Institutions, Inertia and Changing Industrial Leadership

Abstract

Institutional factors, especially those embodied in capabilities and routines, can both improve the ability of a firm to exploit an existing technology and make it more difficult to innovate by generating an inertia that is hard to overcome. As a result, periods of technological change are often relatively short and dynamic in comparison to lengthy periods of consolidation in which firms gain full mastery over innovations. Not all organizations are equally well equipped to adapt to change, however, and firms that are adept at using an existing technology may have fewer of the capabilities required to cope with innovation than a new entrant or a firm that was less successful under the old regime. When this is true, a change in industrial leadership is probable, with the hitherto dominant firms becoming either followers or leaving the industry altogether because they are no longer competitive.