How Do Established Firms Produce Breakthrough Innovations? Managerial Identity‐Dissemination Discourse and the Creation of Novel Product‐Market Solutions

Abstract

Despite the legacy of experience, some established firms are able to avoid a mindset, behaviors, and routines that can be expected to lead them down paths of local search and incremental product innovations of ever‐declining value. Indeed, established firms are often adept at introducing successful path‐breaking innovations. To explain this apparent paradox, this article draws on the organizational identity literature to present a model that ascribes breakthrough innovations by established firms to managerial identity‐dissemination discourse (MIDD). MIDD is argued to provide a sense‐giving framework, which fosters an understanding of the firm as a nexus of values around which the firm can be continuously rediscovered and reconstituted in new ways. By exposing the firm as an idea that can assume fresh forms in terms of product‐market combinations, MIDD stimulates and coordinates creative endeavor, thus increasing the disposition to produce breakthrough innovations. The model also suggests that the impact of MIDD is likely to depend on transformational leadership and the level of centralization and formalization in the company. The results of a cross‐sectional empirical study provide support for the model. In contrast to the focus of earlier research on behavioral and structural explanations for breakthroughs by established firms, this article advances understanding by offering a cognitive explanation. In doing so, the article highlights that creativity and innovation in firms are mentally located in an interpretive schema of the firm's identity, which has important implications in relation to organizing for breakthroughs. The article discusses these implications with particular reference to the use of multifunctional teams and advanced information and communication technologies for facilitating breakthroughs.