Industry Incumbents Research Articles

Breaking through in a Tightly Nested System: Practicing Fast Cycles of Change

Industry incumbents often do not survive technology transitions. A reason for this is their strong reliance on a highly aligned organizational system fit to an earlier market situation. Transitions...

Triadic Value Propositions: When It Takes More Than Two to Tango

Value propositions are reciprocal resource-integration promises and value alignment mechanisms operating to and from actors seeking an equitable exchange. In a business triad, any change in the relationship between two actors also affects relationships with the third actor, influencing resource integration and value creation at the value constellation level. This study of the development of a triadic value proposition analyzes how the discontinuous effects of a new service initiative alter the relationships among actors in a manufacturer–dealer–user triad. A qualitative empirical inquiry examines a 10-year process, in which a leading industry incumbent enters the service business by crafting a triadic value proposition. As the value proposition evolves over time, the network ties—and thus the interdependence among manufacturer, dealer, and user—strengthen. The findings offer firms a better understanding of how to involve and collaborate with key actors to initiate discontinuous changes at the firm and network levels. These insights are particularly timely in light of the difficulties that product firms face when intermediaries are decisive for the success of their service-led growth initiatives.

How Parent Firms Benefit From The Innovativeness Of Their Progeny

Spinouts � new ventures founded by individuals who previously worked for industry incumbents � are often thought to be harmful to their parent firms. Not only do parent firms lose valuable employee...

The challenge of mission drift through growth in the hybrid organisation

Most innovative, sustainability focused enterprises are founded as entrepreneurial start-ups by visionary leaders. Those that are successful grow and become viable businesses, necessitating access to private and public financial markets to fuel their growth. The dynamics of financial markets put demands on these successful firms that often challenge their very foundations. Should hybrid firms that integrate social, environmental and profit goals go public? How should a growing sustainability focused start-up manage their institutional shareholders to defend their mission? How should such a company, if accessing public stock markets, defend against an unwanted takeover? How should an incumbent industry player acquire a hybrid firm and preserve its valuable mission? In this article, we explore these questions using an in-depth case study of a Canadian renewable energy start-up firm that took the public market route and was eventually acquired in a hostile takeover by a major publicly-listed utility company.

Industry Structure of Debt and Market Share Leadership Persistence

This study investigates the relationship between the industry structure of debt and market share leadership persistence using a large sample of firms spanning the years 1961-2012. We construct unique variables that measure the structure of industry leverage and conduct tests for the relationship between these variables and the likelihood that firms retain market share leadership from year to year. Results show that firms in industries with high capital structure diversity are more likely to maintain market share leadership over time, indicating that heterogeneity in capital structure among industry incumbents facilitates the strategic use of leverage to secure and maintain a leadership position. We also find that firms with higher and more stable leverage ratios are more likely to maintain their leadership, suggesting that firms use debt financing to invest in market share growth. The results highlight the importance of firm- and industry-level debt structures in product market leadership positioning and provide a new perspective on intra-industry rivalry.

Positioning in the Global Value Chain as a Sustainable Strategy: A Case Study in a Mature Industry

As a result of the development of new industrialized countries, such as Brazil, China and other Southern Asian economies, as well as a globalized economy, traditional competitive paradigms based on advantages associated with costs and quality efficiencies or even innovation are no longer sufficient. These previous classical paradigms related competitiveness either to costs or technology innovation and the resources of industry incumbents. However, the combination of adequate knowledge and relationship management with marketing efforts brings forth a reconsideration of the present competitive models that go beyond those analyses from the point of view of global value chains. The objective of this investigation will analyze the governance structure of the territorial value chain in the Spanish and Italian ceramic tile industry, through the understanding of the previous and current roles of several industries involved in the value creation system. By way of both a case study and quantitative methodology approach, we will explore the paradigm change where traditional chain actors are losing their grip on their contribution to the territorial value creation system as new actors appear with a more stable status. The article concludes that proper positioning in the global value chain is a key strategy for the sustainability of the involved firms, especially Small and Medium Enterprises (SME).

Regulating Disruptive Innovation

Disruption theory tells us that certain innovations can undermine existing products, firms, or even entire industries. Classic examples include the Kodak camera, the Bell telephone, and the Ford Model T. Modern examples abound. The market entrant’s innovation ultimately displaces industry incumbents. Regulators, too, are challenged by such disruptive innovations. The new product, technology, or business practice may fall within an agency’s jurisdiction but not square well with the agency’s existing regulatory framework. Call this “regulatory disruption.”Most scholars intuit that regulators should be cautious rather than firm in such situations. Tim Wu, in Agency Threats, argues that agencies confronting disruptive innovations should avoid traditional rulemaking and adjudication, and instead rely on “threats” packaged in guidance documents, warning letters, and the like. Threats, he argues, are less burdensome, more flexible, and avoid regulation that is miscalibrated or premature. However, this Article argues that a flexible initial posture based primarily on “threats” can calcify, creating weak defaults that lead to suboptimal regulation in the long term. Regulatory inertia can be hard to break without an external shock, usually a tragedy or some other massive failure that reignites interest in regulation. As a case study, this Article shows how the FDA’s approach to a disruptive technology (computerized medical devices) twenty-five years ago fits the threat framework strikingly well, and how it failed. The FDA’s threats became stale and counterproductive — during a profound computer revolution, no less. This Article counterposes the FDA’s approach to software with the FCC’s approach to the Internet, which initially relied on threats, but later codified them via binding regulations and enforcement shortly thereafter.This Article argues that agencies need not be so tentative with innovations. If agencies are concerned about regulating prematurely or in error, then they can experiment with timing rules, alternative enforcement mechanisms, and other variations on traditional interventions. If agencies do choose to proceed by making threats, then they should use them as a short-term precursor to more decisive, legally binding action, as the FCC did, and avoid relying on them as a long-term crutch, as the FDA did.

Bridging the consumer-medical divide: how to regulate direct-to-consumer genetic testing.

AbstractWhile 23andMe aspires to be “the world's trusted source of personal genetic information,” the U.S. Food and Drug Administration (FDA) believes that the company's advertising practices have been anything but trustworthy. Last November, a harshly worded FDA “warning letter” demanded that the direct‐to‐consumer genetic testing company immediately discontinue marketing its unapproved “medical device.” The tussle between 23andMe and the FDA has attracted more attention than a typical disagreement between a company and a government agency. Larry Downes and Paul Nunes identify 23andMe as a “Big Bang Disruption”: an invention that revolutionizes the existing market, foiling both industry incumbents and unprepared regulators. The outcome of the FDA's current review to hold the answer to the million‐dollar question: how will DTC genetic testing be regulated in the future? Ideally, the FDA's regulations should not pose undue burdens on consumers seeking personal genetic information but, rather, help consumers make a transition out of the consumer setting and into the medical setting.

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.

Distinguishing between spinouts and non-spinouts: allocating control rights in biotechnology alliances

Spinouts are startups founded by employees of established firms in the same industry. Spinouts inherit technological and market-related knowledge from their parent companies. In contrast, non-spinout startups that do not have such close connections to an industry incumbent firm will have a different endowment of technological and market knowledge. Given this contrast between different startups in a risky science-based industry such as biotechnology, we explore whether spinout startups are different from non-spinouts in how control rights are allocated in strategic alliances. We develop a predictive model to distinguish whether an alliance is a spinout startup or a non-spinout startup.

Spatial Determinants of Entrepreneurship in India

Ghani E., Kerr W. R. and O'Connell S. Spatial determinants of entrepreneurship in India, Regional Studies. The spatial determinants of entrepreneurship in India in the manufacturing and services sectors are analysed. Among general district traits, the quality of the physical infrastructure and workforce education are the strongest predictors of entry, with labour laws and household banking access also playing important roles. Extensive evidence is also found of agglomeration economies among manufacturing industries. In particular, supportive incumbent industrial structures for input and output markets are strongly linked to higher establishment entry rates. In comparison with the United States, regional conditions in India play a stronger relative role for the spatial patterns of entrepreneurship compared with incumbent industry locations.

‘Frozen’ media subsidies during a time of media change: A comparative analysis of media policy drift in six Western democracies

Media systems around the world have changed in significant ways in the early 21st century. In this article, I analyse how various forms of media subsidies have changed in response to these transformations in a sample of six different affluent democracies. On the basis of interviews, official documents and secondary sources, I show that media subsidies have largely remained frozen in their late-20th century form. The absence of major reform means that media subsidies are increasingly subject to policy drift, a process by which the operations and effectiveness of policies change not because of deliberate reform, but because of changing conditions on the ground. Analysis of interviews with relevant stakeholders suggests that the main obstacles to reform across all six countries are: (1) limited political attention to the problem; (2) strong incumbent industries protecting their interests; and (3) a perceived shortage of desirable, cost-effective, and governable alternatives to existing policies.

Relatedness, Industrial Branching and Technological Cohesion in US Metropolitan Areas

Essletzbichler J. Relatedness, industrial branching and technological cohesion in US metropolitan areas, Regional Studies. Work by evolutionary economic geographers on the role of industry relatedness for regional economic development is extended into a number of methodological and empirical directions. First, relatedness is measured as the intensity of input–output linkages between industries. Second, this measure is employed to examine industry evolution in 360 US metropolitan areas. Third, an employment-weighted measure of metropolitan technological cohesion is developed. The results confirm that technological relatedness is positively related to metropolitan industry portfolio membership and industry entry and negatively related to industry exit. The decomposition of technological cohesion indicates that the selection of related incumbent industries complements industry entry and exit as the main drivers of change in metropolitan technological cohesion.

Unmixed signals: How reputation and status affect alliance formation

We analyze how incumbents in technology-driven industries are influenced by founders' reputation and status when considering strategic alliances with newly emerging firms. We theorize that reputation and status represent two distinct components of perceived quality that exert independent and interdependent effects on alliance formation. Using literature on impression formation processes to derive predictions of signal congruence, we argue that the independent effects of reputation and status are amplified when the two are congruent, and that the effect of negative congruence (both reputation and status are low) is stronger than positive congruence (both are high). We find support for our arguments based on panel data on alliances between pharma and biotech firms, using data on biotech scientists' research output (reputation) and university attended (status). Copyright © 2013 John Wiley & Sons, Ltd.

Combining Innovation and Diversification Strategy: The Case of <I>PosteMobile</I> in Italy

During the last decades, innovation and diversification increasingly gained the attention of both scholarly and business communities as valuable strategies for achieving sustainable competitive advantage. From a strategic management perspective, firms need to develop the capacity to formulate business ideas, to assess and select them, and to implement them effectively if they are to develop economically viable and high-growth business ventures. Firms, however, may not necessarily possess the requisites for effectively innovating and diversifying their business activities. The entry of the Italian incumbent postal operator – Poste Italiane group – into the mobile telecommunication industry – through the subsidiary PosteMobile – stands as an exemplar case of innovation and diversification strategy implementation. Established in 2007 as a Virtual Mobile Network Operator (VMNO), PosteMobile exploited strategic assets and capabilities of Poste Italiane group to generate a unique offer through the convergence between communication and financial services. Based on this case, the aim of this paper is to develop a theoretical account of the process of diversification into related business industries, and to contribute to practical argumentation about the strategic behaviour of postal industry incumbents.

Copyright reform and business model innovation: Regulatory propaganda at German music industry conferences

Inspired by new digital technologies, diverse actors in cultural and creative industries propagate conflicting visions of how to adequately innovate – or rather preserve and strictly enforce – copyright-related business models, which has resulted in substantial amounts of regulatory uncertainty. Looking at a decade of regulatory discourse at industry events in the popular music industry in Germany, we investigate how these actors make sense of and strategically shape this uncertainty in the process of industry transformation. Our longitudinal argumentative discourse analysis reveals cycles of regulatory propaganda of two discourse coalitions that do not engage in debate, but aim to find support for competing business models among regulators and the public. Organizing, canceling, and participating in industry events are discursive strategies used effectively to transport their claims by both industry lobbyists and challenging actors, but industry incumbents are failing to use these sites for testing out and introducing new business models. We conclude that regulatory struggles, not least at industry events, mediate between disruptive technologies and business model innovation. ► Analysis of regulatory discourse at industry events in the German music industry from 2001 to 2010 ► Regulatory uncertainty returns as actors (fail to) innovate in existing regulatory settings. ► Industry events as discursive spaces for regulatory propaganda targeting allies, legislatures and publics ► Address regulatory uncertainty not only attending but also by canceling or founding new industry events ► Importance of national regulatory discourse even in globalized industries with strong international law

Market leadership through technology - Backward compatibility in the US Handheld Game Industry

The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility moderates this process of rebuilding an installed base. Using a structural model of the U.S. market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain market leadership.

Google & Apple’s Gale of Creative Destruction

Creative destruction is an economic theory of innovation popularised by the Austrian economist Joseph Schumpeter (2006). In this paper, Schumpeter’s theories are used to explain how radical technological innovations in information-intensive industries are influencing the erosion of traditional industry and market boundaries leading to the emergence of new competitive business models and strategies. Developments in digital technology has resulted in new technology shifts and market linkages resulting in dilemmas for the existing incumbents in traditional industries who find themselves increasingly trapped and victims of a new innovation logic (Abernathy et al. 1983, 1984, Kim et al. 1998, 2005). The new value innovation logic is being driven by entrepreneurs such as Page and Brin (Google) and Jobs (Apple) who are currently in the process of revolutionising the economic structures of many industries and creating new markets and organisational business models in a gale of creative destruction reminiscent of the theories developed by Sombart and Schumpeter (2006, 1975). This creation of new market models and their impact on established industries is explained further in the value chain evolution theory and its corollary sustaining innovation classification-scheme (Christensen et al. 2004). These theories reinforce the view that innovators, thinking in new and radical ways, provide sustainable new market developments and earn above the average revenues compared to incumbents, whose profit pools have eroded. This paper researches and analyses the impact that Google and Apple are having upon a broad range of information-intensive industries and the strategic options of the incumbent firms in the respective traditional industries in response to this radical change. Its purpose is to provide explanations of why and how radical innovators are able to redefine the rules of the market game leading to economic growth and development.

Joining the pack or going solo? A dynamic theory of new firm positioning

The question of new firm positioning in the marketplace and entrant's subsequent long-term performance lies at the heart of strategic entrepreneurship. We suggest a dynamic theory of new firm positioning that hinges on an important feature of the competitive environment: industry-level product diversity. The key argument is that industry-level product diversity drives imitation or differentiation at entry, which in turn shapes the exit likelihood of new entrants. So, in our theory, the extent of the new entrant's product portfolio overlap with all the industry's incumbents takes center stage. Support for our logic is obtained from the analysis of the life histories of 640 British motorcycle producers during the period 1899–1993.

Spin-offs are not the Only Story: Demand Start-ups in High-tech Industries

We investigate how the knowledge of de novo entrants in an industry affects the choice of entry and the survival rates of these firms. We make a novel distinction between spin-offs (new ventures with founders from the incumbent industry), demand start-ups (new ventures with founders from downstream markets/applications) and inexperienced start-ups (new ventures with founders from finance, research or consulting). Analyses of 1997-2007 data on start-ups from the semiconductor industry support our hypothesis that both spin-offs and demand start-ups have entry advantages compared to inexperienced start-ups. Furthermore, spin-offs have a higher likelihood of entry in standard product categories, and of survival in both standard and customized product categories, while demand start-ups have a higher likelihood of entry in both standard and customized products and of survival in customized products only. Such