Concept of the Day: Creative Destruction

Do you think you know what creative destruction is already? I thought I had a pretty good handle on its meaning, but there’s always something to learn.

Creative destruction is an economic term which was derived from ideas put forward by Karl Marx (yes, that Karl Marx) by Joseph Schumpeter and published in 1942. Like many concepts that are developed within one field, with a specific meaning, the concept of creative destruction has been taken and used in many different fields resulting in a broadening out of the original meaning.

This is an extract of how Schumpeter described it in Capitalism, Socialism and Democracy:

The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process. It may seem strange that anyone can fail to see so obvious a fact which moreover was long ago emphasized by Karl Marx…

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary…

As we have seen in the preceding chapter, the contents of the laborer’s budget, say from 1760 to 1940, did not simply grow on unchanging lines but they underwent a process of qualitative change. Similarly, the history of the productive apparatus of a typical farm, from the beginnings of the rationalization of crop rotation, plowing and fattening to the mechanized thing of today linking up with elevators and railroads is a history of revolutions. So is the history of the productive apparatus of the iron and steel industry from the charcoal furnace to our own type of furnace, or the history of the apparatus of power production from the overshot water wheel to the modern power plant, or the history of transportation from the mail-coach to the airplane. The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation if I may use that biological term that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in…

That’s a lot of words to get your head around, so I suspect an example is needed and there are numerous:

When was the last time you purchased a cassette tape to listen to some music? First there was vinyl, then along came cassettes, then the CD was the most popular format but that’s mostly been overtaken by online music and music streaming services like Spotify. In each of these changes there was a destruction of the industry that was the previous mechanism for transporting music. One upon a time there were thousands of people employed in the production, distribution and retail of the cassette tape, those jobs no longer exist because we no longer buy cassette tapes in anything like the volume we used to. Through all of those changes music has continued to grow, arguably those changes were necessary for that growth to happen.

Creative destruction is the process of tearing down what’s already there that is precipitated by the adoption of an innovation.

In 1850, 58% of total employment in the U.S. was in agriculture, today it’s 2.5%, since the 1960’s manufacturing has fallen from 27% total share to 9% today. Both of these being primarily driven by increased mechanisation and automation allowing the U.S. to produce more food than ever before. The old mechanisms for production had to stop for the new ones to become mainstream – they experienced creative destruction.

Recognising that a revolution is taking place, or about to take place, is powerful knowledge. There’s no point in investing in new cassette manufacturing machines if the revolution of digital music has already started. There’s no value in training a large manufacturing workforce if the work is going to be done by a robot. The wisest organisation is the one that gets out of manufacturing cassette tapes whilst the business still has a value, leave it too late and the value of the business will have been completely destroyed by Spotify.

Moving away from economics, how about all of those internal processes that have existed since they were created in 1998? What would a new entrant into your market do? would they carry the baggage, or do something automated or lean? We have to seek these situations out so that we can proactively do the job of creative destruction.

How about those ways of doing things that you regard as tried and trusted? Are they really relevant to the current world? Is there room for some more creative destruction?

If you prefer a video example this may help:


Concept of the Day: The Tragedy of the Commons

I like concepts that have a history and this one dates back to 1833 and an economist called William Forster Lloyd.

The concept refers to a hypothetical situation where unregulated grazing on common land could create a situation where an individual herder, acting in their own interest and within their rights, could result in overgrazing. The overgrazing would then result in a tragedy for the group of people who use that common.

(In the UK Common Land, the commons, is land that is available for use by the Commoners for a particular activity. Livestock grazing was, and still is, a regular use for common land. The origins of common land go back to medieval time and thus some land has been grazed by Commoners for hundreds of years.)

Over the years the commons has become a metaphor for many situations where a resource is shared.

A great technology example of the tragedy of the commons is email SPAM. The actions of a few people significantly degrades the value of the email utility for the majority and results in a cost to everyone who uses it.

In the UK there’s been a lot of news coverage recently about the overuse of antibiotics, particularly people going in to their doctors and demanding medication even though they are of no value to their condition. The actions of these individuals has contributed to the rise of antibiotic resistant bacteria which is highly likely to result in the common value of antibiotics being destroyed for the majority.

There are so many business situations where the tragedy applies. I’ve seen many teams fail to be effective because an individual was optimising their activities to the detriment of the group.

Put simply, the tragedy of the commons applies to those situations where people’s personal short term interests are at odds with the longer-term interests of the group. I’m sure you can think of many, many more examples?

Concept of the Day: Fundamental Attribution Error

I’ve written a few times about our many biases, this is another one along the same lines. This one is slightly more complicated to understand, but once you do I hope it will challenge how you interact with people and how you respond to situations.

Imagine you are sat in an update meeting and you are going through the list of actions from the previous meeting with the assembled team. You get to an action that John is supposed to have progressed and you ask him how he has got. John looks at you surprised, “Was that my action?” He says. You continue to go down the list until you come to another action that John is supposed to have completed. This time John looks a bit embarrassed and says that he hasn’t had chance to look at it whilst writing something into his notebook. The very next action is another one for John, again, no progress, this time he looks down and taps something into his smartphone.

How do you feel about John? Why do you think he hasn’t made progress on his actions?

Your response to John probably demonstrates fundamental attribution error.

Let me explain.

Attribution is what we do when we project a perspective or characteristic onto someone. Put simply, there are two classes of attribution.

Dispositional Attribution is the class of attributes that make up someones character, the internal characteristics; they are lazy, they are disorganised, they have no focus, they are arrogant.

Situation Attribution is the class of attributes that relate to the situation, the external characteristics; they are in too busy, they are having a bad day, they aren’t well.

Then there’s the Fundamental Error part, this is where our biases come in.

It turns out that when attributing a perspective or characteristic onto someone else we tend towards Dispositional Attribution. In our scenario we are most likely to characterise John as lazy or disorganised. We then have a tendency to use that attribution for future interactions with people – “There’s no point in giving actions to John because he’s too disorganised.”

Here’s the really interesting part though. When we assess our own performance in a situation we tend towards Situational Attribution. Now imagine you are John; what’s your reason for not doing you actions? It won’t be because you are lazy, it won’t be because you are disorganised. Your reasoning for your own behaviour will be because you didn’t get a good night’s sleep, or because you are too busy, or even because you are just having a bad day.

The way that we judge others is radically different, even opposed, to how we judge ourselves.

The chances are that neither Dispositional or Situational factors will be wholly responsible most of the time.

So next time you are in a situation and find yourself assessing people’s motives, attributing, it might help to ask yourself which side of the spectrum you are on. Perhaps there are situational factors that you hadn’t thought of?

Here’s a video that’s probably clearer than my ramblings:

Imagining a Different Perspective

The other day I was driving through the English countryside when a pulled up to the back of two Volvos.

The Volvo in front was almost new and still glistening silver.

The Volvo behind was a convertible, with the roof down. It wasn’t so new, but not too old either.

First question: What are you imagining that the rest of this story is going to be about?

The road we were travelling down together is one of the high passes in the Lake District and is the widest and best maintained of these high altitude roads. For most of the length of this road cars can pass each other with little need to slow down. Anything wider than a car and you have to exercise caution and very occasionally you have to make use of passing places for larger vehicles. This road climbs rapidly to a height of over 450m, twisting and turning as it goes. The views are fabulous as you make your way through steep high sided valleys and onto the top where you can see for miles, the route down is just as steep with an extra steep option if you’re so inclined.

Second question: What is your emotional response to what I’ve told you about this road?

The Volvo in front was driving cautiously, very cautiously. They would drive down the middle of the road to avoid being too close to the stone walls at either side. When a vehicle came in the opposite direction they would apply the brakes and practically stop to let the other vehicle pass. Many of the vehicles coming in the opposite direction would pass at speed.

A couple of times we approached a group of cyclists exercising their respiratory system of the steep slopes. The Volvo in front would only pass in the safest of places.

There are several places on this road where it’s possible to pull over and to let others pass. It’s quite a popular tourist route, it’s also a route people use for everyday activities, I’ve regularly had people pull over and let me pass as they stopped to enjoy the view. This driver never took any of these opportunities.

Third question: What word would you use to describe this first driver?

Every time the first Volvo slowed down the driver in the second Volvo would break heavily to avoid a collision. The braking would be accompanied with a set of hand gestures and articulations to the driver in front. At almost every turn the driver of the second Volvo would vigorously shake their head at the driver in front. The driver of this second car had the roof down so I could see that they were an older gentleman, in their 60s perhaps, there was a lady in the passenger seat of a similar age. His favourite hand gesture was to make the shape of a hand gun and articulate to shoot the car in front.

As the first Volvo accelerated after each passing vehicle the second would accelerate loudly as they applied a heavy foot on the appropriate pedal.

The two cars would repeat the sequence of brake, heavy brake, hand gestures, accelerate, accelerate loudly, brake…

Fourth question: What word would you use to describe this second driver?

It was a glorious sunny day and I’d just completed a fairly long walk from which I was feeling a weathered glow. As I watched these two drivers making their way through the glorious scenery I decided that it was time to challenge my own perspectives on the drivers immediately ahead.

I had my initial words for both of them, neither complimentary.

Could other words be applicable? What about different perspectives?

Fifth question: What other words could apply to both these drivers?

After descending down the other side of the steep pass it was time for me to leave the duelling dancing duo and to plot my own course. They carried on towards one of the Lake District’s major centres, I took a short cut to avoid it. There were no vehicle on this road and I was free to drive at my own pass in my on flow.

I recently heard someone suggest that people will decide on whether they are coming back to a place within the first 15 minutes of being there. if you run a restaurant and make people wait more than 15 minutes it doesn’t matter how good the food is they’ve already decided on the likelihood of a return visit. that’s how quickly we define our perspective.

One of the things that defines the human race is our ability to imagine, yet, so often we choose not to exercise that skill.

Concept of the Day: Inattentional Blindness – Is seeing believing?

What you see and what I see may be completely different, which might be caused by Inattentional Blindness.

Picture this: a teen-ager, cruising down a familiar highway, keeping a conscientious eye on the speedometer, the rear view mirror, the oncoming traffic. Too late, he notices a deer standing in the road. He slams on the brakes but can’t avoid striking the animal.

Later, the teen insists to his skeptical parents that his eyes were on the road–he was paying attention to his driving. He just never saw the deer.

Why are the boy’s parents skeptical? Because intuitively, people believe that as long as our eyes are open, we are seeing. Even as we recognize that the brain does a lot of processing behind the scenes, we expect that at least salient objects–a large animal in our path, for example–will capture our attention.

Sights unseen – American Psychology Association

It seems obvious that the teenager should see the deer, but he didn’t, and it’s not because he wasn’t giving the road the attention he should have. They were looking but they didn’t see.

This isn’t a teenage issue though, we all do it. We all miss what is in plain sight.

The article linked above will give you more details on the theories about why this is, but it’s sufficient for this post to highlight that there is a discrepancy between what is there and what we see, and that the discrepancy has something to do with what we expect to see. The poor teenager probably didn’t see the deer because he wasn’t expecting to see a deer, his limited driving experience hadn’t equipped him with that expectation.

That’s a really interesting thought for all of us who need to communicate – which is all of us. What are people expecting to see in what we are communicating and will they see the things they aren’t expecting to see.

Likewise, for those of us being communicated to – which is all of us – what is it that we are missing because we didn’t expect it to be there.

I don’t have any answers (again) all I wanted to do was highlight a situation that we may not be aware of.

There are numerous examples of Inattentional Blindness on YouTube, this is the most famous:

This first one was such an internet sensation that now everyone knows what they are expecting to see (did you see it?) Knowing this the creators of the original fashioned a sequel:

This sequel has also been quite popular, so perhaps you were even expecting to see the differences in this one.

Daniel Simmons TEDx talk on the subject is also worth watching as is his article in the Smithsonian Magazine where he highlights a criminal case where this phenomena may have created a miscarriage of justice.

Cognitive Bias: Planning Fallacy

In the list of cognitive biases that I highlighted last week one that intrigued me was Planning Fallacy Bias.

I suspect that anyone who has been involved in any form of project has seen this at work. You look at the project, build a plan, come to a view of how long it’s going to take. You’ve done this type of activity before and should know how long it takes. Within days, though, it’s clear that the plan is not going to work and that time is not on your side, any contingency in the plan looks like a necessity and help from a time-lord would be welcome. You’ve just been caught in the Planning Fallacy.

The same also applies for cost estimates and our ability to estimate the benefits of a project. The project management triangle tells us that we can choose two between cost, scope and schedule; but the reality is that we often get all three wrong.

Individuals and organisations get caught out in the most spectacular fashion, but it would be too easy to attribute ever project overrun to this one bias – remember there are over 160 biases to choose from.

I’ve been caught in this one so many times that I now have a rule: whatever I plan the duration to be I double it; even then I still get caught out.

Do you have an approach for overcoming this bias?

Here’s Daniel Kahneman who was one of the people who came up with the idea:


Cognitive Biases: I'm not that biased?

Do you think you have a biases towards certain things and away from others?

I’ve been thinking a bit recently about confirmation bias, how to recognise it and how to overcome it. One of the joys of the internet is that you can always find someone to agree with you, just because they agree doesn’t make either of you right.

This week someone pointed out a scary list of over 160 different cognitive biases on Wikipedia! As with any classification process I’m sure that the list isn’t perfect but however you look at it that’s a lot of biases.

It’s interesting to think that some people will already have stopped reading because of a bias blind spot. Perhaps some of you are experiencing an empathy gap in your emotional reaction to this post.

It may be that my use of English is challenging your functional fixedness (I’m sure I’ve used some punctuation incorrectly somewhere in this post).

I’ve regularly been in situations where the curse of knowledge has made it difficult for me and another person to communicate at a level we both understood. I’m certain that I’ve been caught in the Dunning-Kruger effect but hopefully not too often. (The Dunning-Kruger effect is a cognitive bias wherein unskilled people mistakenly assess their ability to be much higher than is accurate.) How would I know if I had though?

It’s good to know that the tip-of-the-tongue phenomenon is a real thing. In my case this is particularly true for names, I can sometimes remember the first name or the surname, but rarely both.

When travelling to somewhere I’ve been to a lot I sometimes play the game of putting the satnav on just to see whether it knows better than me – who knew I was challenging my well travelled road effect.

Finally I wanted to mention the Zeigarnik effect partly because it’s such a great name but also just because I…