The Limits of Ambidexterity: Evidence from Netflix’s Entry

Abstract

A firm’s resources are well understood to be a source of competitive advantage. However, how a firm comes to acquire resources with the traits that provide competitive advantage is less clear. To explore this question, this paper studies a setting where heterogenous incumbent firms were affected by a common environmental shock and investigates the characteristics of firms that successfully adapted to the new environment. Netflix’s entry into the television show production forced the United States incumbent networks to alter how some television shows are made. The paper finds that incumbent networks with prior experience in the new practice did not fare better than their peers. However, those with existing deep supplier relationships were better able to manage this transition. This result suggests the resources providing competitive advantage may come primarily through serendipity rather than active planning by firms.