Enabling Creative Destruction: A View from the Perspective of Managerial Control

Abstract

Creative destruction originates in successful development and launch of a radically different product/process/market configuration, or radical innovation, by a company. A radical innovation can materialize in a business firm only if autonomy is extended to organizational personnel, towards experimentation with heterogeneous knowledge from outside the organization. In this article, I inquire into conditions that enable the materialization of radical innovation—an important precursor to creative destruction—while affording top management the wherewithal to stay in control. An extended version of March’s computational model suggests that when a radical innovation project initiates with a low level of collective human capital with respect to the new process–product–market domain being considered and the project personnel are provided a certain extent of autonomy to experiment in the new domain, top management can detect a change to organizational outcomes by changing the rate of exploitation. Thereby top management obtains a feeling of being in control of proceedings. This situation is, therefore, conducive to the materialization of creative destruction. The indirect method of control to nurture radical innovation—demonstrated in this research—constitutes an improvement over the autonomy-averse ‘agency’ and ‘transaction cost economics’ approaches that are sub-optimal in open systems characterizing radical innovation efforts in corporate venturing.