Definition

creative destruction

Part of the Business terms glossary:

Creative destruction is a process through which something new brings about the demise of whatever existed before it.  

The term is used in a variety of areas including economics, corporate governance, product development, technology and marketing. In product development, for example, creative destruction is roughly synonymous with disruptive technology. One frequently cited example is the smartphone, which all but killed the market for not only regular cell phones but also PDAs, MP3 players, point-and-shoot cameras, wrist watches, calculators and voice recorders -- among other things.

In marketing, an example of creative destruction is an ad campaign that targets a new and lucrative market, while risking alienation of an existing one.

Joseph Schumpeter, an Austrian-American economist, developed the concept of creative destruction from the works of Karl Marx, in reference to capitalist development and the business cycle. According to Schumpeter’s theory, creative destruction will lead to the eventual failure of capitalism as an economic system. In current business use, however, the term is more likely to refer to unappealing choices that are considered necessary for sustainability.

In a business context, corporate executives often describe unpopular cost-cutting measures such as downsizing and outsourcing as creative destruction. The implication is that although the actions may be perceived as injurious – especially to the workforce -- they will enable a transformation of the business.

The effects of creative destruction are sometimes referred to as Schumpeter's gale. 

See also: IT transformation, change management, cannibalization

This was last updated in July 2013
Contributor(s): Ivy Wigmore
Posted by: Margaret Rouse

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