Part 3 - Disruptive innovation
What Clayton Christensen really meant - and why not every market change is disruption
Disruptive innovation has become one of the most well-known and at the same time most misused concepts in the field of innovation. New technologies, fast-growing companies and businesses that challenge established markets are constantly referred to as disruptive. But Clayton Christensen's theory describes something far more specific. Disruptive innovation is not primarily about how advanced a technology is or how dramatic the result will be. The theory describes a development process in which a new player gains a foothold in parts of the market that established companies have weak incentives to prioritize, and can then move towards the established players' most important customers.
One of the most misused concepts in the innovation profession
"Disruptive" has become part of the common language of technology and business.
A new digital service is launched and described as disruptive.
A startup grows quickly and becomes disruptive.
A technology changes an industry and is referred to as disruptive.
An established business loses market share, and the explanation is disruption.
But if all major changes are disruptive, the concept loses its analytical value.
This was precisely the problem that Clayton Christensen and his co-authors Michael Raynor and Rory McDonald addressed in the article What Is Disruptive Innovation? in the Harvard Business Review in 2015. They emphasized that the theory had become so popular that the term itself was often applied to phenomena the theory was never intended to describe.
Disruptive innovation is therefore not a synonym for:
radical innovation, technological breakthrough, digitalization, market change, rapid growth or successful entrepreneurship.
It is a theory about a specific type of competition and innovation process.
Clayton Christensen and the origins of the theory
The theory emerged through Clayton Christensen's research at Harvard Business School.
An important early work was the article Disruptive Technologies: Catching the Wave , published by Joseph L. Bower and Clayton M. Christensen in
Harvard Business Review in 1995.
The starting point was a paradox.
Why could very well-run businesses – businesses that listened to their customers, invested in technology and tried to improve their products – still lose their leading positions when the market changed?
The interesting thing about Christensen's explanation was that the problem was not necessarily due to bad management.
On the contrary.
Businesses could do exactly what traditional management theory recommended: listen to their most important customers, invest where the return was greatest, and develop ever-better products for the most attractive markets.
Yet these rational decisions could make it difficult to prioritize new technologies or business opportunities that initially looked less attractive.
In The Innovator's Dilemma from 1997, Christensen developed the theory further.
This is what made the theory so challenging:
Good management decisions could, under certain circumstances, contribute to making an established business vulnerable.
What is disruptive innovation?
In the further development of the theory, the concept was defined more clearly.
A disruptive innovation process typically begins through one of two starting points:
low-end foothold – a foothold in the lower part of an existing market,
or
new-market foothold – a foothold that makes a product or service available to people who previously did not use that type of solution.
This is absolutely central.
A new player does not necessarily attack the established market leader directly with a better product for its most demanding customers.
It can start somewhere else.
The solution may be simpler. Cheaper. More accessible. It may have lower performance on features that established customers traditionally value.
Thus, the market may initially appear unattractive for established businesses.
However, over time the solution improves.
As it gradually satisfies the needs of increasingly demanding customers, it can move up the market.
It is this development process that is central to disruption theory.
Low-end disruption – when established businesses overlook the lower end of the market
Established businesses often try to improve their products for the most profitable and demanding customers.
It is basically rational.
But the business may eventually deliver more performance than some customers actually need or want to pay for.
This could create room at the bottom of the market.
A new entrant may offer a simpler and less expensive solution with lower performance on some traditional dimensions, but which is good enough for customers that incumbents have limited financial incentives to prioritize.
The new player can then improve the solution.
If the improvement path eventually makes the product attractive to more demanding customers, the competition with the established businesses begins to change its character.
This is classic low-end disruption .
New-market disruption – when new people become users
The second important entry is new-market disruption.
The main point here is not necessarily to offer existing customers a cheaper alternative.
Instead, innovation can enable people or organizations to do something they previously could not do themselves.
Christensen used the term nonconsumption to refer to situations where people do not use an existing solution because, for example, it is too expensive, complicated, inaccessible or requires specialized expertise.
A simpler and more accessible solution could create a new market around these non-users.
Thus, the new player does not necessarily compete directly against the established businesses at the beginning.
It competes against non-consumption .
This is an important reason why established players may overlook developments.
The new market may initially be small and unprofitable compared to the business's existing customers.
Disruption is a process – not a moment
This is perhaps the most important sentence on the entire page:
Disruptive innovation describes a process.
A technology is therefore not necessarily "disruptive" in itself.
The crucial thing is how the innovation enters the market, which customers or non-customers it first serves, how the solution develops and whether it eventually moves towards the main market of established players.
It also means that disruption can often only be properly assessed over time.
A new company can follow a disruptive path without succeeding.
Another company can become enormously successful without following a disruptive path.
Christensen, Raynor and McDonald emphasized this very thing in 2015:
Success is not part of the definition.
That is a crucial clarification.
Sustaining innovation – the necessary contradiction
To understand disruption, we must also understand what Christensen called sustaining innovation .
Sustaining innovations improve existing products and services on features established customers already value.
The improvement may be small.
But it can also be technologically very advanced and radical.
This is crucial because sustaining and radical are not opposites.
A radical technological innovation can be sustaining if it makes an existing product significantly better for established customer segments.
This gives us an important distinction:
Incremental ↔ radical is primarily about the degree or nature of change.
Sustaining ↔ disruptive is about the competitive and market development trajectory of innovation.
These are two different analytical dimensions.
Why established businesses can end up in the innovator's dilemma
Here we get to the heart of The Innovator's Dilemma .
The notion of established businesses being outcompeted because they are slow, arrogant, or incompetent is tempting.
Christensen's theory is more interesting.
The established businesses may have very good reasons to ignore the new market.
The largest customers are demanding better performance in existing products.
The new markets are small.
Margins may be low.
Market data is uncertain.
The business's budgeting and investment systems favor larger markets.
Resources are therefore directed towards projects that satisfy today's most important customers.
Every single decision can be rational.
The problem arises if the overall effect makes the business unable to develop in markets that later become significant.
The dilemma is therefore not necessarily between good and bad management. It can arise between what is rational for today's business and what will be necessary for tomorrow's.
Three classic examples
The hard drive industry
Christensen's original research on the hard drive industry became central to the development of the theory.
New generations of smaller hard drives initially often had lower capacities than the larger drives that established customers demanded.
They could therefore appear unattractive to the market leaders.
But the smaller disks also made new applications possible.
As technology improved, smaller disk formats could satisfy increasingly demanding markets.
The hard drive industry therefore became a central empirical basis for Christensen's understanding of how new technological paths could challenge established businesses.
Minimills in the steel industry
The steel industry became another classic example.
Mini-steel mills could initially produce simpler steel products at lower costs and started in segments that were less attractive to integrated steel producers.
Gradually, technology and production quality improved.
The mini-steel mills could move towards increasingly demanding and profitable product segments.
The example illustrates the low-end mechanism particularly clearly:
Start at the bottom – improve the solution – move up.
Personal computers
Early personal computers had far less computing power than the mainframes and minicomputers of the time.
But they had other characteristics.
They were smaller, less expensive, and accessible to people and businesses that had not previously had direct access to computing.
Over time, technology improved dramatically.
Personal computers could thus perform an increasing number of tasks that previously required larger and more expensive systems.
The example particularly illustrates the importance of new-market disruption and how non-consumption can become the starting point for new markets.
Why Uber is not Christensen's classic disruption
This is one of the best examples of why precision matters.
Uber is very often referred to as a disruptive business.
Christensen, Raynor and McDonald argued in 2015 that Uber did not fit well with the classic disruption model .
When Uber was founded, there was already a significant market for taxi services. Nor did the company start out primarily by serving low-end customers with an inferior but cheaper solution.
The service became attractive to established taxi customers and could be perceived as better than existing alternatives in important areas.
Uber may therefore have dramatically changed competition in the taxi market without being a good example of disruption in
Christensen's precise meaning.
This distinction is fundamental:
Changing an industry is not in itself evidence of disruptive innovation.
And what about the iPhone?
Apple's iPhone also illustrates the problem with the broad use of the term disruption.
The iPhone was undoubtedly a very significant innovation.
It combined telephone, internet, touch interface, software and eventually a comprehensive app ecosystem in a way that transformed the mobile market and large parts of the digital economy.
But great market significance does not automatically make the innovation disruptive according to the Christensen model.
The interesting thing is therefore not to ask:
Was the iPhone revolutionary?
It was that on several dimensions.
The analytical question is:
Did the iPhone follow the market trajectory described by the disruption theory?
That's a completely different question.
This difference shows why our concepts of innovation must be kept separate.
Criticism of disruption theory
An academic treatment of disruptive innovation must also take the criticism seriously.
The theory has had an enormous influence in management and strategy, but it has also been the subject of considerable academic discussion.
Criticism has, among other things, concerned the selection and interpretation of historical cases, how precisely the theory can be used for prediction, how the concepts have developed over time, and whether certain examples fit the theory as well as originally claimed.
Later research has also further developed the theory.
A review of the theory's intellectual history published in the Journal of Management Studies describes how disruption evolved from a relatively limited framework of technological change to a broader causal theory of innovation and competitive response.
This means that disruption should not be treated as a fixed and unchangeable law of nature.
It is a theory that has developed through research, anomalies, criticism, and academic clarification .
This is precisely how academic knowledge should develop.
Disruption is not a recipe for success
Another popular misconception is the phrase:
"Disrupt or be disrupted."
It sounds actionable.
As a professional strategy, it is far more problematic.
Not all markets face disruptive processes. Not all businesses should establish low-end alternatives. And not all disruptive initiatives succeed.
Christensen and his co-authors themselves warned against using the theory as a universal recipe.
The theory can help managers understand specific competitive situations .
It does not say that all businesses must always be disrupted or attempt to disrupt others.
Precise diagnosis must come before strategic action.
Disruptive innovation and value creation
Here, disruption theory meets our Value Creation series in a particularly interesting way.
Disruptive innovations can change who gets access to value .
A simpler and more affordable solution can make products and services available to people who previously did not have the means, expertise or practical opportunity to use them.
This can create new markets and new forms of value creation.
At the same time, value creation can be relocated.
Established businesses may lose market share and profitability. Existing expertise and capital equipment may lose value. New businesses, suppliers and expertise communities may emerge.
Disruption therefore illustrates a key point from the Value Creation series:
Value creation is dynamic. New values can arise while existing values are challenged, displaced or disappear.
That makes disruption more than a theory of competition.
It also provides a perspective on how innovation can change the distribution and organization of value creation .
Disruptive innovation, e-commerce and digitalization
The Internet and digitalization have created a number of new businesses and business models.
But here too, we should not call every digital change disruptive.
An online store that offers the same product to the same customers through a new sales channel is not automatically an example of disruption.
A digital service that gives previously non-users access to something that was previously too expensive, complicated or unavailable may, on the other hand, have characteristics that make the new-market perspective relevant.
The same applies to artificial intelligence.
AI can become a very important general purpose technology and influence a wide range of products, services and work processes.
But:
AI is not automatically disruptive innovation.
For each application, we need to examine how the technology enters the market, who it first serves, what problem it solves, and how the competitive landscape evolves.
Technology alone does not determine classification.
A precise definition
Based on Christensen's theory, we can formulate a working definition for this series:
Disruptive innovation is a market development process in which a new player or solution gains a foothold through an overlooked lower market segment or by creating access for previous non-users, and then improves and moves towards the main market of established players.
This definition also gives us clear boundaries.
An innovation is not disruptive just because it is:
new, digital, radical, technologically advanced, fast-growing or very successful.
It is the development trajectory that determines whether disruption theory is relevant.
In short
Clayton Christensen's most important contribution was not to find a new word for major technological changes.
He developed a theory that attempted to explain a paradox:
How can very well-run businesses do rational things – listen to customers, invest in improvements and prioritize profitable markets – and yet become vulnerable to new competitors?
The answer lies in how markets, customers, organizations and innovations evolve over time.
That is why disruptive innovation is still an important technical term.
But only if we use it precisely.
The next part takes us from the competitive arena to the business frontiers:
From theory to practice - BI, Oxford and San Francisco
Disruption theory is particularly interesting when it is moved from the textbook to reality.
Through Innovation and Commercialization at BI The question becomes how new ideas can be developed into solutions, markets and businesses – and what mechanisms determine whether they can actually grow.
The Oxford seminars represent the meeting of academic perspectives on technology, strategy, leadership and social change.
The San Francisco Seminars provides a different perspective. Silicon Valley and the Bay Area have for decades been an environment where new technologies, startups, venture capital and established companies have continuously challenged each other.
But that is precisely why Christensen is important:
Not everything that comes from Silicon Valley is disruptive.
Technological innovation, entrepreneurship, and rapid growth must be analyzed before we put a professional label on them.
Recommended literature
Innovation is a comprehensive field of research that has developed through contributions from economics, strategy, organizational theory, entrepreneurship, technology, and research on people and organizations. For those who wish to delve deeper into the theories and concepts covered in this series, there are a number of key original works and textbooks.
Among the most important contributions are Joseph A. Schumpeter's work on innovation, entrepreneurship and creative destruction, Peter F. Drucker's research and writings on systematic innovation, Clayton M. Christensen's theory of disruptive innovation and Henry Chesbrough's work on Open Innovation. Eric von Hippel's research on user innovation and lead users provides important perspectives on the role of users, while James G. March, Michael Tushman and Charles O'Reilly have had a major impact on the understanding of exploration, exploitation and organizational ambidexterity.
Teresa Amabile's research on creativity and organizations and Amy Edmondson's research on learning and psychological safety contribute to the understanding of the human and organizational prerequisites for innovation. The OECD and Eurostat's Oslo Manual is also a key international reference for how innovation is defined, classified and measured.
Through the individual articles in the Innovation series, relevant literature and research are presented in more detail. The goal is to return to key original sources where possible, while also using more recent research to show how the theories have developed, been challenged, and are applied today.
The Innovator's Solution: Creating and Sustaining Successful Growth
Authors: Clayton M. Christensen and Michael E. Raynor
Short review
In this sequel to The Innovator's Dilemma, Clayton Christensen shows how businesses can translate innovation theory into practical strategy. The book explains how companies can identify new growth opportunities, develop disruptive innovations, and build organizations that thrive in rapidly changing markets.
Why we recommend the book
While The Innovator's Dilemma explains why established businesses are often challenged, The Innovator's Solution provides concrete advice on how to meet the challenges. The book is therefore a natural next step for anyone who wants to understand innovation, strategy and long-term value creation.
The Innovator's DNA: Mastering the Five Skills of Disruptive Innovators
Authors: Jeff Dyer, Hal Gregersen and Clayton M. Christensen
Short review
What characterizes people who create groundbreaking innovations? The authors identify five key skills – observation, questioning, experimentation, networking and association – that are common to the world's most innovative leaders and entrepreneurs.
Why we recommend the book
This book shifts the focus from organizations to the people behind innovation. It shows that creativity and innovation can be developed through deliberate training and experience. The perspectives align well with the philosophy behind Invisible Capital, where human competence and curiosity are the most important drivers of development.
Competing Against Luck: The Story of Innovation and Customer Choice
Authors: Clayton M. Christensen, Taddy Hall, Karen Dillon and David S. Duncan
Short review
In this book, Clayton Christensen further develops the theory of Jobs to Be Done – the idea that customers do not primarily buy products, but "hire" them to solve specific needs. Through practical examples, the authors show how businesses can develop products and services that address customers' real-world challenges.
Why we recommend the book
For anyone working in customer experience, service design, and innovation, this is one of the most insightful books ever written. It reminds us that value creation always starts with understanding the people we are developing solutions for – a fundamental principle of Invisible Capital.
The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail
Author: Clayton M. Christensen
Short review
The Innovator's Dilemma is considered one of the most influential books on innovation and technological change. Clayton M. Christensen introduces the theory of disruptive innovation and explains why even the most successful businesses can fail when new technologies and business models challenge established markets. Through a series of examples, he shows how companies often focus on today's customers and incremental improvements, while overlooking innovations that later change entire industries.
Why we recommend the book
This is one of the books that has had the greatest impact on modern innovation thinking. When I first read it, it gave me a whole new perspective on why some businesses succeed in transformation, while others lag behind – even when they are well led. The insight has been an important part of my own understanding of digitalization, innovation and change management, and many of the reflections in The Invisible Capital build on the ideas Clayton Christensen presents in this classic. The book is as relevant today, in the face of artificial intelligence and digital transformation, as it was when it was published.
Open Innovation: The New Imperative for Creating and Profiting from Technology
Author: Henry Chesbrough
Short review
Henry Chesbrough introduced the concept of Open Innovation and changed the way many businesses think about research and development. He shows how companies can create more innovation through collaboration with customers, universities, start-ups, suppliers and other external partners.
Why we recommend the book
Open Innovation has had a major influence on modern innovation thinking and was also an important topic during the seminars in Oxford and San Francisco. The book shows why future value creation occurs in the interaction between people, businesses and knowledge environments – not within closed organizations alone.
Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
Authors: W. Chan Kim and Renée Mauborgne
Short review
Blue Ocean Strategy challenges businesses to shift their focus away from fierce competition and instead create new markets with little or no competition. The authors present strategies and models that help organizations develop innovative products, services, and business models.
Why we recommend the book
This book has inspired leaders around the world to rethink strategy and innovation. Instead of competing for the same customers, it shows how businesses can create new value through creativity and differentiation. The perspectives align very well with the themes of innovation, digitalization, and long-term value creation in Invisible Capital.
Outside Innovation: How Your Customers Will Co-Design Your Company's Future
Authors: Patricia B. Seybold
Short review
Patricia Seybold shows how businesses can create better products and services by actively involving customers in the innovation process. The book describes how dialogue, co-creation and close collaboration with users can provide better solutions and stronger competitiveness.
Why we recommend the book
Customers often hold the most important insights into how products and services can be improved. This book emphasizes the importance of listening, involving, and learning from users – a perspective that is echoed in many of the articles on The Invisible Capital. Innovation rarely happens alone; it is created in the interaction between people.
Blown to Bits: How the New Economics of Information Transforms Strategy
Authors: Philip Evans and Thomas S. Wurster
Short review
This book analyzes how digital information is changing competitive conditions, markets, and business strategies. The authors explain how the internet is disrupting established structures and creating new opportunities for businesses that are able to think differently.
Why we recommend the book
Although written early in the internet revolution, the book describes many of the developments that still characterize business today. It provides valuable perspective on how digitalization affects value chains, competition, and innovation – themes that are central to Invisible Capital.
Wikinomics: How Mass Collaboration Changes Everything
Authors: Don Tapscott and Anthony D. Williams
Short review
Wikinomics shows how openness, sharing and collaboration across organizations create new forms of innovation and value creation. Through a number of international examples, the authors describe how digital networks make it possible to develop products, services and knowledge together.
Why we recommend the book
This book was groundbreaking when it was first published, and many of the ideas have since become a natural part of everyday digital life. The perspectives on collaboration, knowledge sharing, and open innovation processes align very well with the philosophy behind Invisible Capital, where people and networks are at the center of value creation.
The Competitive Strategy: Techniques for Analyzing Industries and Competitors
Author(s): Author: Michael E. Porter
Short review
Competitive Strategy is Michael E. Porter's classic work on how companies can understand the competition they find themselves in and develop a position that provides a basis for long-term profitability. Porter shifts the focus from the individual competitor to the structure of the entire industry and shows how competition is affected by customers, suppliers, new entrants, substitutes and the rivalry between existing companies. This forms the basis for what has later become known as Porter's Five Forces. The book is also about how companies can choose a competitive strategy on the basis of this analysis. It thus established an analytical language for strategy that has gained great importance in both research, teaching and practical strategy work.
Why we recommend the book
We recommend Competitive Strategy because it provides the analytical foundation for much of the thinking Porter later develops in What Is Strategy?. If a company is to choose a unique strategic position, it must also understand the competitive forces, the industry structure and the factors that affect the ability to create and retain value. The book is particularly useful because it reminds us that strategy is not just about internal goals, plans and ambitions. Strategy must be developed in the face of customers, competitors, suppliers, technology and structural changes in the market. Together with What Is Strategy?, the book therefore provides a much richer picture: First, the company must understand the competitive arena. Then, it must choose how to be different.
Competitive Advantage: Creating and Sustaining Superior Performance
Author(s): Author: Michael E. Porter
Short review
In Competitive Advantage, Porter moves the analysis from the industry to the business itself. The main question is how competitive advantage is actually created. One of the book's most important contributions is the value chain, where the business is understood as a system of activities that collectively develop, produce, market, deliver and support a product or service. Competitive advantage cannot therefore be understood only through products or overall strategies; one must examine the activities that create costs, differentiation and value. This understanding later becomes central to Porter's argument about strategic fit: the activities must not only be good in isolation, but also fit together and reinforce each other.
Why we recommend the book
We recommend Competitive Advantage because it brings strategy right down to where value is actually created: in the activities the business performs. This makes the book particularly relevant together with What Is Strategy?. When Porter argues in 1996 that strategy consists of performing different activities than competitors, or performing similar activities in other ways, this builds on the thinking he developed here. For our perspective on value creation, this is particularly interesting. Value does not arise because the business has formulated a strategy on a document, but through people, expertise, technology, processes, collaboration and activities that together enable the business to create something that customers value. The book therefore provides an important connection between strategy, competitive advantage and actual value creation.
The Competitive Advantage of Nations
Author(s): Author: Michael E. Porter
Short review
In The Competitive Advantage of Nations, Porter raises the perspective from business to countries, regions and business environments. The book is based on extensive studies of the competitiveness of ten leading trading nations and examines why certain countries and business clusters are particularly successful in certain industries. A central premise is that national prosperity is not simply something a country inherits through natural resources or other given conditions. It is created, and productivity, innovation, competence, competition and the quality of the environment in which businesses operate are crucial. Here, Porter also develops the well-known diamond model to explain how different national and regional conditions can interact and stimulate competitiveness.
Why we recommend the book
We recommend The Competitive Advantage of Nations because here Porter extends the strategy perspective to the ecosystem surrounding the business itself. Value creation does not occur in a vacuum. Businesses develop in societies with education, research, infrastructure, capital, suppliers, demanding customers, competing businesses and public institutions. This makes the book particularly interesting for understanding value creation as an interaction between people, businesses and society. It also provides an important corrective to the notion that a country's competitiveness can mainly be understood through low costs or access to natural resources. Innovation, productivity and the ability to continuously develop are far more central to Porter's explanation.
Understanding Michael Porter: The Essential Guide to Competition and Strategy
Author: Joan Magretta
Short review
Understanding Michael Porter brings together and explains the most important parts of Michael Porter's strategic thinking in one accessible whole. Joan Magretta herself worked on strategy at the Harvard Business Review and organizes Porter's ideas around two fundamental questions: What is competition, and what is strategy? She explains, among other things, the Five Forces, competitive advantage, the value chain, value creation, trade-offs, fit, and strategic continuity. This makes the connection between Porter's various works clearer than when the concepts are studied separately. The book also includes an interview with Porter.
Why we recommend the book
We recommend Understanding Michael Porter because it helps the reader see the whole picture of Porter's understanding of strategy. Porter is often reduced to the Five Forces or a few models used in isolation. Magretta shows why this is too simple. Competition, value creation, strategic positioning, trade-offs, activity systems, fit and continuity are interconnected. This makes the book a particularly good supplement after reading What Is Strategy?. It makes it easier to understand why Porter does not view strategy as a plan or a collection of goals, but as a coherent system of choices about how the business will create value and compete over time.
HBR's 10 Must Reads on Strategy
Authors: Harvard Business Review, Michael E. Porter, W. Chan Kim, Renée A. Mauborgne and more
Short review
HBR's 10 Must Reads on Strategy brings together some of Harvard Business Review's most influential writings on strategy. The original collection from 2011 features Michael E. Porter's What Is Strategy? as its main article and combines it with works on competitive forces, Blue Ocean Strategy, the organization's vision, business models, strategy execution, and the Balanced Scorecard, among others. The result is not one unified theory of strategy, but multiple perspectives on how organizations can develop, formulate, and execute strategy.
Why we recommend the book
We recommend HBR's 10 Must Reads on Strategy because it places Porter in a broader strategic context. After reading What Is Strategy?, it will be interesting to encounter other central perspectives and see how they complement, challenge, or extend Porter's understanding. The collection also shows why strategy cannot be reduced to a single model. Competitive position, choice, innovation, business model, execution, priorities, and measurement must be seen in context. For the reader who wants to move on from Porter and into the strategy discipline more generally, this is therefore a very good introduction.
Creating a Learning Society: A New Approach to Growth, Development, and Social Progress
Author: Joseph E. Stiglitz and Bruce C. Greenwald
Short review:
Creating a Learning Society examines how knowledge, learning, and technological development contribute to economic growth and long-term value creation. Joseph E. Stiglitz and Bruce C. Greenwald challenge the notion that economic development is primarily about accumulating more physical capital. They argue that society’s ability to create, disseminate, and apply knowledge is crucial to productivity growth and improved living standards. A key point is that learning does not only occur in schools and universities. It also occurs in businesses, through work, production, innovation, and the interaction between people and organizations. Knowledge can also spread from one business and one part of the economy to others.
The book thus provides an important perspective on why human capital, competence, innovation and learning must be understood as central parts of a society's ability to create value over time.
Why we recommend the book
We recommend Creating a Learning Society because it expands the understanding of what lies behind economic value creation.
Machines, technology and financial capital are important, but they do not create productivity growth alone. Behind the development are people who learn, develop knowledge, improve work processes, share experiences and find new solutions.
This makes the book particularly relevant to Invisible Capital and our perspective on value creation: A significant part of society's value-creating capacity is found in the knowledge, competence, and learning ability of the people who participate in the economy.
Stiglitz and Greenwald thus provide an academic foundation for one of the most important relationships in modern value creation:
The Value of Everything: Making and Taking in the Global Economy
Author: Mariana Mazzucato
Short review
In The Value of Everything, Mariana Mazzucato asks a fundamental question: What exactly is value – and who creates it? Mazzucato returns to the historical discussions of value in economics and shows how the understanding of value creation has changed. She challenges the notion that high income, high prices or large profits necessarily mean that correspondingly large values have been created. One of the book's most important contributions is the distinction between value creation and value extraction . Mazzucato examines the financial sector, the pharmaceutical industry, innovation and the public sector, among others, and argues that we must become better at distinguishing between activities that actually create new values, and activities that primarily extract values that have already been created.
The book also challenges the traditional notion that the private sector creates value while the public sector mainly consumes or redistributes it. Innovation and economic development often arise through a complex interaction between public investment, research, businesses, capital and people.
The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
The Power of Creative Destruction is about one of the most important drivers of long-term economic growth: innovation.
Philippe Aghion, Céline Antonin and Simon Bunel build on Joseph Schumpeter's classic idea of "creative destruction" – the process by which new technologies, businesses, products and ideas challenge and replace existing solutions.
But the book is not just about the disappearance of the old. The authors examine why some economies manage to create continuous innovation and productivity growth, while others stagnate. Competition, entrepreneurship, research, education, institutions and public policy thus become important parts of the explanation.
Creative destruction also comes at a cost. New technologies and businesses create opportunities and jobs, but can also make existing skills, tasks and business models less relevant. The challenge is therefore to create societies that both promote innovation and enable people to participate in the transition.
Why we recommend the book
We recommend The Power of Creative Destruction because it shows why innovation is a fundamental driver of value creation .
Value creation is not just about producing more of what we already produce. It also occurs when people develop new ideas, technology, and ways of working that enable us to solve tasks better than before.
This makes the book particularly relevant to The Invisible Capital. Behind innovation are people with knowledge, expertise, creativity and experience. But Aghion's perspective also shows that human capital must be part of a larger system where competition, institutions, research, investment and policy create the conditions for new ideas to actually turn into economic and social development.
The book thus provides an important context in our understanding of value creation:
Knowledge → new ideas → innovation → productivity growth → long-term value creation.
Institutions, Institutional Change and Economic Performance
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
Institutions, Institutional Change and Economic Performance is one of Douglass C. North's most important works on why some societies are more successful than others in creating economic development over time.
North shifts attention from traditional factors of production such as capital and labor to the institutions that shape how people, businesses, and governments act and cooperate. Institutions are society's formal and informal rules of the game – including laws, regulations, norms, traditions, and established ways of organizing interaction.
These rules of the game affect the incentives that people and organizations face. They also affect investments, knowledge development, cooperation, transaction costs, and which economic activities emerge.
North also shows that institutions develop over time. History therefore matters: Today's economic opportunities are influenced by institutional choices and development paths that can stretch far back in time.
Why we recommend the book
We recommend Institutions, Institutional Change and Economic Performance because it explains a crucial aspect of value creation that easily becomes invisible:
Value creation needs good rules of the game.
People may have knowledge. Businesses may have capital. Entrepreneurs may have great ideas. A society may have natural resources and advanced technology. But outcomes are also influenced by the institutions that determine how people can collaborate, invest, compete, make deals, and develop businesses.
This makes North particularly interesting for our understanding of trust as part of invisible capital. Trust is not the same as institutions, but stable rules of the game, credible agreements, and well-functioning institutions can reduce uncertainty and make economic interaction easier.
North thus gives us another important part of the value creation picture:
Institutions → predictability and incentives → cooperation and investment → productive activity → long-term value creation.
© 2025 - 2026 Portico Publish | The invisible capital Privacy and use of the website | Developed and operated by Magne Bjella | Powered and secured by Wix
Comments