Analysing disruptive potential: the case of wireless local area network and mobile communications network companies

In this article, we analyse the prediction that wireless local area network (W-LAN) technologies will be disruptive for incumbent mobile communications network operators. For this purpose, we develop a methodology of guided interviews to assess technologies for their disruptive characteristics based on theory of disruptive technology developed by Christensen (1997) and recent extensions. The application of our comprehensive step-by-step method improves the precision of the disruptive technology concept and its usability for practitioners to make ex ante distinctions between disruptive technologies and other phenomena caused by emerging technologies. Our method predicts that contrary to common assumptions, W-LAN is not likely to represent a disruptive technology for the established mobile communications network firms in terms of Christensen's concept. This research was conducted in close collaboration with Vodafone Pilotentwicklung, an R&D and technology monitoring unit of the Vodafone Group. Vodafone provided part of the empirical data through expert interviews and market reports.     

Why do incumbents sometimes succeed? Investigating the role of interorganizational trust on the adoption of disruptive technology

Previous research has noted that new firms traditionally have more success with the diffusion of disruptive technologies than do incumbent firms. For the development of disruptive technologies, newer firms appear to be advantageous as they are generally more flexible in resource allocation. However, exceptions can be found in various industries in which incumbents have been able to succeed with their own disruptive technologies. One possible explanation for these exceptions is the influence of pre-existing levels of trust already developed between incumbents and potential buyers of disruptive technologies. In order to explore this further, this article provides a link between interorganizational trust and the adoption of new, disruptive technologies in industrial markets. By surveying 134 current and potential Software-as-a-Service (SaaS) users, we show how pre-existing, interorganizational trust impacts the perceptions a potential buyer has towards a disruptive technology and how these perceptions influence a buyers' intention to adopt a new, disruptive technology. Beyond trust, we use perceived ease of use, perceived value, perceived usefulness and financial stability to create a predictive model for intention to adopt. Holistically, this article provides insight on how buyer–supplier relationships generally favor incumbent firms and can impact a buyers' perception of a new, disruptive technology.     

Decoupling market incumbency from organizational prehistory: Locating the real sources of competitive advantage in R&D for radical innovation

The creative destruction literature has argued that differences in R&D performance of incumbent vs. entrant firms can be explained through organizational change theories about established vs. de novo firms. A disconnect exists between these theories and the available empirical evidence because often the best performing firms are established firms as well. I propose to resolve this disconnect by distinguishing between market incumbency (presence in a market prior to a discontinuity) and organizational prehistory (organizational experience prior to a transition, whether between technologies or between markets). Doing so allows me to contrast incumbent vs. entrant and de alio vs. de novo studies, and to suggest more robust future research designs. I illustrate my proposition using qualitative data from the anticancer and AIDS‐treatment drug markets. Copyright © 2012 John Wiley & Sons, Ltd.     

The Influence of Regulation and Disruptive Potential on Incumbents' Submarket Entry Decision and Success in the Context of a Network Industry

This paper uses the theoretical perspectives of disruptive innovation, network externalities, and regulation to study the submarket strategies of incumbent firms that operate in a regulated network industry. In this setting, the impact of potentially disruptive innovations might be different because of the tighter regulation of incumbent firms. By analyzing the entry and success patterns of incumbent mobile network operators (MNOs) in the public hotspot markets in 17 Western European countries, we focus on how regulation and network effects as well as disruption factors influence the incumbent firms' strategies. In doing so, this paper departs from prior research that has primarily focused on unregulated industries and combines contradicting explanations from disruptive innovation theory, the motivation/ability framework, regulation theory, as well as network effects to provide a comprehensive analysis on how incumbents behave in a regulated network industry that is being confronted with a potentially disruptive innovation. In particular, while disruptive innovation theory predicts that the incumbents' vast experience in an industry could cause them to avoid entering new submarkets created by potentially disruptive innovations, the desire to avoid regulation could encourage such submarket entry. Furthermore, in regulated network industries, incumbent firms might have a stronger motivation to enter new submarkets as the importance of single customers and high market shares could be substantially different. These contrasting insights are used to develop an integrative research model and to derive hypotheses on incumbents' submarket entry decision and success. Drawing on cross‐sectional, multicountry data of 62 MNOs that operate in 17 Western European countries, this study uses logit and tobit regressions to test the impact of disruption factors, regulation, and network externalities on the entry decision and success of incumbent firms. The results reveal that the incumbent MNOs are caught in an area of conflict between the regulated industry context and their international technology strategy. The findings suggest that the incumbent MNOs' motivation and ability to escape regulation positively influenced their submarket entry and success in the public hotspot market. Thus, the potentially disruptive scenario was successfully turned into a potentially sustaining one as the incumbent MNOs could enhance their presence in the mobile broadband market. The testing on a multicountry basis as well as the positive influence of ethnocentric technology strategies for public hotspots, which are devised in the headquarters' location and are then brought out internationally, shed new light on an industry that has typically been characterized by country‐by‐country decisions. These findings may also reveal challenges for future research on disruptive innovations in multinational industries and expose future challenges for regulative authorities and managers. This paper thereby adds to the theory of disruptive innovation as it includes the influence of regulation on incumbents in network industries. Additionally, this study expands on previous findings on the disruptive potential of wireless local area network technology by employing a multi‐country analysis in 17 Western European countries.     

Duopolistic competition between independent and collaborative business-to-business marketplaces

This paper studies imperfect price competition between two intermediaries in an electronic business-to-business matching market with indirect network externalities. The intermediaries have different ownership structures: an independent incumbent competes with a collaborative buy side consortium to attract buying and selling firms. When firms can register exclusively with one intermediary, the incumbent can deter entry only if the number of consortium owners is sufficiently small. Otherwise, the consortium can enter and monopolize the market. When firms can register with both intermediaries simultaneously, the consortium can always enter and both intermediaries stay in the market with positive profits.     

Losing by winning: The danger zone of adverse competitor replacement

Research Summary: We use a formal model, motivated by a case study from the airline industry, to consider an industry structure wherein a firm may find that improving its competitiveness hurts its performance. Specifically, we examine the possibility that a superior incumbent may, by getting stronger, drive a weak rival from the market, and thereby allow a stronger rival to enter in its place. Such “adverse competitor replacement” reduces the profit of the superior incumbent and may even, in an extreme case, cause the superior incumbent to be driven from the market as well. We show that adverse competitor replacement can arise under a rational equilibrium and may become more likely if a firm improves its capability for self‐improvement. Managerial Summary: Managers are consistently advised to improve the competitiveness of their firms and beat the competition. We examine the possibility that beating out the competition may have adverse consequences. Specifically, a strong incumbent may, by getting stronger, outcompete a weaker rival to such an extent that the weaker rival exits the market, thereby creating an open market niche for a stronger rival to enter, in effect, a form of adverse competitor replacement. Competing with this stronger rival may in turn reduce the strong incumbent's profits below what they had been before driving the weak rival out. We illustrate adverse competitor replacement with a case study from the airline industry and discuss implications for a firm's investment in its own competitiveness.     

The innovator's media dilemma: How journalists cover incumbents' adoption of discontinuous technologies

We offer a new vantage to the literature on the role of infomediaries in incumbent firms' struggles to adopt discontinuous technologies: the perspective of news media. Specifically, we combine the discontinuous technology literature with studies on news media journalism to theorize that journalists cover an incumbent's new product introductions differently, depending on whether a given new product builds on a discontinuous technology or on the respective established, continuous technology. First, discontinuous-technology-based product introductions receive a greater volume of coverage than continuous-technology-based product introductions because journalists prefer covering issues that are novel, deviate from the conventional, and potentially strongly impact society. Second, the coverage of discontinuous-technology-based product introductions is more divergent in tenor than the coverage of continuous-technology-based product introductions, as journalists seek to present opposing and thus more engaging opinions. Our analyses of unique archival data from two samples of product introductions in the automotive and photography industries, respectively, support our hypotheses. We also find intriguing indications that news media coverage of new products introductions using hybrid technologies is significantly context-dependent. Overall, our study points to so-far undescribed, media-related dilemmas for incumbent firms that aim to adopt discontinuous technologies.     

Strengthening a weak rival for a fight

We provide a new model wherein firms of different productivities survive in an industry despite the threat of entry by high productivity firms. We demonstrate that an efficient incumbent has a unilateral incentive to establish a relational contract, softening price competition to strengthen its inefficient rival in a war of attrition that emerges post-entry, and raising the price of the inefficient firm in the acquisition market. We show that this equilibrium gives rise to persistent performance differences, market compression, and stability in the identity of firms in the market. Moreover, the relational contracting equilibrium is facilitated by strong anti-trust laws.     

Unbundling and infrastructure competition for broadband adoption: Implications for NGA regulation

The common idea of open access policy is that it refers to the sharing of particular elements, such as wholesale access networks, backhaul, under-sea cable and internet exchange points in fixed and mobile networks. In broadband networks, the use of open access policy usually refers to the infrastructure parts, which are considered a bottleneck. Many regulators have generally focused open access policy on fixed broadband networks, especially digital subscriber line (DSL) technology, in the last decade. Local loop unbundling (LLU) regulation is one of the main strategies for the regulator to open access to an incumbent’s bottleneck network in order to soften its monopoly power and encourage competition in the DSL broadband market. The OECD countries have different strategies regarding unbundling local loop and infrastructure competition, as the characteristics and infrastructure networks of countries vary. There are currently more choices of next generation network (NGN) technologies to develop. While local loop unbundling may not be applied fully to NGN development (the cost is not sunk, more technologies are available to implement, incentive of investment by operator), it can indicate benefits and drawbacks of open access policy in the past decade that can be adapted to NGN.The empirical results of this study show that during 2002–2008, LLU regulation was one of the strategies used to increase broadband adoption in countries that had difficulty encouraging infrastructure competition. Unbundling regulation can therefore be implemented carefully and differently in each country that has inefficiency that is harmful to consumers in its market from a monopoly incumbent. Infrastructure competition, on the other hand, is introduced as another strategy to increase broadband adoption. The empirical results of this study indicate that infrastructure competition can be used as a strategy when there are already enough infrastructures in the area or country. These results support the idea of using open access and infrastructure competition policy depending on the existing competition of broadband infrastructure in each country.     

Does the market for ideas influence the rate and direction of innovative activity? Evidence from the medical device industry

Prior work argues that the “market for ideas” supports an open system of innovation, allowing for efficient development of technology across firms. Although this literature has described important features of this market, how it influences the rate and direction of innovation remains an open question. We exploit an exogenous shock to a subset of U.S. medical device firms to study this question. We first document the breakdown in the market for ideas after a federal investigation made it more difficult for the leading orthopedic firms to work with physician‐inventors. We then present evidence of a dramatic decline in the rate of innovation for these firms. Further, a marked shift in direction occurs toward lower‐quality inventions and away from product categories where physician knowledge is critical. Copyright © 2014 John Wiley & Sons, Ltd.     

The role of digital technologies in open innovation processes: an exploratory multiple case study analysis

Digital transformation has undoubtedly become a key enabler of innovation as evidenced by the numerous firms that use digital technologies to manage their innovation processes. This issue is even more relevant today when innovation processes have become more open and require greater resources in the different implementation phases to capture and transfer knowledge within and outside the firm's boundaries. This implies additional challenges in managing the increasing amount of knowledge and information flows. Accordingly, digital technologies can be used and implemented to manage open innovation processes through easier access and sharing the knowledge created and transferred. Nevertheless, literature in these fields does not provide a structured view of how and why digital technologies are used to manage innovation processes in an open perspective. This paper aims to bridge this gap by adopting the theoretical lenses of change management to identify the managerial actions at organizational and process level that companies perform to implement digital technologies in their open innovation processes. Accordingly, the paper investigates how and why these managerial actions required for and enabled by digital technologies help firms to develop and nurture open innovation. From an empirical point of view, the exploratory multiple case study analyzes nine firms operating in different industries and varying in size, market share, and organizational structure.     

Unveiling the successful process of technological transition: a case study of Matsushita Electric

Technological transition requires serious management decisions because it essentially means withdrawing from an existing technology, in which the company has been successful, and shifting management resources to a new technology with a high degree of uncertainty. We will analyze in detail an example of a successful transition to a new technology and draw key factors for success. The subject of our analysis is the transition made by Matsushita Electric Group (MEG), a large corporate group representative of Japanese companies, at the time of its commercialization of plasma display panel (PDP) TVs. During commercialization process, Matsushita made a successful transition from accumulated direct current‐plasma display panel (DC PDP) to alternating current‐plasma display panel (AC PDP) through incorporating AC PDP technology from Plasmaco, Venture Company established in 1987. Key conceptual contributions are as follows. Old and new technology can differ in their knowledge base. According to existing literature, when the knowledge base is radically different, incumbent firms have a difficulty adapting to the technological change. On the other hand, when the knowledge base is very similar, incumbent firms have no trouble adapting to the change. Beyond these established existing understandings, this paper argues that when the knowledge base is moderately different, managers can increase the likelihood of successful transition by implementing a set of organizational strategies. Among these strategies, a particularly insightful one is that through the parallel development process of both existing and new technologies, managers can eventually integrate the advantages of both technologies by implementing a flexible resource allocation mechanism to overcome the dichotomy between old and new through creation of a ‘Ba’, Japanese concept offering shared context for knowledge creation.     

Incumbents in a dynamic Internet related services market: Does customer and competitive orientation hinder or help performance?

The Internet challenges many incumbent firms to adapt their marketing strategies by developing and offering new products involving Internet technology. Existing literature on market orientation and performance of services suggests that market orientation, and its components, are likely to facilitate effective adaptation. In contrast, the marketing innovation literature suggests market orientation may be too reactive and inhibit effective adaptation. Our results suggest some merit to both perspectives. Client orientation hindered performance of Internet advertising services, while competitive orientation facilitated performance. In addition, limited support was found that suggested superior performance occurs in an environment with a diverse client base and clients possessing in-house capabilities that “compete” with agencies for Internet advertising services. Implications for incumbents pursuing product growth strategies via new, technology related services in dynamic environments are discussed.     

Investment sharing in broadband networks

This paper presents a model of competition between an incumbent firm and an Other Licensed Operator (OLO) in the broadband market, where the incumbent has an investment option to build a Next Generation network (NGN) and it can do so by making an investment sharing agreement with the OLO, or alone. Two different kinds of investment sharing contractual forms are analyzed, a basic investment sharing, where no side-payment is given for the use of the NGN between co-investors, and joint-venture, where a side-payment is set by the co-investing firms. Results show that investment sharing can potentially be beneficial in terms of competition and investments, but the number of firms involved matters and so does the choice of the NGN access price, for insiders and outsiders of the agreement. Even when the presence of firms outside of the agreement force insiders to compete more fiercely, there might be a concern with the potential exclusion of the outsiders from the NGN.     

Employee mobility,spin‐outs,and knowledge spill‐in: How incumbent firms can learn from new ventures

Research summary: We consider conditions in which incumbent firms are particularly poised to benefit from knowledge spilling in from new ventures that employ individuals previously employed by the focal incumbent firm. We distinguish between inventors who leave their incumbent employers to found spin‐outs and those who become non‐founding employees of existing new ventures. Using a sample of new ventures and incumbent firms in the U.S. information technology (IT) sector, we find that incumbents are more likely to benefit from patented knowledge that spills in from their spin‐outs than from new ventures that employ non‐founding inventors formerly employed by the respective incumbent. Any advantage that parent firms have in reaping such knowledge quickly dissipates, however, when these parents have a history of misappropriating the intellectual property of others. Managerial summary: It has long been acknowledged that new ventures can acquire valuable knowledge from their larger and more established counterparts by hiring away their talented employees. We consider the possibility of a reverse flow of knowledge where established firms learn from those new ventures that have poached employees from them. We find that established information technology (IT) firms are more likely to learn and build on the technology of their spin‐outs (i.e., new ventures founded by their former inventors) than from new ventures that simply employ non‐founding inventors formerly employed by the respective IT firm. Any advantage that these IT firms had in reaping technical know‐how from their spin‐outs quickly dissipated, however, when they had a history of misappropriating the intellectual property of others. Copyright © 2016 John Wiley & Sons, Ltd.     

CREDIBLE RETALIATORY ENTRY AND STRATEGIC TOE‐HOLDS*

The anticipated profits from entry by an established firm into a new market will depend on how incumbents in that market are expected to respond. One possibility, suggested by cases and the literature, is that an incumbent may respond with ‘retaliatory entry’ into the first entrant's ‘home’ market. The model presented here describes conditions under which this can be a credible threat that deters the first entry. When the conditions are such that it is not credible, the paper shows how firms can provide credibility through the establishment of toe‐hold investments in other markets.     

Radical innovation through internal corporate venturing: Degussa's commercialization of nanomaterials

Internal corporate venturing enables radical innovation within established firms in mature markets. Without effectively designed and managed internal corporate ventures, the organizational constraints of established firms will strongly favour incremental innovation over radical innovation. This paper investigates the evolution of a successful internal corporate venture within a large, incumbent chemical firm, now known as Evonik Degussa, to reveal the challenges, organizational design, and management strategies of their commercialization of radical nanomaterials technology. The commercialization of nanomaterials technology is of great interest to incumbent materials and chemical firms and to independent ventures, but the radical, generic, and capital intensive nature of nanomaterials technology requires organizational and managerial innovation. This case study demonstrates a model to enable growth through radical innovation in nanomaterials, while taking advantage of an incumbent firm's capabilities and complementary assets. Organizational strategies include incubation from a risk-adverse culture, relatively long timelines for evaluation, and a high-level steering committee. Managerial strategies focus on product development, risk reduction, and active risk management.     

Contestability and two-part pricing

This paper contributes to the debate over the relevance of contestability by demonstrating that the welfare properties claimed by proponents depend on the inability of incumbent firms to divide the market. Given the ability to divide the market using two-part prices, the incumbent can protect profitability. This possibility further illustrates the extremity of the assumptions upon which contestability rests as two-part pricing is commonly observed in some of the very markets that might be suggested to be more nearly contestable.The authors thank Barnali Gupta, William G. Shepherd and two reviewers for suggestions on earlier drafts.     

YOU ARE ONE OF US NOW! HOW DO SHARE PRICES OF RIVALS REACT TO PRIVATIZATION?*

By using a unique data set from the Turkish cement industry, we analyze the impact of privatization on the market value of rival firms. Privatization increases efficiency, which is bad news for rivals. But if an incumbent buys a state owned firm, this leads to a higher market concentration which is good news for rivals. We show that privatization leads to overall positive abnormal returns for rivals because the concentration effect outweighs the efficiency effect. Consistent with our theory, this effect is reinforced when the initial market concentration is high.     

Competitive heterogeneity,cohorts, and persistent advantage

Research summary: Juxtaposing competing theories of whether superior profits endure, this article investigates differences in the rates at which firms' profit advantages persist following a significant regulatory change in the rules governing industry competition. Such a change creates two cohorts of firms, Entrants that lack experience in the industry and Incumbents that competed in the industry before the regulatory shift. The findings show that both cohorts' profit advantages persist, but at different rates: Superior performing Incumbents sustain an advantage longer than superior performing Entrants. This result is counterintuitive since Entrants are not constrained by a legacy of competing under the prior regime. Overall, the findings indicate that stages of a firm's development and of an industry's evolution are critical to understanding how long superior profits persist. Managerial summary: State and federal institutions employ regulations in an attempt to address market failures and to create a stable set of market and nonmarket relationships among relevant actors. A byproduct of this stability is decreased competition, and in turn, reduced incentives for firms to develop efficient operations. One might expect then that deregulation would fundamentally disrupt incumbent firms' abilities to develop and sustain a profit advantage. We find the reverse: Over time, some firms in the Incumbent cohort develop persistent, albeit temporary, profit advantages despite an onslaught of Entrants. Thus, while deregulation shakes out inefficient firms, it may strengthen, rather than threaten the profit trajectories of incumbent firms over time. Advantages developed by superior performing Entrants also endure, but for a shorter duration relative to Incumbents. Copyright © 2015 John Wiley & Sons, Ltd.