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Session 1 - Changing competitivelandscape and incumbents
Session objectives
• How new technologies and/ business models change the competitive landscape in an
industry;
• Why incumbents (established companies in an industry) are badly hit by these changes;
• How incumbents can embrace new developments and stay competitive.
Summary
New technologies and business models change the competitive landscape in an industry by
redefining how customer value is created.
Companies need to adapt to changing value perceptions to remain competitive.
Inertia → a tendency to do nothing or to remain unchanged.
Due to
Managers` strategic frames are shaped by old ways of doing business which made
them successful so far.
Organizational processes evolved to run the current business efficiently are difficult
to change.
Investing in new resources to embrace the new technologies or business models
involves difficult trade-offs in resource allocation decisions.
➔Incumbents are too fixated on how they learned to create customer value, and struggle
when new technologies or business models require them to revise the way they create value
Sources of inertia:
Strategic frame rigidity
Routine rigidity
Resource rigidity
Strategic frames:
The mind-sets that shape how managers see the business world and how they believe
customer value should be created:
• What business are we in?
• How do we create value?
• Who are our competitors?
• Which customers are crucial?
For managers who have been successful by relying on their strategic frames to make
decisions, it is difficult to accept that they need a new mindset!
Organizational routines
1
,Established procedures to carry out organizational tasks
or
The way things work in an organization
• Organizations learn how to deal with situations and develop practices and procedures
• Over time these practices and procedures are perfected and become automated
responses to business situations ➔ so they become organizational routines
• Routines are useful because they enable efficient operations
• But they are also hard to change, or rigid!
Resource rigidity
• Incumbents tend to invest in resources that have been useful to develop a competitive
advantage in the past
• They hesitate investing in new resources that have become important as a result of new
technologies and business models
why?
• Failure to realize the importance of new resources
• Fear of losing current customers
• Constraints placed by investors and capital markets → Stocks of incumbents lose value
when they invest in new technologies
How can organizations overcome inertia?
How to embrace new disruptive tech without being constrained by:
Traditional ways of thinking
Rigid organizational routines
Resource investment patterns
→ completely eliminating organizational inertia is probably not possible, because the
sources of inertia are often the same as the sources of a company’s competitive advantage.
However, it is possible to reduce the negative impact of inertia by adapting to changing
business environments. Two points are important here
Separate the operations focusing on the new technology from the main
operations of the company
This will allow the new business unit to develop its own routines according to
the realities of a new technology.
Incorporate input from outside to operating focusing on the new technology
This will reduce the negative effects of rigids strategic frames and
organizational routines on decisions regarding how to commercialize the new
technology.
3 specific ways of implementing these suggestions
A new business unit with decision-making authority focusing on new technology
that works separately from the rest of the organization
Can shield the company of outdated routines and ways of thinking
Open innovations → getting input for innovation processes from outside of the
organization
Strategic alliances with other organizations to develop new products based on the
new technology.
Open innovation - why?
2
, Only internal R&D for innovation → old ways of thinking (inertia) → ineffective innovation →
lower competitiveness
Open innovation enables access to:
New products and business model ideas
New technological solutions
New commercialization capabilities
These in turn, lead to:
More efficient innovation
Faster time-to market
3
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