Gales of Creative Destruction and Learning Organizations - Research Paper Example

Implementing Strategies Gales of Creative Destruction Introduction The term ‘creative destruction’ was first coined by Karl Marx and relates to the Marxist Economic theory. According to this theory, improved economic development in a capitalist society is generated as a result of a previous economic order that was either outdated or failed to meet the needs to the existing capitalist society. Marxist Economic Theory stresses the fact that when such capitalist economic development occurs in any society, it simultaneously leads to devaluation of the existing wealth within the economy. It is this devaluation that paves the way for the creation of new wealth and thus more economic improvement within the society (Schumpeter, 5). Joseph Schumpeter, in his book ‘Capitalism, Socialism and Democracy’ burrowed the concept of creative destruction and coined his own term gales of creative destruction. His concept borrows elements from the original Marxist theory describing the process of disruptive transformation that occurs in a society as new innovations enter into the market. In this paper, we attempt to understand the concept provided by Schumpeter through examples from existing markets and industry. Later we will attempt to critically evaluate the importance of the theory present by Schumpeter and present a logical conclusion based on examples and pertinent facts. Schumpeter’s Gales of Creative Destruction According to the theory of Gales of Creative Destruction, “All economic and social progress ultimately depends on new ideas that consent the introspection and inertia of the status quo with possibilities for change and improvement’ (Dodgson and Dann, 56). When theologians were concerned about the administration of existing economical structures by capitalism, Schumpeter introduced a new perspective by pointing out that the focus should be on how capitalist markets are destroyed with the introduction of new technology. The old replaces the new and thus the old markets go into extinction. But as the new grow strong, they are yet again replaced by still newer products. According to Schumpeter, this is a positive occurrence within the capitalist society since it fosters long term economic growth. Economic growth is made possible as the existing value of the market is destroyed to make way for increased value of the new market. The concept that Schumpeter brings forth can be understood by the presence of real life examples. One of them is the evolution of voice recording mediums. When we were children, music albums of the most popular musicians were available through cassettes. These cassettes were playable on stereos that were common among almost every home. Cassettes were at their peak sales point during the 1970s but later with the introduction of CDs, the popularity of cassettes declined to such an extent that almost all cassette recording companies were forced out of business. In this way, destruction of the old market happened to pave way for a new market as CDs became the disruptive technology. But even as the market for CDs reached its peak, it still had to make way for a newer market. This began with the introduction of online music libraries after internet file transfer became possible. Soon the market for CDs declined sharply as consumers either bought music from the online stores or downloaded them from ‘free online music’ websites (Attar, 75). Apart from technological innovations, creative destruction in the market is brought forward by innovative organizational structures, supply chain management, marketing techniques, legal strategies and any other improvement within the existing economic structure that greatly impacts belief in the old structure. One example of marketing techniques is the social media marketing that has become popular in the last decade. With internet and social networking becoming common among the youth, advertising departments have started exploring this new medium for the younger target market. Marketing techniques are being remodeled according to the psyche of the younger target market that have become cynical towards traditional advertising and rely greatly on the word of mouth. Advantages of Gales of Creative Destruction One of the biggest advantages of employing the Schumpeter’s theory is that is allows organizations to cater to the demands of the target market and also in the process creates new markets. The newer innovations in the market are better able to serve the customers in an ideal situation. For example, horses were replaced by cars that were faster and more efficient. Thus consumers ultimately benefit from the gales of creative destruction. Another advantage of gales of creative destruction is that they allow organizations to evaluate their performance and in the way improve upon the performance. Stagnant organizations tend to lose their competitive edge over the market over a period of time. Gales of creative destruction ensures that the competitive edge is maintained. The Gales of creative destruction also provide the advantage of improving the society in general. As innovations in the market increase, the lives of people become easier. For example, when internet entered into the society people benefited from the increase in communication and it even created more jobs in society. Disadvantages of Gales of Creative Destruction The most obvious disadvantage of the system is that brought forward by the destruction of the old system. When the old is destructed, the economy devalues and for a time period, may even be unstable. An example of this can be seen in the current outsourcing scenario. As jobs in the US are outsourced to developing countries, workers within the country are becoming increasing unemployed, thus creating economic instability within the country. Another apparent disadvantage of the system is the amount of research and capital that is needed to bring about innovation in the market. Organizations spend millions and even billions of dollars in funding the latest technology, only to see it go waste at times. And even as an innovative product is introduced, the old products become obsolete and go out of demand. Organizations shut down as a result and the capital invested in such organizations also goes to waste. Gales of creative destruction also requires a great amount of risk taking. When organizations launch a new innovative product, it does not necessarily mean that it would be an instant success. Most innovations fail at the basic level as they do not appeal to the customers or customers cannot find the use for them. At times, innovations fail because of the competition against them. One such example is the Stapleless Staplers that were introduced in the 1950s. They may have become a success if not for the introduction of mini staplers during the same time (Baron and Shane, 83). Thus the money that the entrepreneur had funded for the development of this product went into vain. Critical Evaluation After analyzing Schumpeter’s Gales of Creative Destruction in the light of the above theories and examples, it would be right to say that the process of creative destruction is inevitable in the current capitalist society. Without Gales of Creative Destruction, society cannot hope to progress. Innovative products and ideas help improve our standard of living and they are imperative to test the limits of human knowledge and creativity. Were it not for innovative products entering into our lives, we may still be stuck in a society where men travelled by horses and women were forced to do laborious jobs. It is the element of change and innovation that allows for the development of new industries and new companies, thus creating more jobs within the country. Even though, the concept requires a great amount of risk taking and capital, it has mostly benefit society in the long run. Risk tasking is termed as imperative in today’s society for entrepreneurs to succeed in their business. Even if gales of creative destructions results in economic instability, we need to understand that the end result is increase in economic value rather than decrease. Even if unemployment increases for a short period of time, it is generally controlled in the long run. For example, even when machines and computers increased unemployment for unskilled workers, they led to an increase in skilled workers and their jobs. Internet industry has made possible an increase in employment for the service industry even if the manufacturing industry has suffered. Learning Organizations Introduction Intense local and global competition in the existing corporate world is demanding organizations to adapt new survival talents. In order to survive in the fiercely competitive business world of today, organizations need to be able to best use the available resources, technology and knowledge. The knowledge based economy of today demands organizations to develop a learning culture within their company. For an organization to be innovative and ahead of its competition, they need to increase efficiency in order to provide more value to the customers and other stakeholders. Such an organization is termed as a learning organization and learning organizations are organizations that are agile and adaptable. Learning Organizations are those organizations that adapt to change by keeping abreast of the changes in the external and internal environment. Learning Organizations has been defined by Senge as an organization ‘where people continually expand their capacity to create results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning how to learn together’ (Calvert, Mobley and Marshall, 40). However, learning organization is a term that is still being understood by organization and managers. It would be difficult to define the term that is abstract right now. However, all learning organizations require the efforts of all members working in the organization including employees, managers and directors. Efforts of all need to be realized and communication must follow from all directions, including top-bottom, bottom-top and vertical. Characteristics While many organizations label themselves as learning organizations, very few are actually learning organizations in the true sense. To be a learning organization, the management should ensure that the organization has the following characteristics: Leadership refers to the role of an individual in guiding the organization to adapt a learning organization. Effective leadership not just motivates employees to accept a learning environment but also to deliver results for the organization. Communication refers to collaboration between all departments and employees within an organization. The aim is to allow knowledge to flow freely within the organization so as to allow learning among all employees within the department. Both interdepartmental and cross departmental communication is vital for a learning organization to prosper in the true sense. Promoting Inquiry and Dialogue is another objective of communication that focuses on accountability for each department and its employees. ‘Learning is deeper when people question underlying values and assumptions that distort their understanding’ (Marsik, 12). The idea is to attack strategies, decisions and concept introduced by a department without attacking any specific individual. The aim is to find solutions to problems and to improve upon the operations of the organization by challenging the decisions of the employees including the senior management. Learning Opportunities refers to the ‘commitment by both management and employees to continuous education opportunities (as) a foundation of the learning organization concept and the key to bringing new knowledge into the organization’ (Chinowsky and Carrillo, 125). This commitment includes the power of experimentation. Even though the management is aware that experimenting involves risk taking, they should be supportive of risk taking since it would allow employees the opportunity to learn from their success or failure. Management also has to ensure training for its employees at periodic intervals so that employees learn from development in the industry. Encouraging Teamwork is imperative for an organization as it allows the employees to work as a collective force and benefit from each other’s knowledge. Through teamwork learning is increased within the organization through increase flow of communication and collaboration. Culture is the final and probably the most important aspect of a learning organization. The culture of an organization should be such that it supports the above mentioned characteristics within the organization. The culture of an organization facilitates and promotes the above characteristics in order to develop a true learning organization (Keep and Rainbird, 182). Benefits The benefits of learning organizations, if truly implemented are numerous. This is the reason organizations are increasing their efforts to become learning organizations. ‘Several empirical studies showed strong correlation between learning organization cultures and work-related outcomes such as performance, productivity, turnover intention, job satisfaction and organization commitment’ (Dirani, 192). But organizations often fail to benefit from a learning organization since the culture within the organization is not conducive to learning and thus benefits of learning organizations are not availed. Probably the most important benefit of a learning organization is that is improves the performance of an organization. Performance of an organization is directly linked to the attitude of the employees towards an organization. When the attitude of the employees is positive, performance of an organization tends to increase. Also increased collaboration between the department and employees allow for the identification of problems at an early stage and the development of good solution through teamwork. Job satisfaction within the employees is another benefit of learning organizations. Job satisfaction of an employee is directly related to the employee’s salary and his power within the organization. In a learning organization, employees are allowed freedom to take risks and make decisions on their own. Their efforts of the employee within the organization are valued and thus they develop a sense of ownership towards the organization. In such cases, the employee turnover rate decreases within the organization which results in increased profitability for the organization. This is because organizations would not have to invest money and time in order to recruit new employees for the organization. Learning organizations also allow the development of competitive advantage in the existing market. As markets are being fiercely competitive and saturated, organizations have to put in extra efforts to develop or even maintain their edge over competition. Learning organizations helps them develop this edge by fostering an environment that is conducive to learning and experimentation. This allows for innovation within the organization as employees develop solutions based on their insight of day to day activities of the organizations. Learning organizations are also more attuned to the external market and the needs of their customers. They do this by increasing collaboration between all departments and by allowing empowerment within the employees. For example, when the sales team of the organization provides suggestions to the organization, they are taken more seriously by a learning organization. In this manner, the organization better understands the psyche and needs of the customers as the sales department directly interacts with the customers as opposed to the marketing or production department. Limitations Even though learning organizations benefit the organization and its stakeholder on a whole but most organizations are unable to adopt a learning culture due to certain barriers or limitations that are both internal and external. The inability to measure the increased performance of an organization is one limitation of a learning organization. Since organizations and specially its managers are unable to directly measure the increase in financial value brought about by a learning organization, they remain unconvinced about the benefits of learning organizations (Kerka, 3). The resistance to change is another barrier encountered when developing a learning organization. Change within an organization is always met with resistance from both the managers and the employees. These people have become used to the normalcy within the organization and fear that change may disrupt their lives or even make them lose their jobs. For this reason, they resist change to the extreme and adopt a negative attitude towards a learning organization. Developing a learning organization requires a large amount of investment in terms of developing an information technology infrastructure. In order to increase communication within the organization, the management has to install proper communication mediums including information database. They require considerable amount of investment. At times organizations are not willing to invest in such structures since they are focused on the short term instead of the long run. Also after installing the structure, organizations still face barriers in terms of lack of skills on the part of the employees to deal with the new structure. Another limitation of learning organization is the lack of proper objectives. When organizations increase collaboration, they need to develop an aim for the increased collaboration. The strategic objectives of the organization often do not support the idea of collaboration within the organization. Strategies to Overcome Limitations Even though limitations to adopting a learning organization are present, they can be overcome through proper understanding of the problem. The most important is to create proper leadership within the organization. Once of the characteristics of learning organization is leadership that guides and motivates the employees. However, the leadership should be clearly defined as a transformational leadership that motivates employees to adopt change in the organization. The leaders are supposed to communicate the importance, need and urgency of the change to the employees. Once the employees understand that change is needed and is imperative, the leader would then design a proper plan through achievable task in order to bring about the change towards a learning organization (Marsick and Watkins, 298). The task of the leader is also to communicate the importance of a learning organization to the upper management. The leader should be able to develop long term benefits of adopting learning organization within the organization. He should be able define performance outcomes that he aims to achieve once the learning organization is developed. Once the learning organization is developed, the leader should also ensure that measures of business performance are understood and incorporated (Davis and Daley, 64). Thus through proper leadership, organizations can hope to overcome the barriers that pose when creating a learning organization. Conclusion Learning Organization is a people centric approach in an organization where communication is improved upon so as to increased knowledge within the organization. Even though learning organization improve the performance of an organization on the whole from decreasing turnover to increasing productivity, they are hard to instill within an organization. With the proper leadership, organizations can hope to develop a proper learning culture within the organization where all stakeholders of the organization combine their effort for the greater good of the organization. References Attar, Hooman, The Dance on the Feet of Chance, New York: Xlibris Corporation, 2010. Print Baron, Robert and Shane, Scott Andrew, Entrepreneurship: a process perspective, Ohio: Thomson South-Western, 2008, Print Calvert, Gene, Mobley, Sandra, and Marshall, Lisa, Grasping the Learning Organization, Training 48, no. 6, 38-43, 1994, Print Chinowsky, Paul and Carrillo, Particia, Knowledge Management to Learning Organization Connection, Journal of Management in Engineering, Vol. 23, No. 3, pp. 121-130, 2007. Print Davisa, Deborah, and Daley, Barbara, The learning organization and its dimensions as key factors in firms’ performance, Human Resource Development International, Vol. 11, No. 1, pp. 51–66, 2008 Dirani, Khalil, Measuring the learning organization culture, organizational commitment and job satisfaction in the Lebanese banking sector, Human Resource Development International, Vol. 12, No. 2, pp.189–208, Taylor & Francis, 2009, Print Dodgson, Mark and Gann, David, Innovation, London: Oxford University Press, 2010. Print. 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