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Summary Changing Business Strategically
Full summary of all articles for the exam of Changing Business Strategically, part of the MSc Strategic Management at RSM
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Summary Changing Business StrategicallyModule 1
WHY GOOD COMPANIES GO BAD
Successful companies often fail to respond effectively to big changes in their environment, not due to
paralysis but due to active inertia=an organization’s tendency to follow established patterns of behavior—
even in response to dramatic environmental shifts.
1. Strategic frames become blinders. Strategic frames are the mental models / set of assumptions that
determine how managers view the business. Concentrate managers’ attention to what’s important, and see
patterns. Can prevent people from noticing new options.
2. Processes harden into routines. Routines prevent employees from considering new ways of working.
3. Relationships become shackles. The need to maintain existing relationships can hinder the development
of new products or focus on new markets.
4. Values harden into dogmas. Values no longer inspire and their unifying power degenerates into a
reactionary tendency when the values have turned into rigid rules and regulations.
Instead of rushing to ask, “What should we do?” managers should pause to ask, “What hinders us?”. By
trying to change everything all at once, managers often destroy crucial competencies, tear the fabric of
social relationships that took years to weave, and disorient customers and employees alike -> renewal is
better than revolution. Typically, outsiders are so quick to throw out all the old ways of working that they
end up doing more harm than good. Should look for new leaders from within the company but from
outside the core business (inside-outsiders). An alternative is to assemble management teams that leverage
the strengths of both insiders and outsiders.
UNBUNDLING THE STRUCTURE OF INERTIA: RESOURCE VERSUS ROUTINE RIGIDITY
Discontinuous change=external changes that require internal adaptation along a path that is nonlinear
relative to a firm's traditional innovation trajectory.
Resource rigidity=failure to change resource investment patterns. 1) Resource dependency: a firm's
external resource providers shape and constrain its internal strategic choices. Public equity markets place
performance requirements that constrain changes in business models to conform to positions that
originated at the time of their initial funding. If current customers are not interested in the initial
price/performance of emerging technologies. 2) Market power/incumbent reinvestment incentives: if
incumbent investment in a new technology increases the probability of market adoption in a way that
alters a firm's otherwise dominant position, the firm has strategic incentives not to invest and to reinvest in
their current market positions.
Routine rigidity=failure to change organizational processes that use those resources. Routines are repeated
patterns of response involving interdependent activities that become reinforced through structural
embeddedness and repeated use. Can be difficult to change, because they are self-reinforcing and are not
built to adapt to discontinuities. Exploitation processes can drive out exploration processes, making it
difficult to develop new capabilities.
Threat perception=a deep sense of vulnerability that is assumed to be negative, likely to result in loss, and
largely out of one's control. Without a perception of threat, there is considerable resource rigidity around
discontinuous change. A strong perception of threat helps overcome resource rigidity but simultaneously
amplifies routine rigidity. Threat perception produces 3 intermediate behaviors that amplify routine
rigidity: 1) contraction of authority (centralization) increases reliance on existing routines; 2) reduced
experimentation due to corporate control and quick resource commitment; and 3) focus on existing
resources to protect core business and replicating old product/business model. Routine rigidity can be
overcome by seeking advice from an outsider and creating a separate structure for the new business. A
desire to leverage the assets of the print business motivated many to stay integrated with their parent
newspaper organizations, involving outside influence will increase the likelihood that managers will
structurally differentiate a new venture from its parent organization. One reason for creating a
, differentiated structure is to decouple the motivation at the parent from the motivation at the venture
(threat for core business, opportunity for new business). Outside influence, structural differentiation, and
opportunity framing combine to relax routine rigidity in a new venture (and increase innovation).
DECODING THE ADAPTABILITY-RIGIDITY PUZZLE: EVIDENCE FROM PHARMACEUTICAL INCUMBENTS'
PURSUIT OF GENE THERAPY AND MONOCLONAL ANTIBODIES
Incumbents manage radical technological change through creation of new knowledge (i.e., invention) and
commercialization of the new knowledge (i.e., innovation/development).
1) Radical technologies can differ in how they conform to incumbents' existing business models, impacting
the extent to which the movement of research outputs toward development will be subject to inertial
pressures. A sustaining technological regime embraces a firm's existing model of generating revenues and
profits, a disruptive technological regime represents a case in which the new regime does not conform to
the existing business model of how incumbents generate revenue and appropriate profits.
2) Incumbents can invest in a radical technology through a variety of modes (internal research, external
research contracts, alliances, acquisitions). These modes represent unique combinations of who does
research and who is involved in the decision for subsequent development, and, hence, differ in the extent
to which they are shielded from inertial pressures.
Investments in in-house and contract research will less likely lead to development when the technological
regime is disruptive than when it is sustaining due to the cognitive frames and (reward) incentives of
managers as well as the resource allocation processes within incumbent firms. Additionally, product
development tends to be highly routinized in incumbent firms, and the development decisions following
internal research investments will likely be subject to routine rigidity when the radical technology does not
fit with the existing business model. The presence of alternative technological solutions to those within
disruptive technological regimes may require firms to make trade-offs in their resource allocation, which
may further diminish the prospects for initiating product development in such technologies. In-house
managers evaluate the commercial opportunities and decide whether and how to support them through
product development and commercialization initiatives for both in-house research and contract research.
Additionally, upon commercialization of licensed IP obtained through contract research, firms make royalty
payments to the licensor, which can further diminish their incentives to initiate product development for
the new technology with an unproven business model.
The development decisions following research alliances and acquisitions will be shielded from inertial
pressures because these decisions involve outside partners or personnel from start-ups and research
organizations (highly motivated to commercialize research), and tend to be structurally separated from the
internal incumbent organization -> investments in disruptive technology are more likely to lead to
development. Given that incumbents share risks and costs with external partners, they will be more likely
to pursue development despite the added uncertainty with respect to the business model. Acquirers
typically preserve the autonomy of the acquired start-ups as structurally separate units, helps ensure that
product development within the acquired units is not constrained by the incentives, routines, and cognitive
processes of the parent organization. Besides, the executives from acquired firms can be seen as outsiders.
Module 2
REINVENTING YOUR BUSINESS MODEL
A successful business model has a customer value proposition (should be very precise, solve one of the
most common barriers keeping people from getting particular jobs done: insufficient wealth, access, skill, or
time), profit formula (consisting of revenue model, cost structure, margin model, and resource velocity),
key resources and key processes.
3 steps to determine whether your firm should alter its business model:
1. Articulate what makes your existing model successful. For example, what customer problem does it
solve? How does it make money for your firm?
2. Watch for signals that your model needs changing. E.g. low-end disruptors, shifts in competition,
opportunity to address needs of large groups who are shut out of a market entirely because existing
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