The Negative Effects of Innovation

Updated: Feb 5, 2021



Innovation is often seen as the patriarch of modern society. Innovation has brought us many new things we can't live without today. Unfortunately, when people are looking at the bright side of innovation, they tend to oversee the negative effects that innovation entails.



Contents

Introduction. 2

The problem.. 2

The danger of monopolies. 3

The solution. 4

The success trap. 5

The monopolies in our midst 6

Conclusion. 6

Bibliography. 7




Introduction

The topic of my essay is about a problem that arises because of the negative effects of innovation. Innovation is often seen as something positive. This is true, innovative companies generate economic growth, and therefore they create more jobs as well (David Ahlstrom, 2017). The fact that innovation contributes a lot to society can’t be argued about. Only too many times we only look at the positive effects of innovation, but not at the negative effects that it provokes.

The problem

A big problem that arises from innovation is that it’s often only a few companies that win from the innovation. The rest of the industry often falls behind and will eventually go bankrupt (Poonkulali Thangavelu, 2020). Most of the time this happens because a new competitor enters the market with a new product that does the same job as the products from the current companies in the market, but the new product does it more efficient. The new product in the market can make the rest unnecessary, and therefore the companies that made those products probably won’t survive. Over the years this has happened a lot (Poonkulali Thangavelu, 2020). Amazon has made retail stores irrelevant, because of uber taxies are out of business, and because of Airbnb there is an enormous decrease in hotel stays (Esther Pomerantz, 2020). These examples show that innovation can be great for the customers, but can be life-destroying for all the people who work in those markets. We can clearly see this at the retail industry for bookstores. Now that amazon is in the market and e-commerce has become very common in people’s daily life, we see a huge decline in the quantity of bookstores. David Streitfeld (2017) gives in his article in The New York Times a couple of examples of big retail chains that have suffered a lot from the rise of amazon. The family Christian stores, which used to have 240 bookstore’s, had to close all their stores. Also Hastings Entertainment, an American retail chain with 123 stores, had to declare bankruptcy in 2016.

The problem we are facing isn’t the fact that a lot of people lose their job. Of course, for a short period of time this will hurt a lot of families, but eventually the people that have lost their jobs have a good chance to find a new job at the company that made their previous job unnecessary. But just because of this the real problem arises.

When a start-up with a brand new product joins a market it is very common that the rest of the companies who used to thrive in those markets go bankrupt. The new company has such a dominant product that no competitor can keep up with them. Where we used to see a competitive market we now see a market that is dominated by a company with a monopoly. (Alex Moazed and Nicholas L. Johnson, 2016, p.14).

The fact that a company invents a new product or service is a very positive event. The rise of new innovations drives economic growth and there are more employment opportunities. (David Ahlstrom, 2017). Companies that have come up with a new product or service have also made our lives a lot more convenient. Before we had Uber we had to hope that a taxi would be available and if there was, we had to pay a huge amount of money for that cab. Now that Uber has joined the market we can order a taxi with our phones and in a few minutes a taxi can be right in front of us. Also for young people who want to have a taxi to bring them home late at night Uber is always available (Lisa Goetz, 2019). Also Amazon has contributed a lot to our modern convenient lives. Amazon has made shopping more convenient and made it possible to receive an order already on the next day. Amazon also released the “kindle”, an e-reader to make reading and carrying books a lot easier (Brian Dumaine, 2020, p.217).

The danger of monopolies

So monopolies bring a lot of good things to the world, but a company with so much power can easily abuse that power to maximize profits and shareholder’s value. When a company is the only, or one of the only, company in a market they can exercise a lot of power on their employees and customers. Employees that work for a monopoly have no bargaining power because they don’t have another company they can work for when they get fired. And the customers also have a problem, because if a company is the only company that sells a certain product, the company can charge really high prices for that product (Tejvan Pettinger, 2020).

Susan Crawford (2015) gives in her article a great example about how Uber treats their employees. She writes: “Uber drivers have a tough time making a living; they’re responsible for their own cars, fuel, benefits, maintenance, tolls, and certain insurance as well as the kickback to Uber that takes a substantial slice out of every fare they pick up” (Susan Crawford, 2015). For now, customers can still benefit from the cheap rides of uber, but according to Susan Crawford (2015) not for long. According to Crawford Uber is at the moment still busy with pushing their competitors out of the market. After they have successfully done that, Uber will be able to charge riders a lot of money for a single drive. And also now, in 2020 during the corona crisis Uber drivers have very few customers and make almost no money, Uber doesn’t offer them any help (Rosa Uijtewaal and Evert de Vos, 2020). The same happens with employees of Amazon and McDonald’s. Employees there get paid the minimum wage and are “treated like robots” (Emily Guendelsberger, 2019).

The example of how Uber, Amazon and McDonalds treat their employees, and how Uber will be a able to charge customers unnecessary high prices is enough evidence to show us that we should be aware of the rise of monopolies.

Another reason why monopolies harm society is that they cut off opportunities and are sources of inequality. When a monopoly is dominating the market it is almost impossible for young people with a new company to enter the market (Stacy Mitchell, 2018). Because of this young people won’t be motivated to even try to beat the monopoly, and their creativity will be dimmed. Also in the image of equality monopolies are bad. When markets are dominated by monopolies all the shareholder value will be in the hands of the ones owning the company. This will make the gap between the poor and the rich even bigger.

The solution

Clearly the rise of monopolies is a big problem. But how can it be stopped? As I said before, innovation contributes a lot to mankind. Therefore we won’t be better of if we try to stop start-ups with a super product from originating. We still want innovation to happen.

The reason that companies with a great product grow so easily, is that most of the older companies don’t know how to innovate themselves, and how to keep up with competition that has a new product (Bianca Miller Cole, 2019). Bianca Miller Cole (2019) gives in her article a very good example of this, blockbuster used to be a very big company, before all their customers were taken away by Netflix. Blockbuster failed to innovate, and to keep up with Netflix. Bianca Miller Cole (2019) believes that if companies like Blockbuster had understood or considered the necessity of innovation, they would still be in business today. So a solution to our problem could be that companies need to learn more about how they can innovate, and most important: companies should learn how to keep up with the competition. If a competitor has a great new product it is very important that a company than knows how to react to survive. As Walter Isaacson (2011) in his book about Steve Jobs wrote: “A true innovative company isn’t a company that comes up with the best products, but it’s a company that knows what to do when a competitor comes up with the best product” (Walter Isaacson, 2011, P.312).

With this solution to our problem innovation will still arise, companies will be saved from bankruptcy, and companies won’t grow in to monopolies. But how can companies learn to innovate? Being an innovative company is not something you become in one day. Most companies do try to be innovative, but don’t succeed (Gary P. Pisano, 2015).

One way for a company to become more innovative is to develop an innovation strategy. According to Gary P. Pisano (2015) most companies don’t fail in their execution but more in the development of an innovation strategy that aligns innovation exertions with the company’s business strategy. Without an innovation strategy companies will simply just innovate, but not with a goal. If companies don’t have a strategy they will end up with a lot of innovation approaches that don’t align with each other and with the company’s business strategy. These approaches on their own will be useless. In order to successfully innovate, companies need their innovation approaches to be in the same course, and this can be achieved with an innovation strategy. A successful innovation strategy should contain how the innovations will create value for the potential customers, how the company can gain value through the innovations, and what types of innovation the company should pursue (Gary P. Pisano, 2015).

Greg Satell (2016) gives in his article for Forbes other very important things a company has to take into account when they want to become innovative. If companies adopt these hints they are already very close to being innovative. The one I find most important is that companies should realise that innovation is not one single event. People often see innovation as one brilliant idea that somebody happens to come up with, but that’s far from true. Of course, people do need to get the idea for a good innovation, but coming up with such an idea isn’t just luck. The surrounding and the way a company promotes good ideas is the most important. When a company doesn’t give their employees the space and time to come up with ideas the chance that someone comes up with a good idea is very small. The same goes for companies that don’t support the ideas of their employees, if ideation in a company isn’t supported very few people will even try it. A company that does do this very well is google. At google they are really supportive towards their employees when they come up with an idea. Employees get free time to brainstorm and offices have special rooms to brainstorm. (Google Cloud, N.D) At google every employee can come up with ideas, so there are more ideas produced. Every company can learn a lot from this, if the board of directors are the only people that come up with ideas it takes a very long time until a good idea crosses someone’s mind.

Another very important rule of innovation companies should understand is that great innovation almost never occurs within only one field of expertise, but is almost always a product of multiple fields of expertise combined. What is meant by this is that when a company wants to innovate within a particular market they should adopt ideas, or have a look at ideas, from other markets. This way a company can gain a lot of inspiration for new ideas. Some critics see this way of ideation as “Idea Theft” (Bjorn Brekel, 2017). But I see it more as bringing old ideas back to life. A company that has adopted this strategy very successfully is apple. Apple was the first computer company to sell a mouse with their computers. The idea originally was originally devised by the company “Xerox” (Bjorn Brekel, 2017). Steve jobs visited their research centre, and took over the idea for a mouse. This may sound like stealing, but if Jobs had never “stolen” the idea for a mouse there is a big chance computers nowadays wouldn’t have mouses.

The success trap

So there are a lot of companies that don’t know how to innovate, but it also often occurs that companies don’t even want to innovate. This may seem odd, but it occurs more then we would think. It is called “The success trap”. The success trap means that very successful companies often end up in the illusion that their successful product or service is dominant and doesn’t need to be changed. While the successful company is celebrating their success other, smaller, companies are inventing new products that will steal all the successful company’s customers (Lior Arussy, 2015). This has happened to quite a few companies. Think about “Circuit city”, “Pan am”, “borders books”, and “Blockbuster”. All those companies are now bankrupt because they didn’t see the need to change their winning strategy for a better one.

For successful companies it is important to understand that there is a big difference between “success”, and “sustainable success”. Sustainable success is only to be achieved by constantly developing. Times change, and it is very hard to achieve sustainable success with the same product or service. Over time customers preferences change, therefore it is very likely that a product that is in the present very popular will be old fashioned in a few years (Lior Arussy, 2015). The fact that companies don’t realise that they should innovate seems very strange, but for the directors of a company it often isn’t that clear. Successful companies often have to choose whether they want to change their winning product, or to keep it. This is called the innovators dilemma (Rebecca Henderson, 2006). Changing a winning formula is very risky, if the change doesn’t work out the company is left with nothing. For companies this is a very hard decision to make, but it is a necessary one. To prevent that a company will fall for the success trap the company should change from “enjoying the fruits of success to being paranoia of seeking the next success while they’re successful” (Lior Arussy, 2015). To do this companies should constantly be aware of their customers’ needs, keep experimenting with new products, and learn from their failures. If companies don’t take into account these principles to avoid the success trap, they will stand no chance when a new company with a new product is turning into a monopoly.

The monopolies in our midst

The problem that in our modern world more and more markets are being dominated by monopolies is an urgent problem. In this essay I have given a solution to prevent the rise of monopolies from happening. But what about the monopolies that are already in our midst? These monopolies have to be restrained by the government, rules about the treatment of employees, and price ceilings need to be set in motion. With these measures monopolies will be kept under control, before it is too late (Stacy Mitchell, 2018).

Another measure governments could adopt is the break up of big tech companies. These companies would be Google, Facebook, and Amazon. It has been argued a lot that these companies form a fundamental threat to society, and that the only way to stop them is to break them up (Stacy Mitchell, 2018).

Conclusion

In this essay I have described the positive, but mostly the negative effects of innovation. The rise of monopolies occurs more and more often, so now is the time we should be extra attentive. Companies need to learn how to innovate in order to survive, and how to keep up with the other innovative companies. In this essay I have provided ways a company can become innovative. I think managers should also be educated on how to innovate, this should be arranged by the company they work for. Also universities should educate business students more about how they can innovate, and keep up with competition.











Bibliography

· Alex Moazed and Nicholas L. Johnson; (May 31, 2016). “Modern monopolies: What it takes to dominate the 21st century economy”. New York city: St. Martin’s Press.

· Bianca Miller Cole; (January 10, 2019). “Innovate Or Die: How A Lack Of Innovation Can Cause Business Failure”. Forbes. Accessed at December 19, 2020. From Innovate Or Die: How A Lack Of Innovation Can Cause Business Failure (forbes.com)

· Bjorn Brekel; (January 30, 2017). “Steal Like Apple: Four Perspectives on Innovation via Idea Theft”. Accessed at December 19, 2020. From Steal like Apple: 4 Perspectives on Innovation via Idea Theft - RevelX | Blog

· Brian Dumaine; (May 12, 2020). “Bezonomics: How Amazon is Changing Our Lives and What the World’s Best Companies Are Learning from It”. New York City: Simon and Schuster.

· Clegg, S. R., Kornberger, M., Pitsis, T. S., & Mount, M. (2019). Managing and Organizations Paperback with Interactive eBook: An Introduction to Theory and Practice (Fifth edition). SAGE Publications Ltd.

· David Ahlstrom; (November 30, 2017). “Innovation and growth: How business contributes to society”. Accessed at December 17, 2020. From https://doi.org/10.5465/amp.24.3.11

· David Streifeld; (December 28, 2017). “Bookstore Chains, Long in Decline, Are Undergoing a Final Shakeout”. The New York Times. Accessed at December 18, 2020. From Bookstore Chains, Long in Decline, Are Undergoing a Final Shakeout - The New York Times (nytimes.com)

· Emily Guendelsberger; (July 18, 2019). “I Worked at an Amazon Fulfilment Centre; They Treat Workers Like Robots”. Time. Accessed at December 18, 2020. From Amazon Treats Its Warehouse Workers Like Robots: Ex-Employee | Time

· Esther Pomerantz; (April 25, 2020) “How Amazon, Airbnb, Netflix, and Uber have become so successful”. Ux collective. Accessed at December 18, 2020. From How Amazon, Airbnb, Netflix, and Uber have become so successful | by Esther Pomerantz | UX Collective (uxdesign.cc)

· Gary P. Pisano; (June, 2015). “You need an innovation strategy. Harvard business review. Accessed at December 18, 2020. From You Need an Innovation Strategy (hbr.org)

· Google Cloud; (N.D). “Creating a culture of innovation”. Google Workspace. Accessed at December 20, 2020. From Creating a Culture of Innovation - Google Workspace

· Greg Satell; (February 28, 2016). “If you want to innovate, learn these 9 rules”. Forbes. Accessed at December 19, 2020. From If You Want To Innovate, Learn These 9 Rules (forbes.com)

· Lior Arussy; (June 1, 2015). “How to Avoid Falling Into the success trap”. Inc. Accessed at December 19, 2020. From How to Avoid Falling Into the 'Success Trap' | Inc.com

· Lisa Goetz; (November 17, 2019) “Four reasons why riders choose Uber.” Accessed at December 18, 2020. From 4 Reasons Why Riders Choose Uber (investopedia.com)

· Poonkulali Thangavelu; (June 5, 2020) “Companies that failed to innovate and went bankrupt”. Investopedia. Accessed at December 18, 2020. From Companies That Went Bankrupt From Innovation Lag (investopedia.com)

· Rebecca Henderson; (November 5, 2006). “The innovators dilemma as a problem for organizational competence”. Product innovation management. Accessed at December 19, 2020. From untitled (psu.edu)

· Rosa Uijtewaal and Evert de Vos; (May 20, 2020). “Ook tijdens corona legt Uber alle risico’s bij de chauffeur”. Accessed at December 18, 2020. From ‘Ook tijdens corona legt Uber alle risico’s bij de chauffeur’ – De Groene Amsterdammer

· Stacy Mitchell; (Februari 16, 2018). “Six Ways to Rein In Today’s Toxic Monopolies”. The nation. Accessed at December 20, 2020. From 6 Ways to Rein In Today’s Toxic Monopolies | The Nation

· Susan Crawford; (October 16, 2015). “Getting over Uber”. Accessed at December 18, 2020. From Getting Over Uber. My tribe — the technophiles, the… | by Susan Crawford | Backchannel | Medium

· Tejvan Pettinger; (October 4, 2020) “Advantages and disadvantages of monopolies”. Accessed at December 19, 2020. From Advantages and disadvantages of monopolies - Economics Help

· Walter Isaacson; (October 24, 2011). “Steve Jobs”. New York City: Simon and Schuster.










95 views0 comments