Creative destruction in corporates

"… Joel Mokyr used historical sources as one means to uncover the causes of sustained growth becoming the new normal. He … emphasised the importance of society being open to new ideas and allowing change. Philippe Aghion and Peter Howitt also studied the mechanisms behind sustained growth. … [W]hen a new and better product enters the market, the companies selling the older products lose out. The innovation represents something new and is thus creative. However, it is also destructive, as the company whose technology becomes passé is outcompeted." (1) The Nobel Prize in Economics for 2025 has gone to thinkers who have analysed the conditions essential for innovation. Destruction leads the list. The destruction they applaud is primarily of corporate entities.

Economists are not naïve enough to believe that corporations will go under without a fight so that others can innovate. In fact, existing entities fight innovation. Once "… the easy gains are gone… [they] stop innovating and start lobbying. Instead of investing in productive pursuits, they resort to anti-competitive tactics and pressure the government for regulation that shields them from competition."  (2) Aghion calls the biggest of these winners 'superstars' and points out that "… as superstars control an increasing number of product lines, non-superstars are increasingly discouraged from innovating. But non-superstars represent the vast majority of firms." (3)  Our concern in this column is with the non-superstars who have the aspiration and agility to revitalise themselves by internalising the creative destruction process. This will not be automatic or easy. The Intel that moved from DRAMs to microprocessors pulled it off. The Kodak that ignored its own discoveries in digital photography didn’t.

For non-superstars to have a fighting chance, there needs to be state regulation that prevents innovation strangulation and other monopolistic behaviours. As Richard Gilbert explains: "Antitrust enforcement should evolve from being price-centric to innovation-centric." (4)  I agree with Gilbert but my focus here is on what businesses that wish to reinvent themselves, through innovation and internal cleansing, must do.

Each economy and society has a limit to dealing with the detritus from the competitive destruction of entire entities. Even in more advanced economies, the capacity of state systems for recycling the valuable part of dismembered resources will always remain finite and reducing pressure on their throughput will enable them to deal better with those businesses that indeed need to be scrapped. This column, which suggests ways corporates can flourish while being hotbeds of creativity within, therefore provides the internal complement to the Nobel Prize winners’ theories which sometimes treat individual corporations as black boxes that almost randomly but inevitably perish. By enhancing the longevity of those boxes, the economy as a whole can work less wastefully without sacrificing technological progress. Of course, it’s not as if there will be no destruction within the individual black boxes (corporations), but, to the extent they have their own robust systems of clearing and regeneration, the burden on the national recycling system will be that much less taxing. Another way to put it is: the smaller the scale at which destruction takes place relative to creation, the more productive and less strained the system will be as a whole.

"The word ‘innovation’ is invoked with alarming frequency by companies trying to sound up to date but with little or no systematic idea about how it occurs... Innovation happens when people are free to think, experiment and speculate." (5) It is no surprise then that the trickiest part for established firms wishing to innovate is to attract and groom their creative strike force.

The people chosen as the creative spearhead (whether from within or externally) should possess key intrapreneurial competencies, in addition to the extraordinary acuity they bring to their chosen fields. (6) Such talent will always be in short supply. The Employer Value Proposition (EVP) needed to attract them may be very different from the kind of EVPs large corporates normally design. It will have the following components:

Companies seeking to recreate themselves will obviously be competing for the kind of talent that creates (or flocks to) start-ups and the first three ESP points are intended to match that environment as closely as possible. The fourth and fifth are clear advantages for established firms and must be exploited as such. Let’s examine both sets.

For the creative individual the greatest thrill lies in 'The Act of Creation' itself. Interestingly, the book with an eponymous title used the concepts of creation and destruction sixty years ago while drawing parallels between breakthroughs at the individual level and the discipline as whole. (7) Freedom with support is the best way corporates can make invention fun for the creative spirit. No material rewards can quite equal the thrill of Eureka moments but they come a close second. To equal the monetary gains solitary genius-entrepreneurs can (rarely but possibly) make on their own may be difficult but some of the following choices can make a reasonable approximation:

All of this is meaningless if traditional corporate supervision breathes down the neck of the intrapreneur/creator. Hence, the supervisory styles appropriate to growing plants in these hothouses of creativity will have to border on the non-existent. "It is with good reason that Ryan and Deci put autonomy first in their compendium of psychological needs… (8) Much as a supervisor may try to cultivate a 'hands-off' style, there are obvious limits to how successful s/he can be within the confines of a common physical workspace." (9)  This could be an additional reason for working in structurally isolated units/locations (see below). However, to encourage disruptive but risky projects, supervisory evaluation will have to be close enough to distinguish between inevitable failures at the cutting edge of technology and those resulting from incompetence, thus assuaging 'career concerns'.  (10)

Resources have to be provided with care. Certainly, access to priced research, A-grade laboratory facilities and sponsorship to forums where there can be interaction with other workers at the cutting edge of the technology, are large-organisation advantages that lone entrepreneurs and start-ups lack. On the other hand, such plentitude should not detract from the frugal and constraint-bound mindset that is essential to innovation. As Patricia Stokes explains: "The more constrained the solution paths, the more variable, the more creative, the problem solvers…. I like to think of constraints for creativity as barriers that lead to breakthroughs." (11)

The other advantage of intrapreneurship is limiting the personal and financial costs of failure. Of course, the juicy stock cascades won’t materialise but neither will the ability to pay house EMIs or school fees for one’s children disappear.

What is unique about the model proposed here is for organisations to acquire the capability to reinvent their teams repeatedly, while providing the scale, support and freedom for creators to thrive. This is not as simple as it may appear, and HR will need to possess and excel at five things that are generally not a priority.

Like age, level is no barrier to learning. The most innovative firms set the greatest store by training the least skilled. "The innovative firm is itself a potential lever of social mobility insofar as it trains and promotes its employees, especially the least skilled among them…. This is because the more innovative a firm is, the more complementarity there is between an individual worker and the firm’s other assets." (17)

Even firms close to the technological frontier need to possess or develop distinct attitudes to change, structures / processes and information management before they can become perennial pioneers.

Linda Holbeche provided a useful summary of what it takes to make an organisation agile. "The traits of an agile business include rapid decision making and execution, a high-performance culture, flexibility of management practices and resources, and organisational structures that support collaboration." (23)  Agile organisations must be ruthless with obsolete ideas and methods but not with people. If employees are 'repurposed' rather than 'removed' when their work is rendered obsolete, they will be thrilled to participate in the transformation effort rather than sabotaging it. As with people, there may be much worth retaining in the culture that brought the firm to the forefront. (24) At the same time, putting the young in positions of power will bring energy and enthusiasm to their jobs and accelerate agile thinking.

13. Access by outsiders to the project and its personnel must be strictly controlled.

14. Because only a few people will be used in engineering and most other areas, ways must be provided to reward good performance by pay not based on the number of personnel supervised.

While these innovation hothouses don’t need to operate as totally separate companies (the whole point of this proposal would be lost if they did) and there must be a frequent flow of people in both directions across their boundaries, any processes that impede their creative endeavours and risk-taking spirit should obviously be blocked. Such sequestered units may not be efficient in the conventional sense but "[w]e have to sacrifice some output today to explore and develop new technologies that allow us to do things better tomorrow." (26)

Productive information sharing and communication: Information sharing requires a delicate balance. On the one hand we have 'Kelly’s heroes' who will kill rather than let anyone know what they are up to. At the other extreme are networked inventors outside the organisation, as well as current operation managers within, wanting access to the discoveries. The reverse flow, from the existing treasure-chest of technology secrets outside and inside to the fledgling units is equally fraught with demands and resistances. In general, organisations can be far more permissive of internal flows though not at the cost of overwhelming originality within the incubation box.

I hope the current year’s Nobel Prize winners will not object to their brilliant application of Darwinian selection of innovation for an entire economy being cascaded down by one level to the individual corporation. Large corporates, provided they are not indissolubly wedded to the economic rents of their previous successes and have mechanisms for trying and discarding ideas (not people), can provide far less wasteful and traumatic internal creative destruction (and regeneration) mechanisms than when they must be entirely destroyed themselves. Not all companies will be saved from destruction. Nor should they. The foregoing is only a prescription for potentially permanent players who have the grit and genius to reinvent their products, their people and themselves.

Leave it to the country’s leaders to make the economy more creatively destructive. You have it in your hands to do the same for your company.

1 Press release, Nobel Prize in Economics 2025, 23 Oct 2025, (https://www.nobelprize.org/prizes/economic-sciences/2025/press-release/).

2 Carl Benedikt Frey, How Progress Ends: Technology, Innovation, and the Fate of Nations, Princeton University Press, 2025.

3 Philippe Aghion, Cline Antonin and Simon Bunel, The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations, The Belknap Press of Harvard University Press, 2021.

4 Richard J Gilbert, Innovation Matters: Competition Policy for the High-Technology Economy, The MIT Press, 2022.

5 Matt Ridley, How Innovation Works, Fourth Estate, 2020.

6 Sandra Lam, The Intrapreneurship Formula: How to Drive Corporate Entrepreneurship Through Employee Empowerment, Business Expert Press, 2022.

7 Arthur Koestler, The Act of Creation, Macmillan, 1964.

8 Richard M Ryan and Edward L Deci, Self-Determination Theory: Basic Psychological Needs in Motivation, Development, and Wellness, Guilford Press, 2018.

9 Visty Banaji, Developing superior remote leaders, People Matters, 10 January 2025, (https://www.peoplematters.in/article/leadership/developing-superior-remote-leaders-43940).

10 Philippe Aghion, Cline Antonin and Simon Bunel, The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations, The Belknap Press of Harvard University Press, 2021.

11 Patricia D Stokes, Creativity from Constraints: The Psychology of Breakthrough, Springer Publishing Company, 2005.

12 Visty Banaji, HR’s Business Should Be Happiness Raising, Angry Birds, Angrier Bees – Reflections on the Feats, Failures and Future of HR, Pages 488-496, AuthorsUpfront, 2023.

13 Lynn Stout, The Shareholder Value Myth, ‎Berrett-Koehler Publishers, 2012.

14 Visty Banaji, YOU can end exploitation, People Matters, 9 May 2025, (https://www.peoplematters.in/article/leadership/you-can-end-exploitation-45480).

15 Moheb Costandi, Neuroplasticity, The MIT Press, 2016.

16 Visty Banaji, Kintsugi Leaders: Conservers of talent who convert the weak into winners, People Matters, 11 December 2024, (https://www.peoplematters.in/article/performance-management/kintsugi-leadership-transforming-talent-building-resilience-and-inspiring-growth-43710).

17 Philippe Aghion, Cline Antonin and Simon Bunel, The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations, The Belknap Press of Harvard University Press, 2021.

18 Visty Banaji, An Appeal to AIDA (Artificial Intelligence, Decency, and Affection), People Matters, 13 March 2025, (https://www.peoplematters.in/article/ai-and-emerging-tech/an-appeal-to-aida-artificial-intelligence-decency-and-affection-44756).

19 Daron Acemoglu, Liberalism can win back the Working Class. Here’s how, Financial Times, 29 November, 2025.

20 Jonathan Rosenthal and Neal Zuckerman, AI Destroys the Old Learning Curve, Wall Street Journal, 23 October 2025.

21 Arun Maira, The Learning Factory: How the Leaders of Tata Became Nation Builders, Penguin Viking, 2020.

22 Ufuk Akcigit and Nathan Goldschlag, Where Have All the 'Creative Talents′ Gone? Employment Dynamics of US Inventors, NBER Working Paper 31085, 2023, (https://doi.org/10.3386/w31085).

23 Linda Holbeche, The Agile Organization: How to Build an Engaged, Innovative and Resilient Business, Kogan Page Limited, 2018.

24 Visty Banaji, Culture Change is Not a Screw-on Job, Angry Birds, Angrier Bees – Reflections on the Feats, Failures and Future of HR, Pages 3-10, AuthorsUpfront, 2023.

25 Ben R Rich and Leo Janos, Skunk Works: A Personal Memoir of My Years at Lockheed, Little Brown & Co 1994.

26 Carl Benedikt Frey, How Progress Ends: Technology, Innovation, and the Fate of Nations, Princeton University Press, 2025.