Creative Innovation, Creative Destruction, and Walt Disney

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Walt Disney was a master innovator across multiple disciplines. Many who worked with him directly classified him as a genius. Time magazine identified him as one of the great Builders and Titans of the 20th century.

Throughout his business career Walt Disney continually sought out new technologies and pushed innovation and quality products to remain number one with customers, employees, and suppliers. He was an iconoclastic serial-entrepreneur over his lifetime across many fields of endeavor that included animation and filmmaking, education, television, theme parks, 3-D electronic entertainment, licensing and marketing, and urban planning.

The organization he started in 1923 with his older brother Roy still has a stellar global reputation for family-entertainment excellence and unsurpassed customer service.

Walt Disney’s drive for innovation was pushed by the joy he found in the challenge of thinking about and discovering new ways to deliver top value to customers. This unending quest posed ongoing challenges to his competitors, who continually worried about how to keep up with the Disney Studio pace of raising consumer expectations and creating products customers preferred over their own efforts.

Walt Disney’s aggressive curiosity, confidence, courage and commitment courage to invest and take entrepreneurial risks posed a major challenge to his film studio competitors, many of whom went out of business as movie-goers and theatre managers rejected their products as inferior entertainment to Disney’s more popular and entertaining alternatives.

Consumer Demand for Innovation Brings Structural Changes

It is well documented that business success breeds financial conservatism. People enjoy the exhilaration of the creative process, of building something new in the world or improving on the old ways of doing things, of imagining an alternative and creating it in reality, of doing what others have said is impossible. But continuous innovation is difficult and taxing on workers.

In today’s world of knowledge workers, innovation is usually the result of hard work intellectually, not physically, although the amount of work and dedication required can take its physical toll. When the work is done, personal success is measured by one’s contribution to achieving the goal, and business success is measured in the form of sales, market share, increased revenues, and ultimately increased profits and return on investment.

At some point, those who were part of the winning team want to celebrate, rest, stand still, and bask in the sunshine of their achievement. But the marketplace wants to move on. Consumers are constantly searching for something better, cheaper, faster.

In a world of free-market competition, nobody can stand still for very long. No matter how brilliant or small an innovation, other entrepreneurs stand ready to copy and improve upon it to win consumers and profits, thereby diluting the market value of previous innovations.

Economist and political scientist Joseph A. Schumpeter (1883-1950) coined the phrase “creative destruction” for this ongoing process of endless change. Creative destruction is the simple concept that when we are free to solve problems in the pursuit of new opportunities for our own wellbeing, we necessarily destroy the old way of doing things. Continuous innovation entails continuous change, and in the process new wealth is created and misallocated wealth is destroyed.

In a key passage from his 1942 book Capitalism, Socialism and Democracy, Schumpeter describes the disruptive process of transformation that follows the adoption of new ideas and commercialization of innovation:

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary…. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production and transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates…. The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industry mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating the new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. (Joseph A. Schumpeter, Capitalism, Socialism and Democracy, HarperPerennial, 1975; 82-83).

The marketplace rewards with wealth the innovations it approves. Buyers are willing and eager to trade something they have for something they perceive to be of greater value. Sellers are willing and eager to do the same.

The result is voluntary value exchange, with both parties of the immediate transaction benefiting, as well as all parties in the long tail of economic production and work that was required to enable the final consumer purchase.

Walt Disney: Creative Innovator and Destroyer

Walt Disney’s career growth was similar in kind to most entrepreneurs, beginning with very modest means and slowly creating something new that others found desirable and willing to pay for. When demand is high and the product can be delivered profitably, entrepreneurs can become wealthy very quickly. Walt and the studio struggled for years to be successful, from his early start in Kansas City in the 1920s through the creation of the characters of Oswald the Lucky Rabbit and Mickey Mouse, always taking up the challenge to innovate in one way or another with new ideas to create a more highly valued product and generate more income to take away the pressure of meeting payroll from week to week.

With each new innovation, new ways of creating and doing things replaced the old in a process of evolutionary improvements and creative destruction.

Each successive stage of Walt’s success was the result of creating and delivering something new that was valued highly, not by Walt and his business partner and older brother Roy, but by movie houses and movie-going consumers. At first it was Laugh-O-gram fairy tales, followed by the Alice Comedies, then by Oswald the Lucky Rabbit, leading to the huge success and phenomenon of Mickey Mouse, and later other characters, particularly Donald Duck.

Unlike many others in the cartoon business who flogged the same old products in multiple variations to an increasingly disinterested consumer, Walt continued to innovate in quality, sound, and color, as new technologies became available and public tastes evolved.

But it wasn’t until Walt Disney created, and the public accepted, the brilliance of something brand new and at the time astonishing – an emotionally and visually engaging full-length animated feature film – that Walt Disney Productions received a drastic increase in the in-flow of money from ticket purchases. Since starting The Disney Brothers Studio in Uncle Robert’s garage in 1923, it wasn’t until 1938 that Walt and Roy could finally put their money worries behind them (at least for a little while).

Consumers embraced the innovation and in the process of choosing to buy tickets to see Snow White and The Seven Dwarfs, inadvertently made the creators of that product wealthy; inadvertentlybecause moviegoers neither think about nor care who they are making rich or poor when they make consumer choices.

A fickle public could have just as easily decided to avoid an animated feature film – a long cartoon – as most studios and experts in the industry expected. Had that been the case, Snow White would have bankrupted the Disney studio. Instead, Walt Disney was richly rewarded for his risk-taking. His employees, suppliers, investors, and distribution channel partners were also rewarded by Disney’s vision, courage, and entrepreneurial risk-taking.

It is in this way that a harmony of interests exists in the voluntary pursuit of values both within organizations and across society. Entrepreneurs and capitalists invest in production infrastructure and pay wages to those who contribute as employees, each in pursuit of their own economic and personal interests and values.

Economist George Reisman identifies the essential element of prime movers and business titans like Walt Disney, noting that in their iconoclastic determination to innovate, create customers, and achieve profits, they are providers of a “guiding and directing intelligence at the highest level in the productive process.”

It is for this reason that Walt Disney’s rags-to-riches business story and career long struggle to lift humanity through family entertainment and happiness remains universally inspiring and motivating.

Barry Linetsky is the author of the highly acclaimed The Business of Walt Disney and the Nine Principles of His Success (Theme Park Press, 2017), from which this article is adapted. He is president and CEO of Cognitive Consulting, Inc., and a Partner with The Strategic Planning Group in Toronto, Canada. He blogs at www.BarryLinetsky.com.

© 2018, Barry L. Linetsky. All Rights Reserved.