October 7, 2009 15:2 WSPC/108-JEC 00040

Journal of Enterprising Culture

Vol. 17, No. 2 (June 2009) 181–199

CORPORATE ENTREPRENEURSHIP: INNOVATION AT THE

INTERSECTION BETWEEN CREATIVE DESTRUCTION AND
CONTROLLED ADAPTATION

ASTRID HEIDEMANN LASSEN∗,‡ and SUNA LØWE NIELSEN†,§

∗ Centre for Industrial Production, Aalborg University, Denmark
† Department of Entrepreneurship and Relationship Management
University of Southern Denmark
‡ ahl@production.aau.dk
§ sso@sam.sdu.dk

In spite of a growing body of knowledge on the importance of innova-

tion and change, firms still experience great difficulties in being continuously
entrepreneurial. This article addresses reasons for such difficulties. Building on a
conceptual discussion, the article first identifies seemingly opposing forces found
at the core of corporate entrepreneurship. These forces are in the article described
in terms of ‘creative destruction’ and ‘controlled adaptation’. Both forces are iden-
tified as being essential to successful corporate entrepreneurship, but set very dif-
ferent agendas, which can be expected to give rise to tension. Next, a case study
of a Danish high-tech SME is introduced in order to identify patterns of practices
which are potentially supportive of the creation of balance between the seemingly
opposing forces. Based on this, the article introduces a framework for discussion
of the two forces and the consequences of how they are approached managerially.

INTRODUCTION

Successful firms are often referred to as; organic organizations (Burns

and Stalker, 1961), spaghetti-organizations (Larsen, 2002), or dynamic and
flexible organizations with a continuous focus on innovation (Boer et al.,
2006). Intensified global competition and rapidly changing market condi-
tions increase uncertainty of a wide range of traditional business parameters,

§ Corresponding author.

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and innovation is thus becoming a determining factor for existing firms

to gain competitive advantages (Bessant et al., 2005). However, in spite
of an intensive focus on the importance of innovation and changeabil-
ity, a majority of firms experience great difficulties in understanding and
managing the kind of entrepreneurial innovation which breaks with famil-
iar knowledge or ways of operating and therefore requires more than the
ability to incrementally improve existing products, processes or services
(Christensen, 1997). These difficulties of path-dependency might suggest
that firms are still depending on traditional structures and management
principles, though trying to enter into new and dynamic competitive are-
nas. This causes inability to create the organizational and managerial
frames necessary for developing and exploiting entrepreneurial initiatives,
which involve shifts in thought patterns and creative destruction of the
existing.
In this article, innovation is defined in line with Schumpeter’s (1934)
thoughts on creative destruction. Innovation is thus seen as behavior and
activities, based on destruction of contemporary frames of thoughts and
action, which lead to the creation of new goods or quality of goods; devel-
opment of new methods of production; establishment of new markets; utili-
sation of new supply sources or; industrial reorganization, and hence breaks
with the existing. This constitutes a clear contrast to behavior and practices,
which focus on incrementally exploiting and optimizing existing products
or processes (Bessant et al., 2005). In this article, such behavior is argued
to be based on a linear planning philosophy, where strategies are created
based on formal planning, and reflected in the management practices of
innovation. This approach to innovation is in the article termed controlled
adaptation.
In this context, the term corporate entrepreneurship becomes interesting,
as it draws attention to what firms experience as a conflict between frame
breaking innovation, based on the principles of creative destruction, and
management based on the principles of controlled adaptation (Trott, 2005).
Both abilities are proven essential for the continued survival and competitive
capability of firms, but are at the same time based on seemingly opposing
forces.
The present article focuses on this problematic intersection, with the aim
of answering the following question:

(RQ) What characterizes the opposing forces of creative destruction and

controlled adaptation in corporate entrepreneurship, and which manage-
ment practices support the creation of balance between such forces?
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OPPOSING FORCES IN CORPORATE

ENTREPRENEURSHIP

One of the first scholars to focus specifically on defining the corporate

entrepreneurship construct as firm behavior was Burgelman (1983). He per-
ceived the phenomenon as a process whereby firms engage in diversification
through internal development. Such diversification relies on new resource
combination in order to extend the firm’s activities in areas unrelated, or
marginally related, to its current domain of competences (Stopford and
Baden-Fuller, 1994). The wording “new resource combinations” resonates
Schumpeter’s view of entrepreneurship as the primary catalyst for frame-
breaking innovation through creative destruction (Schumpeter, 1934). Today,
a multitude of definitions exist, each referring to distinct characteristics of
the construct. However, three main streams can be identified:
(1) The understanding of the entrepreneurial individual within the frame
of an existing organization, and how this individual initiates innovation
(Souder, 1981; Pinchot, 1985; Knight, 1989; Jones and Butler, 1992;
Jennings et al., 1994).
(2) The understanding of corporate venturing and spin off activity which
leads to the incorporation of new business areas, and the effects hereof
on the market (Hlavacek and Thompson, 1973; Hanan, 1976; Cooper,
1981; Fast and Pratt, 1981; MacMillan, 1986; Hisrich and Peters, 1984;
MacMillan et al., 1984; Vesper, 1984; Burgelman, 1985; Zahra, 1991,
1996).
(3) The understanding of the entrepreneurial and innovative process through
which an organization “acts” and “thinks”, influencing all activities
implemented (Covin and Slevin 1986, 1991; Stevenson and Jarillo, 1990;
Guth and Ginsberg, 1990; Hornsby et al., 1993, Stopford and Baden-
Fuller, 1994; Lumpkin and Dess, 1996; Hisrich and Peters, 1998; Covin
and Miles, 1999; Antoncic and Hisrich, 2003).
The three streams to understanding corporate entrepreneurship to some
degree reflect a chronological development of the field of research. It has
gradually moved from primarily an individual-based understanding towards
an interest in the impact of corporate entrepreneurial behavior, and cul-
minating in an understanding of corporate entrepreneurship as a holistic
entrepreneurial philosophy of innovation in the organization. The latter per-
spective on corporate entrepreneurship is in focus in the present article.
In particular, the second and third streams of research on corporate
entrepreneurship also reveal a division in the fundamental perception of
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the main driving forces discussed in this article. The stream of research
focusing on corporate venturing activity essentially deals with questions
related to creating and growing a new business, therefore emphasizing issues
related to exploitation, planning, structuring and management of small busi-
nesses. The more holistic perspective on corporate entrepreneurship as firm
behavior focuses primarily on the innovative activity created through corpo-
rate entrepreneurship, thus emphasizing processes and practices supporting
exploration and innovation. We argue that this creates a duality of opposing
forces in the understanding of corporate entrepreneurship. Explorative forces
resemble Schumpeter’s (1934) thoughts on creative destruction, whereas
exploitative forces draw closer resemblance to Kirznerian (1982) views on
entrepreneurship.
A range of corporate entrepreneurial attributes, which also illustrate
this duality are identifiable in the field of research. Antoncic and Hisrich
(2003), based on the work of Lumpkin and Dess (1996), point to eight
attributes which rather well sum up the essences of much prior research;
(1) Product/service innovation; (2) Process innovation; (3) Self-renewal;
(4) Risk-taking; (5) Pro-activeness and; (6) Competitive aggressiveness;
(7) New ventures and; (8) New businesses. When considering the relation-
ship between these attributes, the presence of duality, between the forces
of creative destruction and controlled adaptation, becomes noticeable. On
the one hand, the forces of creative destruction refer to the need of firms
to explore new markets through rejuvenating activities that per se involve
pro-activity, increased risks, and an autonomous approach. The center of
attention is breaking with the existing patterns, and this process is often
rooted in bottom-up processes. On the other hand, the forces of controlled
adaptation refer to the fact that firms also need to embrace the ability to
exploit the innovative action efficiently in order to create competitive advan-
tages on the market. This is done through corporate venturing and strate-
gic entrance into new business areas. This requires a strategic approach to
the structural diversification and exploitation hereof. The centre of atten-
tion is finding and creating an appropriate space for the new venture, which
often requires extensive considerations on existing structures and a top-down
decision-making process.
Noticeably, Burgelman’s (1983) definition of corporate entrepreneurship
also includes considerations on opposing forces of controlled planning and
structuring, and diversity through experimentation-and-selection. This ter-
minology essentially parallels what in this article is referred to as creative
destruction versus management through controlled adaptation. Burgelman
(1983) considered it the task and challenge of strategic management to

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maintain an appropriate balance between the two fundamentally different

processes, but recognized the difficulties in doing so. Stevenson and Jarillo
(1990) as well as Day (1992) express the idea of balance between oppos-
ing forces as entrepreneurial management, and Dess, Lumpkin and Covin
(1997) name it entrepreneurial strategy making.
Thus, from literature we find signs of how being corporate entrepreneurial
must entail the ability to embrace two opposing forces. The intersection con-
sists of, on the one hand, the ability to anticipate, envision, and develop “non-
customary activities” or “transformation into areas unrelated, or marginally
related, to the organization’s current domain of competences” (Stopford
and Baden-Fuller, 1994). On the other hand, the ability to efficiently exploit
innovative action on the market in order to create competitive advantages
through a controlled adaptation which “facilitates firms’ efforts to identify the
best opportunities…and then to exploit them with the discipline of a strate-
gic business plan.” (Hitt et al., 2002, p. 13). Much research on corporate
entrepreneurship acknowledges this duality, however, very little is revealed
about how the balance is created (Lassen et al., 2006). This creates certain
limitations to the applicability of corporate entrepreneurship as a coherent
set of management practices.

RESEARCH METHODOLOGY

The discussion so far has characterized overall differences between activities

oriented towards respectively exploration, leading to frame breaking innova-
tion, and exploitation of existing knowledge through controlled adaptation,
and how there is still a lack of knowledge on how a balanced intersection is
created.
To further extend the accepted ideas of the opposing forces, a case study is
introduced. The case study inductively verifies the forces of creative destruc-
tion and controlled adaptation, and identifies management practices which
are potentially supportive of the creation of balance between the forces.
A conceptual framework is developed, based on the empirical evidence,
which proposes concepts to discuss the opposing forces, and how to balance
between these.
The case firm is a Danish-owned high-tech SME, which here is named
Digital Corp. The firm employs approximately 180 employees. Digital Corp.
is purposively selected due to its history of introducing highly innovative
technologies within digital signal-processing, which has revolutionized pos-
sibilities in audio products, as well as exploiting such revolutionary technolo-
gies in various successful products series.

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In order to determine whether the innovativeness of Digital Corp. is in

fact frame breaking, the case was evaluated in relation to the definitions of
radical innovation by O’Connor and Ayers (2005). They define it as com-
mercialization of products or technologies which have a strong impact on;
(1) the market, in terms of offering wholly new benefits, and (2) the firm, in
terms of generating new business. To further elaborate on the definition we
also use Leifer et al., (2000), who state that a radically innovative project
must entail at least one of the following: (1) New to the world performance
features, (2) Significant (5–10 times) improvement in known features or (3)
Significant (30–50%) reduction in cost.
As appears in Table 1, Digital Corp. complied fully with the definition by
O’Connor and Ayers (2005) of offering wholly new benefits to the market and
generating new business within the firm, and the definition of Leifer et al.
(2000) by introducing new to the world performance features as well as
creating significant improvements in know features. The radical innovations
introduced by Digital Corp. have not lead to significant cost reductions, as
this has not been a criterion of concern.
The data collection was conducted over a period of 2 years, from the
spring of 2005 to the spring of 2007. It took place through in-depth inter-
views with top managers, program/projects managers and R&D profession-
als in the firm. The respondents were asked to describe and explain critical
incidents of innovations made throughout the firm’s history and present sit-
uation. As individuals at several levels in the organization were interviewed,
a multifaceted picture was build of how the interplay between forces of
frame breaking innovation and management through controlled adaptation
was expressed. The longitudinal approach allowed for a gradual develop-
ment of the understanding of the case through a dialectic process between
respondents and interviewer. The result was a network of narratives (Boje,
2001), with a focal pivot around the topic of balance between frame breaking
innovation and management through controlled adaptation. A more detailed
description of the case study follows.

Table 1. Frame breaking innovation.

Digital Corp.

Offering wholly new benefits to the market yes

Generating new business within the organization yes
New to the world performance features yes
Significant (5–10 times) improvement in known features yes
Significant (30–50%) reduction in cost no

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DIGITAL CORP.

An Exploration-Driven Firm
Digital Corp. was started in the midth-1970s as an entrepreneurial venture
by two brothers. It was based on their personal interest in how to develop
new technological advances for guitar pedal-effects. The firm was highly
innovative from the beginning, where there was focus on exploration of
new technological capabilities. Many tasks were initially placed on very
few persons; one brother was in charge of the financial, organizational, and
business related matters, while the other brother focused on technology and
product development. The brothers were driven by a high degree of personal
interest, and took pride in their goal, i.e. optimizing the quality of guitar
pedal effects. An idea of creating an entirely new technological approach to
doing so was the point of departure of the firm. Especially, the technological
flair of one of the brothers, and his abilities to create new ideas, lifted the
firm. Digital Corp. very soon became a well-known player in the market.
In the 1980s the firm, as one of the first in the world, changed from
analogue to digital signal processing. First-mover advantages increased the
turn-over of the firm up through the 1980s, and sales expanded to interna-
tional markets. Continued focus on development of new technological pos-
sibilities and implementation in products of high quality generated market
leadership in several markets. A respondent expressed the exploration-driven
focus in the following way: “We usually produced one fantastic product for
one market, and when we then discovered that the technology could be used
in another market, we just went ahead and produced another fantastic prod-
uct for this market”. Nonetheless, the firm was not able to generate a solid
profit, as the act of creation through exploration of the unknown in itself
was the focal core and consumed all the attention of the entrepreneurs. With
a turnover of app. 2, 8 million Euros in 1989 and a low liquidity, the firm
could not afford the sales- and marketing efforts needed to be able to sell the
high-priced technological products.

Increasing Focus on Exploitation

After several near-bankruptcy experiences in the beginning of the 1990s, the
board of directors decided that a different type of management was necessary.
A new CEO and part owner was found. The new CEO entered with a clear
image of what professional management entails. His management principles
were to a high degree oriented towards a rational approach to exploitation
of the market and strategic development of the firm, rather than towards
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a love for technological possibilities and exploration. The new CEO and
management group decided that market focus should be narrowed down
to one segment, and the vision hereafter was to be world leaders within
digital signal and effect processing within the segment of professional sound
studios. By applying this niche strategy the firm specialized the marketing
and reached their specific customer segment better. A result of this strategic
thinking was for example that the firm took up a rather large bank loan in
order to develop one core product, which served as their basis for many years
to come. In 1996 this product was introduced to the market.

Finding and Sustaining the Balance Between Exploration and

Exploitation
After 1996 followed several years with up to 40% annual growth on turnover
(one year with 20% growth in profitability) and high increases in number of
employees (from 25 to 180 in Digital Corp. and 800 in an extended holding
company). Based on the core product, 10 different variants were developed,
which were all successful in the market, and by year 2000, Digital Corp.
had a turnover of approx. 18 million Euros. The combination of the creative
entrepreneurial spirit of the technology-oriented brother and the managerial
and controlled approach of the new CEO created a balanced synergy in
the firm. One respondent describes the period as follows: “Really, it was
this “melting pot” of an entrepreneurial company, which only lacked the
strategist and leadership – now we had the strategy and the leadership and
things really went fast!”.
A well-established group of 40 R&D professionals was engaged in the
exploratory development of the core product as well as the more exploitative
development of the 10 following variants based on this product. The newly
found focus on more exploitative development did, however, not substitute
the explorative activities; it was integrated into the routines, as expressed
by a Program Manager when describing a software developer he considered
to do an excellent job: “He worked on all the improvements…but, when he
was done, he also had something extra in the drawers…I love that…this
self-reliant attitude. We can control certain things, but people just “bobble”
with ideas, and are willing to put in their own time. This gives us a fantas-
tic dynamics without having to place everything in systems and stage-gate
models”.
The new and more controlled approach to the innovation process included
the introduction of a more formalized phased development model. This
model stresses the need for planning, but was intuitively adjusted to fit the
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entrepreneurial firm: “Of course we are aware of the gate-demands in the

different phases – but not too much. I mean, things get ruined if the book-
keeper has to calculate key figures too soon. So, in reality I think it has a lot
to do with our gut feeling and of course our knowledge about market size,
market trends, if we already have something on the shelves, which could be
used ” (Program Manager). This created a balanced focus in the innovation
activities.
On management level, the focus on balance was also visible. Initiation
of new projects was based on presentation of the idea in a forum where
the new CEO and the CTO both participated. This provided a forum for
rich discussions on the exploratory as well as the exploitative potential of
the ideas presented. As Digital Corp. grew larger, the importance of middle
management also became apparent. The CEO and CTO could not participate
in all discussions related to all projects, and they needed to find another way
of representing both forces in the process. Selecting middle management
(project and program managers) based on their particular insight into the
market as well as the technology became the answer. Most often middle
managers were R&D professionals with particular markets insight. This
approach was a very important tool for communicating market knowledge
to the otherwise highly exploratory R&D professionals.
However, sustaining the balance between the highly exploratory inno-
vation and the controlled managerial approach to bringing products effec-
tively to the market was not easy. Over time, a dividing line between the
R&D department and the top management group became apparent and illus-
trated the essence of the difficulties. Top management increasingly called
for market-oriented efficiency and exploitation, whereas many of the R&D
professionals longed to focus on exploration and breaking with the frames of
existing technologies. The management group believed that the R&D pro-
fessionals themselves should be able to balance the need for frame breaking
innovative and controlled adaptation. Projects and decisions making com-
petences were increasingly divided into specialized areas focusing either on
improvement or on exploration of new technologies.
A dilemma in this approach was for example that what seemed new and
frame breaking for the customers seemed like yesterdays news for the R&D
professionals, and what seemed interesting for the R&D professionals was
likely to be ahead of the market, and hence a failure in terms of sales. The
CEO expressed it this way: “Product performance increases enormously,
surpasses the customer needs and gets too slowly to the market, when
we focus too much on innovation. That is our great problem.” The ini-
tiatives which originally had been taken in order to create balance were

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not effectively institutionalized in the organization, and over time the rift
between the opposing forces emerged once again. This increasing rift in
the organization and a segregated innovation focus, in combination with a
shrinking market of professional sound studios, gradually started causing
severe financial difficulties for Digital Corp.
Many questions were raised in the firm on how the former synergy
between frame breaking innovation and controlled adaptation could be
regained and sustained. One respondent says about the balance: “I’m not
sure we were ever really balanced…maybe it was just an effect of going
from one system to another…and in the transition we had the best of both
worlds…Or maybe we just forgot to pay attention to the balance. Now we
are just like other companies”.

ANALYSIS AND DISCUSSION

The analysis of the case study both confirms the existence of opposing forces
and provides insight into several practices applied when balancing the two.
In this section a framework is developed, which illustrates the complexity
within the corporate entrepreneurial arena, and underlines the importance of
creating a balance between the two dimensions.

Tension Expressed as a Dilemma

It was identified in the case that the ability to carry out a successful cor-
porate entrepreneurial process essentially concerns balancing the powerful
relationship between exploratory innovativeness and management based on
controlled adaptation. Digital Corp. was periodically dominated by differ-
ent driving forces and was highly successful only in the intersections. The
beginning of the case narrative is focused on how the exploratory forces
were dominating, as the firm was intensively searching for new opportu-
nities. The constant focus on exploration, however caused the firm to lose
contact with and understanding of the market, which resulted in a highly
fragmented sales focus. An improvisational management style was used,
and this early and nascent process was driven forward by a special affection
for technology development, which influenced all actions taken by the firm.
However, this approach demonstrated long-term disadvantages, reflected in
negative effects on the bottom line.
Later, the application of a more controlled management style in Digi-
tal Corp. caused focus to move away from innovative exploration towards
increasingly top-down decision-making and exploitation. The new authority
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emphasised control of innovation through planning, focus on development

and adaptation of product series to several markets, and often suppression
of ideas for new innovative initiatives not in line with the present focus.
Understanding the customer and defeating competitors through positioning,
was now the centre of attention. Undoubtedly, the technology was no longer
the main concern. Rather, the market and its mechanisms were in focus.
Within the transition phase of Digital Corp. the combination of creative
destruction and controlled adaptation resulted in positive earnings. However,
as the company turned towards primarily planning and control, the difficul-
ties began to show once again. The turn produced an orientation towards
incremental improvements of what was already known and away from the
construction of completely new initiatives. Table 2 provides an overview of
the diametrically opposite forces identified in the case and thereby replicates
how blockages towards change often revealed themselves around dilemmatic
streams.
Table 2. Opposing forces.

Category Creative Destruction Controlled Adaptation

Focus Innovation Improvement

Procedure Exploratory Exploitative
Orientation Future Present
Interest area Technology Market
Management Style Improvisational Controlled

Continuous Balance Instead of Punctuated Activities

The discussion on balance in corporate entrepreneurship bears a strong
resemblance to discussions found in adjacent literature, such as for exam-
ple the exploration/exploitation dichotomy introduced by March (1991).
March (1995) expresses his observations on this dilemma in the follow-
ing manner: “(A) system that specializes in exploitation will discover itself
becoming better and better at an increasingly obsolescent technology. A sys-
tem that specializes in exploration will never realize the advantages of
its discoveries…exploration and exploitation are linked in an enduring
symbiosis… Each interferes with the other”. March (1991, 1996, 2006)
furthermore provides several arguments in favor of exploration and exploita-
tion being fundamentally incompatible, even though both are essential for
long term success. Amongst these are that exploration and exploitation
compete for scarce organizational resources, thus calling for prioritization
between either one or the other type of activities. Additionally, the mindsets
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and organizational routines needed for exploration are radically different

from those needed for exploitation, making the simultaneous pursuit of
both impossible. Several other researchers have also addressed the idea of
exploitation and exploration being two fundamentally different forces (e.g.
Amabile, 1996), which entails that the organization must oscillate, or spa-
tially separate between subsystems working on respectively explorative and
exploitative activities.
Such discussions are based on a logic of punctuated equilibrium, which
argues that the common state of organizations is one of stability and iner-
tia, and that this produces long periods of small, incremental change and
controlled adaptation. These periods are once in a while interrupted by brief
and compact periods of revolutionary and frame-breaking innovation, which
provide rare opportunities for firms to break the grip of structural and cultural
inertia, and drive forth innovative growth (Gersick, 1991).
The case of Digital Corp. does indeed portray overall characteristics
of oscillating between periods of focus on either creative destruction or
controlled adaptation. However, it is found that in the restructuring phase
between the two forces, a critical burning point emerges, which caused great
difficulties for the firm. Switching mode of working not only takes time; it
is also extremely difficult to cope successfully with “punctuations” in terms
of processes, culture and structure. Depending on how frame breaking the
innovation is, the transfer from one stream to another, results in a highly
difficult restructuring phase (Morgan, 1997). This observation is in line with
literature illustrating how firms persistently fail in surviving transformation
(March, 1995; Christensen, 1997). Thus, the restructuring phase gives rise
to a serious need for reflection on how the corporate entrepreneurial process
unfolds and in particular if a punctuated equilibrium perspective is perhaps
inadequate to apply in the ever-changing environment of today.
However, in the case of Digital Corp., the burning points between periods
of frame breaking innovation and controlled adaptation also represented the
beginning of the most prosperous times for the organization. This indicates
that Digital Corp., in addition to experiencing the difficulties of coping with
activities in a punctuated equilibrium pattern, periodically was able to suc-
cessfully benefit from focus on both exploration through creative destruction
and exploitation based on controlled adaptation. Such practices indicate an
ability to be ambidextrous, and are highly revealing, as they give insights on
the creation of balance, which is still an underdeveloped area of corporate
entrepreneurship. O’Reilly and Tushman (2004) use the metaphor of “jug-
gling” to describe the ambidextrous organization, which has the capabilities
to both compete on cost efficiency based on incremental innovation, and

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develop radically new products and services for emerging markets, where
experimentation, speed, and flexibility are critical.

How to Create the Balance

Gupta, Smith and Shalley (2006) write: “Ambidexterity refers to the syn-
chronous pursuit of both exploration and exploitation via loosely coupled
and differentiated subunits or individuals, each of which specializes in either
exploration or exploitation” (p. 693). Such, continuous incorporation is a dif-
ficult managerial challenge. In the case of Digital Corp., several indicators of
positive practices were, however, identified, which will be further extended
and discussed in this section.
The first element which was identified in the case study was the fact
that the need for ambidexterity was acknowledged by the board of directors,
through the realization that a controlled adaptation approach was also a
need in the highly exploratory firm. This resulted in focused exploration
(development of a highly innovative core product combined with exploitative
variety development and market penetration), and thereby adaptability to
different markets. Furthermore, the active realization generated a strategic
trajectory which was very visible in the organization, and activities were
initiated to support this trajectory.
The second pattern we recognized was a period of redefinition of the
dilemma, through the creation of new contexts in which the formerly known
segregation between areas, and the well-known rules and routines, were
broken down. For example, a forum for discussion of both exploitative and
explorative potential in new projects was established, thereby creating a
new context for redefinition. This additionally served as an outset for a
new cultural path in the organization, where the values/practices/behaviour
of the R&D professionals were not seen as opposite of a market oriented
perspective, but as an essential ingredient for being continuously successful
at exploration as well as exploitation. The cognitive abilities of the employees
to modify their behaviour and deal effectively with a wide variety of different
and changing contexts were emphasized and encouraged in order to create
redefinitions of the dilemmas.
The third pattern we identified was a continuous integration of opposite
views that in particular developed a unique rationality which valued both the
forces of frame breaking innovation and those of controlled adaptation. This
was instrumental for the creation of alignment and coherence in activities
of the firm, which created a sense of unity in direction and goals, though
working on differentiated projects.
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Turning to literature to find further knowledge on the empirically observed

patterns of acknowledgement, redefinition and integration, we find that these
patterns overall reflect Lewin’s (1951) three stages of change — unfreeze,
transition, and refreeze. Dealing with the paradox of creative destruction and
controlled adaptation initially requires a “push” or “pull” event which makes
the company acknowledge a need to unfreeze. In the case of Digital Corp.,
the unfreezing event was several near-bankruptcy experiences. However, the
case underlines the importance of not only acknowledging a need to change,
but in particular acknowledging a need to change which rests on both sides
of the paradox.
Being ready to change and embrace the oppositions of the paradox, the
exploitative approach of controlled adaptation is introduced within Digi-
tal Corp. through the entrance of the new CEO. This is the beginning of
a transition or redefinition process via the creation of new contexts that
incorporate creative destruction and controlled adaptation. The literature on
contextual ambidexterity suggests that organizational contexts can be built,
in which employees are empowered and encouraged to multiple modes
of thinking and acting. Employees have to be trained as generalists, who
can equally relate to and participate in processes of creative destruction as
well as controlled adaptation (Birkenshaw and Gibson, 2004). Such con-
texts may be created through internal resource allocation rewarding per-
sonal development, initiative and responsibility, employee autonomy, avoid-
ance of destructive critique, etc. It becomes the challenge for employees
to constantly and independently switch back and forth between the two
forces. They have to be adaptors and qualified to act in regard to both sides
of the paradox, although they may lean towards performing certain tasks.
Within the case, the R&D professionals were for instance able to creatively
explore new paths, whilst working on exploitative assignments under the
condition of the formalized development model which stressed the need of
planning.
The phase of refreezing or integration is about creating new structures
within the organization, which support the re-establishment of some form of
stability; although a final state of freeze is not desirable or possible in cor-
porate entrepreneurship. After all, “… potential new futures always create
oppositions to status quo” (Morgan, 1997, p. 292). The literature on structural
ambidexterity suggests the creation of parallel structures in order to integrate
the paradox within the organization. Such structures give employees room
to move between structures supporting respectively creative destruction and
controlled adaptation in their daily activities. For instance, assignments
characterized by routines are carried out within the formal structure of the

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traditional business unit, whereas additional and informal project teams (sec-
ondary structures) open up for exploration (Raisch and Birkenshaw, 2008).
Within the case, the visible participation of both the CEO and CTO in the
projects can be seen as an example of parallel structuring, since they both
in this way engage in a structure that does not reflect their primary posi-
tions. As described, Digital Corp. continuously struggled with maintaining
the balance once it was created. One of the possible explanations could be
found in a failing focus on integrating the balance in structures, contexts,
processes and the culture. Instead the balance was achieved when manage-
ment paid explicit focus to dealing with it, and slipped when management
focus slipped.
Figure 1 illustrates the complex innovation arena, which the corporate
entrepreneurial phenomenon has to embrace. It is an arena in which streams
towards the future as well as the past; exploitation as well as exploration
unfold. A focus on either innovation through creative destruction or con-
trolled adaptation creates a high likelihood of failure, since the two dimen-
sions cannot exist without each other for a longer period of time. At the
same time punctuated pendulum swings and restructuring processes between
the forces are, as aforementioned, difficult and potentially “deadly” for
the firm. It is therefore argued that there is a continuous need for both
frame breaking innovation through creative destruction and management
through controlled adaptation — a balance — rather than an either/or in
approach, in order to form a continuous innovation cycle. In the framework,
the “stars” and “dots” refer to a portfolio of exploratory projects aimed at

Future
Creative
Destruction

Exploitation Exploration

Controlled
Adaptation
Present

Figure 1. Innovation in the Corporate Entrepreneurial Arena.

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A. H. Lassen & S. L. Nielsen

creative destruction, where considerations on exploitation are integrated, and

exploitative projects where considerations on reframing and exploration are
integrated.
The framework was discussed with the management team in Digital Corp.,
who could clearly picture themselves in the lower left quadrant, as they had
not been able to sustain the balance between frame breaking innovation and
controlled adaptation in the long run. Today, Digital Corp. is too focused on
exploitation through controlled adaptation and slowly but surely eliminating
the explorative characteristics which originally provided the firm with a clear
differential advantage over competing firms. This realization initiated a still
on-going discussion on initiatives and restructuring activities supportive of
continuous balance rather than punctuated activities.

CONCLUSION

This article has dealt with the dilemma many firms experience between frame
breaking innovation, based on creative destruction, and management through
controlled adaptation. Building on a literature review and a case study of a
Danish high-tech SME, the two opposing forces of creative destruction and
controlled adaptation were investigated, as well as the management practices
to support the creation of balance between them. The article furthermore
introduced a figure for discussing the arena of corporate entrepreneurship in
the light of the two forces and their consequences.
Overall, the research supports the idea that the success of corporate
entrepreneurship depends on the firm’s capability to continuously balance
exploration of the future through creative destruction and exploitation of
the present from controlled adaptation. Punctuated equilibrium views on
innovation are found to be problematic in a corporate entrepreneurship set-
ting, whereas structural and contextual ambidexterity supports the creation
of balance.
We suggest further research and integration of adjacent literature in corpo-
rate entrepreneurship to elaborate on the managerial skills needed to deal suc-
cessfully with the paradoxical streams of creative destruction and controlled
adaptation in organizations. Finally, this research studied the phenomenon
of creative destruction and controlled adaptation within the specific organi-
zational context of an SME. Future studies should research the phenomenon
in different organizational contexts, as this may open up for diverse expres-
sions of the forces of creative destruction and controlled adaptation as well
as the managerial implications and practices.
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