Incumbent Strategies Research Articles

Pursuing the New While Sustaining the Current: Incumbent Strategies and Firm Value During the Nascent Period of Industry Change

This study considers the nascent period of industry change when the prevalent business model is being threatened by a new model, but there is significant uncertainty with respect to whether and when the new model will dominate. We focus on the challenge of incumbents pursuing both models simultaneously during the nascent period, and the implications on their firms’ valuations. Our theory is premised on the adjustment costs incurred by incumbents associated with the sharing of resources across business models and the conflict between managers vying for limited resources. While firms’ assets and competitive environments are key drivers of their value, we argue that they also impact adjustment costs. Evidence from the U.S. electric utility industry, which is undergoing a change from a centralized to a decentralized model, offers strong support for our arguments. The greater the level of incumbents’ assets that are specific to the existing model, and the greater the level of competition that they face, the lower are their firms’ valuations when investing in the new model relative to when investing in the existing model. Hence, ironically, those incumbents potentially most threatened by the change seem to be least rewarded for their efforts to renew themselves. However, pursuing the new model via alliances can help mitigate adjustment costs. The study uncovers the challenges that incumbents face as they pursue the new model in tandem with the existing dominant model, and helps explain why some incumbents may successfully navigate the changing industry landscape while others may stumble.

Pursuing the New While Sustaining the Current: Incumbent Strategies and Firm Value During the Nascent Period of Industry Change

This study considers the nascent period of industry change when the prevalent business model is being threatened by a new model, but there is significant uncertainty with respect to whether and when the new model will dominate. We focus on the challenge of incumbents pursuing both models simultaneously during the nascent period, and the implications on their firms’ valuations. Our theory is premised on the adjustment costs incurred by incumbents associated with the sharing of resources across business models and the conflict between managers vying for limited resources. While firms’ assets and competitive environments are key drivers of their value, we argue that they also impact adjustment costs. Evidence from the U.S. electric utility industry, which is undergoing a change from a centralized to a decentralized model, offers strong support for our arguments. The greater the level of incumbents’ assets that are specific to the existing model, and the greater the level of competition that they face, the lower are their firms’ valuations when investing in the new model relative to when investing in the existing model. Hence, ironically, those incumbents potentially most threatened by the change seem to be least rewarded for their efforts to renew themselves. However, pursuing the new model via alliances can help mitigate adjustment costs. The study uncovers the challenges that incumbents face as they pursue the new model in tandem with the existing dominant model, and helps explain why some incumbents may successfully navigate the changing industry landscape while others may stumble.

Brand imitation: A dynamic-game approach

Brand imitation is a common practice that can take different forms, i.e., legal copying, as in the case of clones and knockoffs, or illegal, in the case of counterfeiting. We consider a scenario in which a producer enters the market with a “similar” product to the incumbent's and we assess the impact of this entry on the incumbent's strategies. A distinctive feature of our model is that it allows for brand dilution, which means that the original brand suffers due to imitation, and for brand enhancement, when the availability of the imitation product actually promotes the original brand.We characterize and contrast the solutions for the scenario with entry and the benchmark case where no entry occurs, in a fully dynamic context and we examine the effect of a change in the date of entry on the entrant's profit.

Political Storytelling on Instagram: Key Aspects of Alexander Van der Bellen’s Successful 2016 Presidential Election Campaign

This article addresses the strategic use of Instagram in election campaigns for the office of the Austrian Federal President in 2016. Based on a comprehensive visual analysis of 504 Instagram posts from Green-backed but independent presidential candidate Alexander Van der Bellen, who resulted as winner after almost one year of campaigning, this contribution reconstructs key aspects of digital storytelling on Instagram. By identifying relevant image types central to the self-representation of the candidate, this article shows how a politician makes use of a digital platform in order to project and manage desired images. The salience of image types allows for the reconstruction of underlying visual strategies: (1) the highlighting of the candidate’s biography (<em>biographical strategy</em>), (2) the presentation of his campaign team (<em>team strategy</em>), and (3) the presentation of the candidate as a legitimate office holder (<em>incumbent strategy</em>). The article thus sheds light on visual aspects of digital storytelling as relevant factor of political communication.

Incumbent capability enhancement in response to radical innovations

Schumpeterian market disequilibrium marked by entrepreneurial entry and incumbent exit has long held an important place in management literature. The extant literature has overwhelmingly championed the newcomer, despite incumbents' obvious advantages in resources, experience and market knowledge. The current research provides evidence for the effectiveness of the incumbent's strategy of capability enhancement (along an established technological trajectory) while responding to radical technological innovations. We develop a cognitive process model that integrates managerial cognition with capability development and deployment views, depicting the dynamics of the incumbent's capability enhancement process. We analyze the cognitive drivers of organizational actions in all stages (rigidity, triggering event, and capability renewal) and elucidate the role of top management cognition in the processes of detecting and correcting errors in a strategic course of action. We ground our model in the case of a cork-stopper industry veteran's decline as corks ceded ground to screw tops and other stoppers in the wine industry. How a major company fought back in response to the emergence of these, in the industry context, radical technological innovations, provides the basis for our narrative. The proposed theoretical model contributes to literature on technology management (with regard to incumbent strategies in response to radical innovation threats) as well as the role of cognition in strategy (providing an explanation of the cognitive underpinnings of capability development).

Innovation and recurring shifts in industrial leadership: Three phases of change and persistence in the camera industry

This study examines factors underlying three phases of change or persistence in industrial leadership in the sector of interchangeable-lens cameras over the past century. During this period there were two major phases of leadership change, both associated with the emergence of innovations involving major discontinuities in the industry’s core technologies. First, Japan won market leadership from Germany in the mid-1960s after commercializing the single-lens reflex (SLR) camera that replaced the previously dominant German rangefinder camera. Second, in the late-2000s, Japanese latecomer firms and a Korean firm developed Mirrorless cameras, which allowed them to capture the majority of market share from the incumbent Japanese leaders. We also examine the long period (about 60 years) between these two phases of change, during which leading Japanese firms were able to sustain their market leadership despite the digital revolution from the 1980s to 1990s. This paper explores the factors influencing these contrasting experiences of change and persistence in industry leadership. The analysis integrates several aspects of sectoral innovation systems – i.e., windows of opportunity associated with technology, demand, and institution – as well as the strategies of incumbents and latecomer firms. The conclusions highlight the complex and diverse combinations and importance of the factors that help explain the patterns of shifts in leadership.

Innovation at the end of the life cycle: discontinuous innovation strategies by incumbents

This paper focuses on the strategies of incumbents that seek to develop discontinuous innovations within the boundaries of a mature innovation system. Mature innovation systems do not provide support for these discontinuous innovations. This article focuses on exploring why incumbents in these setting engage in discontinuous innovation and what strategies they deploy to become successful. We analyse 10 cases of incumbents developing discontinuous innovations in the mature Dutch greenhouse horticulture sector. The results of our analysis show that the incumbents are primarily triggered by dissatisfaction with the current way of doing business and that the existing institutions are the main barrier to discontinuous innovation. In response, the incumbents try to circumvent the existing innovation system in their innovation process, but when successful also engage in changing the existing innovation system. This paper contributes to the understanding of the role of incumbents as source of discontinuous innovation in mature innovation systems.

Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

We investigate the impact of consumer search and competition on pricing strategies in Germany’s electricity retail. We utilize a unique panel dataset on spatially varying search requests at major online price comparison websites to construct a direct measure of search intensity and combine this information with zip code level data on electricity tariffs between 2011 and 2014. The paper stands out by explaining price dispersion by differing pricing strategies of former incumbents and entrant firms, which are distinct in their attributable shares in informed versus uninformed consumers. Our empirical results suggest causal evidence for an inverted U-shape effect of consumer search intensity on price dispersion in a clearinghouse environment as in Stahl (1989). The dispersion is caused by opposite pricing strategies of incumbents and entrants, with incumbents initially increasing and entrants initially decreasing tariffs as a reaction to more consumer search. We also find an inverted U-shape effect of competition on price dispersion, consistent with theoretical findings by Janssen and Moraga-Gonzalez (2004). Again, the effect can be explained by opposing pricing strategies of incumbents and entrants.

The Dilemma of Incumbents in Sustainability Transitions: A Narrative Approach

In the context of the larger sustainability discourse, “sufficiency” is beginning to emerge as a new value throughout Western societies, and the question asked in this article is: Can we observe and conceptually identify opportunities to link successful business strategies of incumbents to principles of sufficiency? Thus, how feasible is sustainable entrepreneurship for incumbents? In this paper, a conceptual approach is developed combining insights from sociology, transition research, management and sustainable entrepreneurship research with a focus on narratives as a translation mechanism in situations where tensions emerge between corporate narratives and unexpected societal trends, e.g., the emergence of sufficient lifestyles. It will be shown that even though these are still a niche phenomenon, a focus on corporate narratives is an important element in understanding the role of incumbents in transitions to sustainability.

Institutions that Build and that Bind: Incumbent Strategies in the Battle over Renewable Energy

Economic markets are embedded in a broader social context, shaping firm behavior and increasing the importance of relationships with nonmarket actors, such as civil society and the state. Firms’ st...

How to Keep the Playing Field Tilted: Mass Organization and the Durability of Competitive Authoritarianism

What factors explain the durability of competitive authoritarian regimes? Extant scholarship downplays incumbent strategies of tilting the electoral playing field, at least partly because the effectiveness of particular strategies is difficult to gauge. Exploiting unusual survey data and an original dataset containing information on 18,037 regime-affiliated Communal Councils, I examine the effects of a common incumbent strategy whose effects remain largely unexplored - the formation of regime-affiliated mass organization - on the incumbent vote in Venezuela's 2006 election. The presence of mass organization has a strikingly large effect on incumbent support. The strength of this effect, however, varies greatly depending on whether organizations distribute patronage. These findings demonstrate that mass organization can play a critical role in competitive authoritarian endurance and suggest the utility of integrating this strategy into explanations of regime change. The findings also suggest that regimes reliant on mass organization may be particularly susceptible to economic shocks.

Business Strategies of Incumbents in the Market for Electric Vehicles: Opportunities and Incentives for Sustainable Innovation

AbstractThis paper focuses on the relation between large car manufacturers’ incentive and opportunity to innovate and their electric vehicle (EV) business strategies. We analyze how environmental regulation and the firm's incentive (measured by net income) and opportunity to innovate (measured by EV asset position, determined from a combination of patent, partnership and prototype data) affected EV sales over the period 1990–2011. During the EV's R&D period in the 1990s, large car manufacturers that were regulated by the full zero emission vehicle mandate developed a significantly stronger EV asset position, but did not sell significantly more EVs than their rivals. During the EV's commercialization period (2007–2011), large car manufacturers with both a strong incentive and a strong opportunity to innovate sold significantly more EVs. Based on these results, the paper offers a typology of business strategies, several managerial implications, and recommendations for policy makers to stimulate sustainable development. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment

Bharadwaj Aushadalay

This case provides an opportunity to identify and discuss issues in sustenance of an incumbent's strategy in the changing environment. The context is the practice of Nadi Nidan (pulse diagnosis) and treatment of disorders based on this according to Ayurveda, the ancient system of Indian medicine. It describes the functioning of Bharadwaj Aushadhalay, an Ayurveda clinic run by Vaidyaji since 1955 and presents the history of the clinic, the process by which Vaidyaji learnt the practice of Nadi Nidan, the profile of the patients, the mode of treatment, restrictions imposed by Vaidyaji on the patients, their response and competitive pressures on the system. The case also provides a brief sketch of Ayurveda, its principles, currents trends in the education and research in Ayurveda, and recent advances in diagnostic tools and techniques. The case can be used in courses of Strategic Management in the module on Strategies for Sustainable Competitive Advantage and Knowledge Management.

R&D strategies and entrepreneurial spawning

This paper analyzes how different R&D strategies of incumbent firms affect the quantity and quality of their entrepreneurial spawning. When examining entrepreneurial ventures of ex-employees of firms with different R&D strategies, three things emerge: First, firms with persistent R&D investments and a general superiority in sales, exports, productivity, profitability and wages are less likely to generate entrepreneurs than firms with temporary or no R&D investments. Second, start-ups from knowledge intensive business service (KIBS) firms with persistent R&D investments have a significantly increased probability of survival. No corresponding association between the R&D strategies of incumbents and survival of entrepreneurial spawns is found for incumbents in manufacturing sectors. Third, spin-outs from KIBS-firms are more likely to survive if they start in the same sector, indicating the importance of inherited knowledge. These findings suggest that R&D intensive firms are less likely to generate employee start-ups, but their entrepreneurial spawns tend to be of higher quality.

Barriers to entry and market strategy: a literature review and a proposed model

PurposeThe purpose of this paper is to review previous research and to propose a model for the impact of barriers to entry on the market strategy of an entrant firm, where product/market scope and product differentiation are central strategy components. The paper asks, what is the impact of barriers on market strategies of entrants? Are early and late entrants affected in different ways?Design/methodology/approachA model and propositions are developed‐based on a review of previous research. The model applies the contingency perspective and company cases exemplify the model.FindingsIt is proposed that a firm that enters a market late and faces extensive barriers would choose a broader product/market scope and differentiate its products to a larger extent than an early entrant. It is also proposed that incumbents' market strategies indirectly affect the market strategy of an entrant firm as incumbents' market strategies interact with barriers, and the effects are due to entry timing.Research limitations/implicationsThe study contributes theoretically as it extends current knowledge of the impact of barriers to entry on strategy. Management of entrant firms are advised to strive for a fit between barriers and market strategy and consider the propositions.Originality/valueThe model and the propositions concern barrier effects on two key components of the market strategy of an entrant firm: product/market scope and product differentiation. Another important value is that the model accounts for interactions between incumbent strategies and barriers to entry, and effects on the market strategy of an entrant firm.

Sustaining Authoritarianism in the Middle East and North Africa

Why the persistence of authoritarianism in the Arab world? Leading approaches to this question highlight the importance of institutional arrangements for choices made by political activists and elites that served to perpetuate authoritarianism.1 These approaches tend to emphasize how incumbent elites utilize institutional arrangements to disrupt the formation of coalitions that threaten their hold on power. Incumbent strategies include blunt repression by highly developed state security forces, winner-take-all electoral systems that hinder the formation of pluralism from a single-party base, state limiting of opposition political party activities and funding, and divide-and-rule tactics that favor moderate groups and produce impotent forms of multiparty politics. By highlighting the importance of various in stitutional arrangements for choices made by political activists and elites in the Arab world, all of these explanations move beyond much of the gen eral literature on democratic transitions, which highlights the autonomy of actor choices during critical junctures and minimizes the analytical weight

Measuring the degree of economic opening in the German electricity market

Barriers to entry can cause differences between “legal” and “economic” degrees of market openness. The German electricity market is legally 100% open. The industrial segment is also close to being economically 100% open. The general pattern indicates a mature market. However, the domestic segment is economically only 61% open. Possible explanations of this difference from its legal openness are mismatch of regulation and market strategies of incumbents. For the total market, the economic degree of market openness is 89% based on volumes. It is 61% based on customer numbers, reflecting the fact that the vast majority of customers are domestic.

Paragons of virtue? Competitor entry and the strategies of incumbents in the U.S. local telecommunications industry

We investigate whether the presence of new competitors has influenced the behaviour of U.S. incumbent local exchange carriers (ILECs) with respect to pricing, advertising and the extent of diversification that they engage in. This issue is explored empirically, using data for the major local exchange carriers for the years 1994 to 1998. The period straddles periods of both absence and presence of competition in the industry, since the Telecommunications Act of 1996 has opened hitherto closed markets to competitive local exchange carriers (CLECs). While a recent Federal Communications Commission (FCC) report on local competition documents vigorous entry during the past years, the market share of the entrants is insubstantial. Our results indicate that the threat provided by market entrants has notably influenced the strategic behaviour of ILECs. The findings show that the incumbent U.S. local operators, particularly the larger ILECs, aggressively protect their profit streams from traditional business. The evidence demonstrates that the ILECs have responded to the Telecommunications Act 1996, and to the threat of market entry it has created, through entry deterrence. This strategic behaviour has been successful in providing ILECs with protection of their monopolistic markets so far.

Entrant cannibalism and incumbent power: the effects of technology and regulation on German xDSL markets

This paper examines the German DSL (digital subscriber line) markets. Two sub-markets can be differentiated technologically and economically, the market for ADSL (asymmetric digital subscriber line) and the market for SDSL (symmetric digital subscriber line). When both markets came into being in the late nineties, the national regulatory authority, RegTP (Regulation Authority for Telecommunication and Postal Services), tried to provide conditions enabling competition. In 2002, the ADSL market was dominated by a quasi monopoly of the incumbent (Deutsche Telekom, DTAG), while the SDSL market was highly competitive and entrants cannibalized each other in a price war. This paper describes the technological and economic background in order to explain how regulatory measures and incumbent strategies led to the current situation. The DTAG used pricing and various other obstructive measures to erect a quasi ADSL monopoly and to foster entrant cannibalism among SDSL providers. Due to technological complexity and the monopolistic bottleneck character of local loops, RegTP has not been able to implement effective counter measures. The number of xDSL (ADSL and SDSL) providers in Germany will continue to decrease.

Paragons Of Virtue? Competitor Entry and the Strategies of Incumbents in the US Local Telecommunications Industry

The Telecommunications Act of 1996 has opened hitherto closed markets to competitive local exchange carriers (CLECs). While a recent Federal Communications Commission (FCC) report on local competition documents vigorous entry during the past years, the market share of the entrants is insubstantial. We investigate whether the presence of new competitors influences the behaviour of incumbent local exchange carriers (ILECs) with respect to pricing, advertising and the extent of diversification that they engage in. This issue is explored empirically, using data for the major US local exchange carriers for the years 1994 to 1998. Our results indicate that the threat provided by market entrants has notably influenced the strategic behaviour of ILECs. The findings show that the incumbent US local operators, particularly the larger ILECs, aggressively protect their profit streams from traditional business. The evidence demonstrates that the ILECs have responded to the Telecommunications Act 1996, and to the threat of market entry it has created, through entry deterrence. This strategic behaviour has been successful in providing ILECs with protection of their monopolistic markets so far.