Joseph Schumpeter was an Austrian political economist who is best known for popularizing the term “creative destruction.” He argued that economies progress through cycles of innovation as new technologies arise and displace older ones.

New technologies are pioneered by entrepreneurs (or entrepreneurial companies), and the old technologies – and the companies that use them – are displaced and often face collapse unless they are able to pivot to the new technology.

This is very disruptive to the firm being displaced, which often fights tooth and nail to retain the business, not recognizing that the change is inevitable.

There is a long history of these displacements. Some recent examples include:

• Kodak, where film photography was displaced by digital photography, which led to Kodak’s bankruptcy in 2012. The curious aspect of this story is that Kodak actually invented digital photography, but its corporate culture did not allow the company to change focus to the new technology until it was too late.
• Blockbuster Video, where streaming services gradually displaced home video and game rentals, leading to it declaring bankruptcy in 2010. At its peak in 2004, Blockbuster employed 84,300 people worldwide and operated 9,094 stores.
• Blackberry pioneered secure mobile email, but did not appreciate the role that apps played and struggled to compete with the iPhone and Android phones. In 2022, Blackberry got out of the smartphone business.
• A counterexample is electric vehicles, where the new technology was pioneered by an outsider (Tesla), but the incumbent firms recognized the threat and were able to pivot to make EVs.

 How are innovations diffused into society?

The literature on diffusion of innovation shows that the diffusion typically takes the form of an “S”-shaped curve, as shown below.

Initially, uptake is led by early adopters, who are inclined to try new things. After this, there is a long, fairly linear trend where the new technology gradually becomes mainstream and is adopted by the majority of the market.

Eventually, this slows down, and the market remains with a small group of laggards before finally disappearing.

The old technology often isn’t entirely displaced. For example, natural rubber has been almost completely displaced by synthetic rubber in tires, but some tires – airplane tires, for example – are still made using natural rubber because synthetic rubber can’t match the properties of natural rubber.

                                                                       Source: Everett Rogers, “Diffusion of Innovations”

This curve can be modelled mathematically using the Fisher-Pry substitution model.

Often, the substitution follows the S-curve remarkably closely.

The classical example is the adoption of hybrid corn in Iowa in the 1930s, shown below. The number of new adopters (the lower graph) closely follows a bell-shaped curve.

                                                                 Source: Everett Rogers, Diffusion of Innovations (page 258)

So, what about Canada Post?

Canada Post runs two businesses – letter delivery and parcel delivery. The market for letter delivery has declined steadily for at least the last 20 years, as shown in the diagram below.

The market for parcel delivery has expanded, but Canada Post’s business strategy did not allow it to maintain its previously very strong market share, which has declined significantly. We will just consider the letter business.

You can think of two technologies competing for letter delivery – hand delivery of a physical letter and email.

Initially, hand delivery had a 100-percent market share as email hadn’t been invented. When email is first introduced, a few early adopters try using email for communication instead of sending a letter.

Eventually, this idea catches on, and more and more people start using email. This trend corresponds to the almost straight line in the Canada Post diagram below.

                                                                                             Canada Post delivery of letters

                                                                          Source: Canada Post annual report 2024

 Canada Post reported losing $1 billion annually and projects a $1.5-billion loss this year. The corporation said the current strike by postal workers has worsened its financial situation and driven customers to alternative couriers.

Conclusion

Schumpeter would consider Canada Post’s letter business a classic case of creative destruction, as the new technology (email) replaces the old technology (hand delivery).

The replacement is very advanced and will be impossible to reverse, given the many advantages of email. It is very likely that a small fraction of the market will remain for people unable to use email.

As we have seen from the other examples, Canada Post has to either adapt to the new reality or face extinction (unless supported by government subsidies).

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