RedPost

There’s an interesting article on Creative Destruction on BusinessWeek today (that’s Joe’s fetching photo to the right):

In economics, creative destruction is the process by which entrepreneurs introduce innovations that force established businesses to adapt or die. The phrase was coined by the eminent economist Joseph Schumpeter (1883-1950), who believed that long-term economic growth is sustained by radical innovators, even as they destroy the value of large dominant firms.

So, essentially, Goliath (large, entrenched industries with established business models and somewhat stable profit margins) is threatened by David (“radical innovators” or small companies that can innovate and get to market new products more quickly). The BW article gives a bunch of examples of companies.

Let’s apply this same Creative Destruction idea to the auto industry, who seems unable to bring gas mileage much above the 30 mpg mark, even in hybrids. The Ford Escape Hybrid, with the highest gas mileage in the SUV class, gets a pathetic 36 city/31 highway. That’s pathetic. The average miles per gallon between all cars in 2004 was 20.8, which was below the 1988 high of 22.1. That’s even more pathetic.

So the X PRIZE foundation (responsible for jump-starting the space tourism industry) has announced the Automotive X PRIZE, aiming to give $10 million to the first group to create a commercially viable 100 mpg vehicle. What does Goliath have to say about all this?

A General Motors spokeswoman, Susan Garavaglia, said the company had not determined its level of participation in the contest but would pay close attention to it.

“G.M. is always looking for new innovative technology to improve fuel economy and performance and reduce emissions of our vehicles,” Ms. Garavaglia said. “The key is whether or not it can be provided to the customer in a way that’s affordable to them and in a way that we can make it in a high-volume application.”

Corporate PR mumbo jumbo translation “we’ll get involved/take credit if it’s successful but at this point we think it’s a bunch of BS because we’ve failed for years to do this very same thing and we have an R&D budget of billions.”

Mr. Executive Director, would you like to respond?

“The industry is stuck, and we think a prize is perfect to disrupt that dynamic,” said Mark Goodstein, executive director of the Automotive X Prize. “Failure is frowned upon in this industry, and that doesn’t make for big advances. It makes for incrementalism.”

…

“This is not a question of curing cancer,” Mr. Goodstein said. “The technologies to build superefficient vehicles exist. It’s just a matter of convincing manufacturers to build them.”

Sounds like it’s time for some Creative Destruction! Raaawwr.

This entry was posted on Monday, April 2nd, 2007 @ 11:59 am on the category David & Goliath. You can follow any responses to this entry through the RSS 2.0 You can leave a response, or trackback from your own site.