Why Incumbents Fail (with Radical Innovation)

[Based on Organizing for Radical Innovation by Gina Colarelli O’Connor, Richard DeMartino; The Performance of Incumbent Firms in the Face of Radical Technological Innovation by Charles W. L. Hill, Frank T. Rothaermel; Structural approaches to organizing for radical innovation in established firms by Ana Luiza De Araújo Burcharth and John Parm Ulhøi]

Radical innovation is a change in the way a problem is solved, as opposed to an incremental improvement. Often radical innovation faces challenges in established organizations and is seen to come from new organizations. Here I will explore some how incumbent organizations can be successful. There are three main reasons incumbents fail: economic, organization and strategic.

Economic inflexibility is about lack of incentives to invest in new things. An organization can have a fear of altering the market conditions in which they are currently successful or cannibalizing existing products. Here the incumbent organization is focused on maximizing their current economic investment rather than exploring new ones. We saw this with Nokia not long ago when it continued its focus on hardware manufacturing and lost market strength due to iOS and Android, leaving Nokia to eventually be bought by Microsoft and used for the Windows Phone platform.

Organizational inflexibility is about lack of ability to change the way things are currently done in the organization. Here core capabilities because core rigidities. Incumbents become path dependent, where they are locked in certain trajectories. There may be shared cultural beliefs, powerful politics and standardized routines, which cause the organization to get stuck in one way. It is important to continually reevaluate if the structure of the organization is suitable for future growth and changes rather than get stuck focusing solely on immediate performance improvements. For Nokia, it may have been that their way of doing things became the way of doing things and they weren’t able to change that until it was too late.

Strategic inflexibility is about commitment to value networks. Here an organization gets stuck in its commitment to serving a certain customer and working with certain suppliers/partners in their value chain. In Nokia’s case this certainly would have been their suppliers and partners.

Organizations who want radical innovation do no have to do so outside the organization. In fact, doing so inside the organization opens the radical innovation to the many resources the organization already has. Organizations will need to become more interdisciplinary and/or interfunctional to promote the kind of culture, structure and knowledge sharing conducive toward innovation.

Incumbent organizations do not have to fail in the face of radical innovation; they simply have to not get stuck in their way of doing things. Easier said then done.

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