Why 'creative destruction' is no longer enough; the case for creative transformation

Joseph Schumpeter's "creative destruction" has ruled business strategy for a century. Innovate or die. Disrupt or be disrupted. The old must burn so the new can rise. But look at the world's biggest electric vehicle market today. Something different is happening, and it demands a new playbook.

BYD, now the world's largest EV maker, did not achieve dominance by destroying its past. It began as a battery company in 1995. For two decades, it mastered electrochemical engineering. When the EV revolution arrived, BYD did not abandon its factories or dismiss its workforce. It repurposed its core competence, and its battery expertise became the engine of its automotive quantum leap.

Last year, Shenzhen, Guangdong province-based BYD sold more electric vehicles than Tesla globally. It did not disrupt its heritage. It transformed it.

The same pattern holds for CATL, the world's largest battery producer. CATL did not dismantle existing supply chains to build something entirely new. It embedded itself within the global automotive ecosystem and pushed the technological frontier forward while harmonizing with its many partners. Today, one in every three EVs worldwide is powered by a CATL battery.

These are not stories of destruction. They are stories of transformation.

For decades, Western business orthodoxy has insisted on a binary. You are either an innovator who destroys incumbents, or you are an incumbent awaiting destruction. This framework has shaped corporate strategy, investment criteria and antitrust policy.

But it contains a critical blind spot. It assumes that progress requires the annihilation of existing capabilities, institutional memory and productive ecosystems. Tradition is treated as baggage and heritage is seen as a burden. In an age of climate crisis, supply chain fragility and geopolitical fragmentation, this assumption is proving dangerously costly.

Here is where China Harmonious Innovation offers a different lens.

At its core lies a simple but powerful idea. Innovation need not be a zero-sum collision between old and new. Instead, it can be a symbiotic evolution where existing strengths are preserved, upgraded and integrated with emerging technologies.

This is not conservatism masquerading as strategy. It is the recognition that the most sustainable competitive advantages often reside in the adaptive recombination of established capabilities with new knowledge. I call this "creative transformation" rather than "creative destruction".

The distinction is strategic, not semantic.

Creative destruction externalizes costs. It writes off factories, dismisses workforces and abandons institutional knowledge in the name of efficiency.

Creative transformation, by contrast, internalizes continuity. It asks a different question — what existing assets, relationships and competencies can be reconfigured to meet new market needs and demand?

BYD's battery expertise was not a legacy liability to be discarded. It was the foundational asset that enabled its automotive quantum leap. China's manufacturing ecosystem was not an obsolete industrial relic to be disrupted by software platforms. It was the substrate upon which a new generation of smart hardware enterprises could flourish.

This has profound implications for innovation economics.

For too long, the field has been dominated by an obsession with the new combination that annihilates the old. But what if the more powerful economic force is the new integration that elevates the old?

What if the firms defining the next industrial era are not those that burn bridges, but those that build them? It connects legacy industries to digital infrastructure, marries traditional craftsmanship with artificial intelligence, and aligns environmental sustainability with commercial viability.

The evidence is accumulating worldwide.

In Germany, industrial firms pursue Industry 4.0 not by dismantling their mittelstand (medium-sized businesses) manufacturing base, but by digitizing it. In Japan, Toyota transitions to electric mobility while preserving its kaizen (continuous improvement) production philosophy. In India, the Unified Payments Interface payment platform did not destroy existing banking infrastructure. It harmonized with it, creating a hybrid system that scaled faster than any pure-disruption model could have accomplished.

The future belongs not to the destroyers, but to the harmonizers.

This reframing carries direct consequences for economic theory.

Paul Romer — co-recipient of the 2018 Nobel Prize in Economics — who transformed our understanding of endogenous growth, demonstrated that ideas are non-rival. Romer argued that the non-rivalry of ideas is ultimately behind the rise in living standards over various lengths of time. Ideas can be shared without being depleted. If ideas compound through sharing, then the model that maximizes value creation is not one of competitive annihilation, but of collaborative accumulation.

Edmund Phelps, awarded the 2006 Nobel Prize in Economics, argued that innovation thrives in societies encouraging grassroots creativity rather than top-down displacement.

Both insights point toward an innovation model that is inclusive, cumulative and harmonious.

In other words, not throwing out the proverbial baby with the bathwater.

The question for business leaders is therefore not whether to innovate, but how to innovate without unnecessary destruction.

In an era of constrained resources and climate imperatives, the luxury of burning down the old to make way for the new is diminishing. The most resilient organizations will be those that treat their histories not as liabilities, but as platforms for improvement and even metamorphosis.

As we approach the 50th anniversary of China's reform and opening-up, the world needs an economic narrative that transcends the theology of disruption. China Harmonious Innovation is not a rejection of market dynamism. It is a refinement of it.

The future belongs not to those who destroy creatively, but to those who transform harmoniously.

The writer is president of Global Innovation Research Institute under Xi'an Peihua University, China, and founder and president of ELITE Innovation College Cambridge Ltd.

The views do not necessarily reflect those of China Daily.