K.: Oxford University Press.Find this resource:

Christensen, C. (1997). The Innovator’s dilemma: When new technologies cause great firms to fail. Brighton, MA: Harvard Business Review Press.Find this resource:

Christensen, C. M., McDonald, R., Altman, E., & Palmer, J. (2018). Disruptive innovation: An intellectual history and directions for future research. Journal of Management Studies, 55(7), 1043–1078.Find this resource:

Clarke, T., O’Brien, J., & O’Kelley, C. (Eds.). (2019). The Oxford handbook of the corporation. Oxford, U.K.: Oxford University Press.Find this resource:

Clarke, T., & Clegg, S. (2000). Changing paradigms: The transformation of management knowledge for the 21st century. London, U.K.: HarperCollins.Find this resource:

Clarke, T., & Lee, K. (Eds.). (2018a). Innovation in the Asia Pacific: From manufacturing to knowledge economies. Singapore: Springer.Find this resource:

Daugherty, P., & Wilson, J. (2018). Human + machine: Reimagining work in the age of AI, Brighton, MA: Harvard Business School Press.Find this resource:

Goodwin, T. (2018). Digital Darwinism, London: Kogan Page.Find this resource:

Helm, D. (2015). Natural capital: Valuing our planet. New Haven, CT: Yale University Press.Find this resource:

Lepore, J. (2014, June 23). The disruption machine. New Yorker.Find this resource:

Lester, M. (2018). The creation and disruption of innovation? Key developments in innovation as concept, theory, research and practice. In T. Clarke & K. Lee (Eds.), Innovation in the Asia Pacific: From manufacturing to the knowledge economy (pp. 271–328). Singapore: Springer.Find this resource:

Mazzucato, M. (2018). The value of everything: Making and taking in the global economy. London, U.K.: Allen Lane.Find this resource:

McAfee, A., & Brynjolfsson, E. (2017). Harnessing our digital future: Machine, platform, crowd. New York, NY: W. W. Norton.Find this resource:

MGI. (2016). Digital globalization: The new era of global flows. New York, NY: McKinsey Global Institute.Find this resource:

MGI. (2017). Artificial intelligence: The next digital frontier?[. New York, NY: McKinsey Global Institute.Find this resource:

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OECD. (2019d). The digital innovation policy landscape in 2019. OECD Science, Technology and Innovation Papers, 71. Paris, France: OECD.Find this resource:

Parker, G., Alstyne, M., & Choudary, S. (2016). Platform revolution, New York: W. W. Norton.Find this resource:

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