As a kid, you’re taught that when you’re lost, stay put and wait for rescue. Most executives are following that advice right now—sitting tight amid uncertainty, hoping someone saves them from having to make hard choices and take innovation risk.
This year’s Nobel Prize winners in Economics have bad news: there is no rescue coming. Joel Mokyr, Philippe Aghion, and Peter Howitt demonstrated that disruption happens whether you participate or not. Freezing innovation investments doesn’t reduce innovation risk. It guarantees competitors destroy you while you stand still.
They also have good news: innovation follows predictable patterns based on competitive dynamics, offering a framework for making smarter investment decisions.
How We Turned Stagnation into a System for Growth
For 99.9% of human history, economic growth was essentially zero. There were occasional bursts of innovation, like the printing press, windmills, and mechanical clocks, but growth always stopped.
200 years ago, that changed. Mokyr identified that the Industrial Revolution created systems connecting two types of knowledge: Propositional knowledge (understanding why things work) and Prescriptive knowledge (practical instructions for how to execute).
Before the Industrial Revolution, these existed separately. Philosophers theorized. Artisans tinkered. Neither could build on the other’s work. But the Enlightenment created feedback loops between theory and practice allowing countries like Britain to thrive because they had people who could translate theory into commercial products.
Innovation became a system, not an accident.
Why We Need Creative Destruction
Every year in the US, 10% of companies go out of business and nearly as many are created. This phenomenon of creative destruction, where companies and jobs constantly disappear and are replaced, was identified in 1942. Fifty years later, Aghion and Howitt built a mathematical model proving its required for growth.
Their research also lays bare some hard truths:
- Creative destruction is constant and unavoidable. Cutting your innovation budget does not pause the game. It forfeits your position. Competitors are investing in R&D right now and their innovations will disrupt yours whether you participate or not.
- Competitive position predicts innovation investments. Neck-to-neck competitors invest heavily in innovation because it’s their only path to the top. Market leaders cut back and coast while laggards don’t have the funds to catch-up. Both under-invest and lose.
- Innovation creates winners and losers. Creative destruction leads to job destruction as work shifts from old products and skills to new ones. You can’t innovate and protect every job but you can (and should) help the people affected.
Ultimately, creative destruction drives sustained growth. It is painful and scary, but without it, economies and society stagnate. Ignore it at your peril. Work with it and prosper.
From Prize-winning to Revenue-generating
Even though you’re not collecting the one million Euro prize, these insights can still boost your bottom line if you:
- Connect your Why teams with your How teams. Too often, Why teams like Strategy, Innovation, and R&D, chuck the ball over the wall to the How teams in Operations, Sales, Supply Chain, and front-line operations. Instead, connect them early and often and ensure the feedback loop that drives growth
- Check your R&D and innovation investments. Are your R&D and innovation investments consistent with your strategic priorities or your competitive position? What are your investments communicating to your competitors? It’s likely that that “conserving cash” is actually coasting and ceding share.
- Invest in your people and be honest with them. Your employees aren’t dumb. They know that new technologies are going to change and eliminate jobs. Pretending that won’t happen destroys trust and creates resistance that kills innovation. Tell employees the truth early, then support them generously through transitions.
What’s Your Choice?
Playing it safe guarantees the historical default: stagnation. The 2025 Nobel Prize winners proved sustained growth requires building innovation systems and embracing creative destruction.
The only question is whether you will participate or stagnate.