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Short summary articles & lectures Changing business strategically
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Short summary articles & lectures Changing business strategically
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Session 1 - changing competitive landscape and incumbents→ New technologies and business models / environmental shifts change the competitive
landscape in an industry by redefining how customer value is created (create new needs
/ expectations - change value perception).
Inertia: a tendency to do nothing or to remain unchanged / persist in its current trajectory
(grows from success), too fixated on how they learned to create customer value
● Managers` strategic frames (the mindsets that shape how managers see the
world - set of assumptions) are shaped by old ways of doing business which made
them successful so far (how do we create value, who are our competitors), seduce
them into believing these are the only things that matter = peripheral vision
● Organizational processes evolved to run the current business efficiently are difficult
to change → routine rigidity. The way things are done/procedures to carry out tasks
- Deal with situations and develop practices and procedures
- Practices & procedures become automated responses → organizational routines
- Routines enable efficient operations - quickly respond (rigidity makes them useful)
- But also hard to change, or rigid in contrast to productivity/experience/coordination
● Investing in new resources to embrace the new technologies or business models
involves difficult trade offs in resource allocation decisions → resource rigidity:
tend to invest in resources developed competitive advantage, hesitate investing in
new resources that have become important as a result of new technologies and
business models, fear losing current customers and investors/capital markets.
How to overcome inertia = how to embrace the new technology or business model without
being constrained by: strategic frames, routine rigidity and resource rigidity:
1. Separate the operations → A new business unit with decision making authority
focusing on new technology or business model that works separately.
2. Incorporate input from outside focusing on the new technology or business model
➔ Open innovation: getting input for innovation processes from outside organization
➔ Strategic alliances to develop new products based on new technology/ business model
Sull DN. 1999. Why good companies go bad. Harvard Business Review 77(4): 42-+.
Competitors new products, technologies, or strategies → sales (customers) and profits
erode, best workers leave, stock valuations (investors) tumble, (competitors stop imitating).
Origin of success: fresh competitive formula = distinctive combination of strategies,
processes, relationships, and values sets them apart. Brought success, now brings failure
Besides from strategic frames become blinders and processes become rigid routines:
- Relationships become shackles (belemmeringen): limit flexibility hinder developing
new products and focusing on new markets
- Values harden into dogmas (onbetwistbaar): shared beliefs about culture, not inspire
→ “What hinders us?” instead of “What should we do?”
Active inertia exists because the pull of the past is so strong. Breaking that pull through a
radical act of organizational revolution (outsiders) → people disoriented and disenfranchised
, and unprepared to enter the future. Respect heritage and build on its foundation. → Look for
new leaders from within the company but outside the core business = inside-outsiders.
Gilbert CG. 2005. Unbundling the Structure of Inertia: Resource Versus Routine
Rigidity. Academy of Management Journal 48(5): 741-763.
Reasons for resource rigidity: why underinvest/unwilling to invest (motivation to respond):
- Resource dependency theory: external providers shape and constrain internal choices
- Market power: if entry new technology blocked, incentive reinvest current market position
Reasons routine rigidity: patterns response reinforced through structural embeddedness
= inability to change the patterns/logic underlie investments, processes that use investments
- Processes tightly aligned environment self-reinforcing + not built to adapt to discontinue
- Exploitation can drive out exploration processes, making it difficult to develop capabilities
- Motivation design routine separated from executing routine - ingrained cognition (tacit)
Effect of threat perception on inertia in terms of discontinuous change (external changes
that require internal adaptation along nonlinear path relative to traditional innovation traject):
➔ Strong perception of threat helps overcome resource rigidity (even if no demand)
but simultaneously amplifies routine rigidity = divergent behaviour.
Behaviours that increase inertia in terms of routine rigidity in case of high threat perception:
contraction of authority, reduced experimentation, focus on existing resources.
→ Outside influence, structural independence, and opportunity orientation (external
networks) combine to relax routine rigidity and encourage innovation
Structural autonomy allows threat and opportunity cognition to have different impacts on
different parts of an organization simultaneously. Threat framing overcomes resource rigidity
in the parent, while opportunity framing eases routine rigidity in the autonomous venture.
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.
Investments in radical technological regimes can facilitate adaptation, or may get voided
by forces of inertia. Distinction invention (research efforts toward creation of new
knowledge) and innovation (development commercialization of the new knowledge).
Incumbents can successfully adapt to radical regime if they invest in new technologies and
possess complementary assets that are necessary for the technology’s commercialization.
Adaptability-rigidity puzzle: two contingencies that affect the likelihood that a firm’s
research investments in a radical technological regime will lead to product development
1. Radical technological regimes: → sources inertia when follow research investments:
- Sustaining technological regime: new technological developments that allow
companies to create customer value with their existing business models
- Disruptive technological regime not conform existing business models of revenue
generation /appropriate profits → incorporating inputs from external sources (alliances)
2. Organizational modes of incumbent’s research investments
, - Inhouse- research investments: internal research → decision managers to support
depends on: incentive structures of rewarding; cognitive frames commercial
opportunities; and firms internal resource allocation
- External knowledge from entrants and research organizations → shielded from
inertia, more likely to lead to development
● Contract research: invention outside boundaries, development decisions internal
● Alliances: partners pooling resources to discover new technological solutions,
decisions regarding product development driven by incumbent + outside partners
● Acquisitions: internalize and build on new knowledge; acquirers preserve
autonomy start-ups → product development not constrained by parent; outsiders
no cognitive constraints; strong incentive commercialize research output despite
lack conformance with incumbent’s prevailing business model
➔ Hypothesis 1: in the face of radical technological change, investments in internal
research will less likely lead to development when the radical technological regime is
disruptive than when it is sustaining.
➔ Hypothesis 2: “” contract research will less likely lead to development when the
radical technological regime is disruptive than when it is sustaining.
➔ Hypothesis 3: for investments in research contracts, those in research alliances will
more likely lead to development when the radical technological regime is disruptive.
➔ Hypothesis 4: for investments in internal research, those in technology acquisitions
more likely lead to development when the radical technological regime is disruptive
Locus of incumbents’ inertia not necessarily at initial stage of research but rather at the later
stage of development → research alliances/acquisitions help firms overcome that inertia
Session 2: Business model innovation
Business model: architecture of how firm creates and captures value by offering customers
a solution to get a job done = important customer need/problem, activity system & parties.
New BM maintain/improve competitive advantage, circumstances that require BM change
- To seize an opportunity: potential customers currently not served (price/complicated);
needs current customers can be better addressed - imperfect solution no job-to-be-done
focus; new technologies bring new possibilities to serve current and potential customers
- To respond to competitors: who acted - shift basis competition; fend off low-end disrupt
Reason business model transformation / interlocking elements create/deliver value:
- New value proposition: a new offering to the customer that goes beyond current
solutions in at least one meaningful dimension for doing the customer “job”:
● Price: cheaper solution (low cost airlines)
● Utility: greater satisfaction (greater selection of movies songs etc.)
● Convenience: easier access (home delivery or digital solutions)
- New profit formula: how the company creates value for itself while providing value
to customer, does the new value proposition imply a change in:
● Revenue items: per-use fee; subscription fee → model = price x volume
● Cost items: suppliers; inventory; R&D, structure = (in)direct costs
● The logic for making profits: know the customer - what appreciate & pay
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