How Board Embeddedness Affects Incumbents’ Responses to Discontinuous Technologies

Abstract

We combine research on strategic leadership, corporate governance, and organizational adaptation to technological change to provide a new perspective on the heterogeneous responses of incumbent firms to the emergence of discontinuous technologies. Specifically, we conceptualize two facets of the board of directors’ embeddedness in the status quo—social-capital embeddedness (SCE) and knowledge-structure entrenchment (KSE)—and argue that they have intricate contradictory and interactive effects on the speed and intensity of incumbent adoption of discontinuous technologies. While higher SCE results in faster and more aggressive adoption of discontinuous technologies, higher KSE reduces adoption speed and adoption intensity. Moreover, we propose that the adoption-enhancing effects of SCE decrease with increasing levels of KSE, as more cognitively entrenched boards are less likely to leverage higher degrees of SCE to access information, capital, and status in ways that foster discontinuous technology adoption. Our examination of the responses of 75 U.S. retail firms to the advent of e-commerce between 1995 and 2019 largely corroborates our theorizing. Our research contributes by introducing strategic governance, especially boards, as an important yet thus far neglected perspective for research on incumbent inertia. It also highlights the paradoxical implications of cognitive and social board characteristics in times of disruptive change.