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CBS – Manon OttenChanging a business strategically
Session 1 : Changing competitive landscape and incumbents
Sull DN. 1999. Why good companies go bad. Harvard Business Review 77(4): 42
When big changes in the environment arise à Many companies fail to adapt and respond
effectively
So why do good companies go bad ?
The problem is not inability to take action (paralysis), it is the inability to take appropriate
action.
Why ?
• Manager stubbornness
• Incompetence
• Active inertia
Active inertia is an organization’s tendency to follow established patterns of behavior, even in
response to dramatic environmental shifts. Managers are stuck in modes of thinking that brought
success in the past.
The four hallmarks of active inertia
The fresh thinking that led to a company’s initial success might become a rigid devotion to the
status quo. And when changes occur in the company’s markets, the formula that had brought
success instead brings failure.
Four things happen :
1) Strategic frames become blinders. Strategic frames are mindsets that shape how
managers see the world. They help managers to pay attention on what is important
among the jumble of raw data that crosses their desks and computer screens every
day.The frames also help managers see patterns in complex data by fitting the information
into an established model.
Even though they can help managers to see, they can also blind them. Indeed, by
focusing repeatedly on the same patterns, managers end up believing that there are
only certain things that matter. It actually prevents them to notice new opportunities
and paths.
,CBS – Manon Otten
2) Processes harden into routines. once a company has found a way that works particularly
well in new situations, it tends to lock into the chosen process and stop searching for
alternatives. At first, it helps to save time and energy, it increases productivity and
experience. However, when a process becomes a routine, many people fail to adapt when
it is need or fail to look for alternatives.
3) Relationships become shakles (chains). In order to succeed, every company must build
strong relationships. When conditions shift, however, companies often find that their
relationships have turned into shackles (=chains) limiting their flexibility and leading them
into active inertia.
4) Values harden into dogmas. Values are deeply held beliefs that unify people within a
company. However, the risk is that values can become rigid rules over time. When this
happens, value no longer unifies and become a constraint.
But is failure an inevitable consequence of success?
Successful companies can avoid, or at least overcome, active inertia.
They need to realize that action alone solves nothing. In fact, it often makes matters worse.
Instead of rushing to ask, “What should we do?” managers should pause to ask, “What hinders
us?”
However, it’s better for managers to respect the company’s heritage. They should build on the
foundations of the past even as they teach employees that old strategic frames, processes,
relationships, and values need to be updated to meet new challenges.
Gilbert CG. 2005. Unbundling the Structure of Inertia: Resource Versus Routine
Rigidity. Academy of Management Journal 48(5): 741-763.
Incumbent inertia = the inability to enact internal change in the face of significant external
change.
Incumbent inertia can be divided into two categories :
1) failure to change resource investment patterns à Resource rigidity
2) failure to change the organizational processes that use those resource investments à
Routine rigidity
resource rigidity stems from an unwillingness to invest, while routine rigidity stems from an in-
ability to change the patterns and logic that underlie those investments.
,CBS – Manon Otten
The effect of threat perception on inertia
Threat perception is defined as a deep sense of vulnerability that is assumed to be negative,
likely to result in loss, and largely out of one’s control.
Propositions
Threat perception on resource rigidity
Proposition 1a. The perception of an imminent threat in the face of discontinuous change
enables managers to overcome sources of resource rigidity that stem from resource
dependence.
Proposition 1b. The perception of an imminent threat in the face of discontinuous change
enables managers to overcome sources of resource rigidity that stem from incumbent position
reinvestment incentives.
à confirmed negative relationship between threat perception and resource rigidity. The higher
the threat perception, the less rigid with resources. threat helps overcome resource rigidity.
Threat perception on routine rigidity
Proposition 2a. Perception of an imminent threat leads to a contraction of authority that
amplifies routine rigidity.
Proposition 2b. Perception of an imminent threat leads to a reduced level of experimentation
that amplifies routine rigidity.
Proposition 2c. Perception of an imminent threat leads to a focus on existing resources that
amplifies routine rigidity.
à Supported
Threat can actually increase routine rigidity in 3 different ways :
• Contraction of authority : Increased centralization
• Reduced experimentation : less willing to go for alternatives
• Focus on existing resources : Preserving existing resources rather than investing in new ones
, CBS – Manon Otten
Outsiders (outside recommendations), Structural Differentiation (new venture), and Threat
Perception
Proposition 3. Involving outside influence when deciding how to respond to discontinuous
change will increase the likelihood that managers will structurally differentiate a new venture
from its parent organization.
Proposition 4. Structural differentiation can help decouple threat perception in a parent from an
opportunity
Proposition 5. Outside influence, structural differentiation, and opportunity framing combine to
relax routine rigidity in a new venture.
à Supported
Conclusion
In conclusion, the data shows that threat perception is a powerful interpretive force that affects
firm response to discontinuous change. And yet this influence is very different when one
considers two distinct types of inertia: resource and routine rigidity.
Kapoor R, Klueter T. 2015. Decoding the Adaptability–Rigidity Puzzle: Evidence
from Pharmaceutical Incumbents’ Pursuit of Gene Therapy and Monoclonal
Antibodies. Academy of Management Journal 58(4): 1180-1207.
This study explores how incumbent firms manage radical technological change by drawing on
the important distinction between invention and innovation.
• Research efforts toward creation of new knowledge = invention
• Efforts toward commercialization of new knowledge = innovation
Focus on incumbents’ product development decisions following their research investments in a
radical technology
Incumbent Inertia with Respect to Product Development
In-house research
Incumbent firms are often aware of the radical technology and respond to the threat by
undertaking in-house research, but those research investments may not easily translate to
subsequent product development when the technological regime is disruptive.
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