Summary articles Marketing &
Innovation
1. Unraveling the Process of Creative Destruction: Complementary Assets and Incumbent
Survival in the Typesetter Industry – Tripsas
This paper argues that the ultimate commercial performance of incumbents vs. new
entrants is driven by the balance and interaction of three factors: investment, technical
capabilities, and appropriability through specialized complementary assets. In the typesetter
industry, specialized complementary assets played a crucial role in buffering incumbents
(=gevestigden) from the effects of competence destruction, and an analysis that examined
investment or technical capabilities in isolation would have led to misleading results. This
work thus highlights the importance of considering multiple perspectives when examining
the competitive implications of technological change.
Introduction. Why do incumbent firms sometimes fail drastically in the face of radical
technological change, yet other times survive and prosper? The data of this paper traces the
nature of technological change, firm responses, and product market performance. Two
contrasting perspectives on the process of creative destruction are present in the literature.
The first paints a picture of relatively fluid industries where new entrants innovate with
technologically superior products and displace incumbent firms, only to have the cycle
repeated. In contrast, other research focuses on the advantages that established firms have
over new entrants. For example, that when incumbents possess critical specialized
complementary assets, new entrants are unable to contract for those assets may be at a
disadvantage, despite their potential technological superiority, and the scale and scope of
large firms is identified as substantial advantages.
This paper sheds light on these two perspectives by breaking out three crucial factors
that together influence the ultimate commercial performance of incumbents and new
entrants: (1) investment in developing the new technology; (2) technical capabilities; and (3)
the ability to appropriate the benefits of technological innovation through specialized
complementary assets. The balance and interaction among these three factors determine
whether incumbents or new entrants are more successful in the face of competence-
destroying technological change. It is found, first, that lack of investment was not
responsible for incumbent failure. Incumbents invested significant amounts in the
development of each new generation of technology. However, while incumbents invested in
developing new, competence destroying technology, the technical performance of the
products they developed in each new generation of technology proved to be significantly
inferior (=minderwaardig) to the performance of new entrant products. In line with previous
research, organizational architectures, routines, and procedures fine-tuned to fit with the
prior generation of technology appear to have handicapped incumbents. Although
incumbents products were technologically inferior in all three competence-destroying
generations of technology, incumbents were displaced by new entrants in only one of these
three generations. When specialized complementary assets unavailable to new entrants
retained (=behouden) their value despite a technological shift, incumbents maintained their
market position in the new generation of technology.
,Literature review. The literature (investment behaviour) suggests that when innovation is
radical, in the sense that it replaces rather than competes with the old technology (i.e., the
monopolist’s post-innovation price is less than the pre-innovation cost), then incumbent
monopolists have less incentive to invest in the new technology than new entrants. In
contrast, when innovation is incremental (i.e., it competes with the existing technology) then
incumbents have greater incentives than new entrants to invest. An alternative explanation
for incumbent failure to invest in new technology is that established firms fail to invest in
developing radically new technology as a result of firms’ resource allocation mechanisms.
Since resource allocation in established firms is guided by the needs of existing customers,
when radically new technologies are ‘disrupting’ in that they target emerging markets
instead of addressing the needs of existing customers, then established firms quite rationally
focus their research efforts away from the new technology. If new technology is ‘sustaining’
in that it meets the needs of existing customers, then incumbent firms should rationally
invest in the technology.
Technological progress in an industry is generally characterized as passing through
long periods of incremental innovation punctuated by periods of radical change. During an
incremental period, when technological innovation builds upon the capabilities of
established firms, they have an advantage over new entrants. Established firms develop
organizational structures, routines, and procedures that enable them to efficiently process
information. When faced with a radical, competence-destroying technological shift,
however, established firms are often at a disadvantage. Core competencies during a period
of incremental innovation can become ‘core rigidities’, making it difficult for a firm to adapt.
Finally, years of incremental innovation may result in selection-induced inertia, as only firms
with stable structures and activities survive; such firms will find change difficult. As a result,
competence-destroying technological discontinuities often result in inferior technical
performance on the part of established firms. In contrast, it is found that in the disk drive
industry established firms did not have difficulty developing new technology. Incumbents
had the resources and ability to develop new capabilities. These incumbents have large
research labs. It is also possible that these incumbents possessed ‘dynamic capability’; the
capacity of a firm to renew, augment, and adapt its core competencies over time.
When incumbents experience a technological disadvantage in the face of
competence-destroying technological change, the extent to which that disadvantage
translates into a commercial disadvantage may depend upon the other assets possessed by
established firms. Teece lays out a framework for identifying when the assets of large,
established firms confer them with an advantage he uses to label complementary assets to
describe factors such as specialized manufacturing capability, access to distribution
channels, service networks and complementary technologies. Generic, specialized, and
cospecialized complementary assets are distinguished. Whereas generic assets have multiple
applications and can be easily contracted for, specialized and cospecialized assets are useful
only in the context of a given innovation. If a firm has proprietary access to the specialized
complementary assets necessary for an innovation, then that firm has an advantage. When
competence-destroying innovations have low transilience (=veerkracht/overdraagbaarheid)
in that they do not substantially change the market/customer linkages, then incumbents
perform well in the market. The sales/service relationships of incumbents serve as a
specialized complementary asset that new entrants find hard to contract for or imitate. The
term ‘value network’ is introduced; the system of producers and markets serving the
,ultimate user of the products or services to which a given innovation contributes. This argues
that when technological innovation causes a shift in the value network, then established
firms are at a disadvantage.
Conclusions. The typesetter industry has undergone three waves of creative destruction,
where competence-destroying technological change has shaken the industry. Using a
database that includes sales, price, technical characteristics, and organizational effects, this
paper explores how the balance and integration of three factors – investment, technical
capabilities, and specialized complementary assets – drive the commercial performance of
incumbents vs. new entrants.
While a lack of investment is sometimes responsible for incumbent failure, other
times incumbents invest substantial amounts in new technology. Incumbents in the
typesetter industry invested overwhelmingly in each new generation of competence-
destroying technology. Since each new generation was incremental in the economic sense,
and ‘sustaining’ in that it met the needs of existing customers, this result is consistent with
theoretical expectations.
The initial products developed by established firms were consistently inferior to
those of new entrants. The need for both new technical skills and new architectural
knowledge proved difficult for incumbents to manage. Incumbents did not, however,
necessarily suffer commercial consequences as a result of their inferior technological
positions. When incumbent firms possessed specialised complementary assets that retained
their value despite the technological shift (sales/service network and types of fonts) these
assets were found to buffer incumbents from the effects of competence destruction.
Incumbents only suffered in the market when both competence was destroyed and the
value of specialized complementary assets was diminished. Here, font libraries did retain
value, but other important complementary assets – specialized manufacturing capability and
sales/service networks – lost value, and the combined effect of these factors was stronger
than the protection provided by a font library.
In addition, this study explicitly examines how the balance and interaction among
investment, technical performance, and complementary assets drives commercial
performance. Perhaps the most serious limitation of this paper is its treatment of
incumbents as a class of firms without distinguishing between individual firms within that
class.
, 2. Customer orientation and future market focus in NSD – Hillebrand, Kemp & Nijssen
The aim of this paper is to investigate the differential effect of customer orientation and
future market focus on organization inertia and firm innovativeness of small and medium-
sized enterprises (SMEs) in the B2B service industry. It is motivated by the observation that
small and medium-sized service firms’ proxy to customers may lead to incremental service
improvement in response to customer requests for customization and improvement, but
may derail programs for more innovative services. The results suggest that it is important to
distinguish between customer orientation and future market focus, and that particularly
small and medium-sized firms may require both orientations for sustained firm performance.
Introduction. The marketing literature suggests that being close to the customer can benefit
a firm’s innovation and competitive advantage as they receive feedback. These firms may
even engage in close cooperation or co-creation for new product or service development
with key customers. However, recent studies draw attention to the limitations of close
customer ties. For example, customer orientation benefits incremental innovation but
negatively influences firms’ radical innovation. Also, firms that are very close to and
dependent on current customers may focus too much on fulfilling these needs and may miss
catching new trends and technologies. In response, scholars suggest firms should focus on
current customers (customer orientation), but also keep an eye on future customer and
market developments, that is on emerging needs (future market focus). Firms with a future
market focus are less reluctant to leave the past behind and develop and introduce
innovative new products or services.
The aim of this study is to investigate the differential effects of customer orientation
and future market focus, through a firm’s inertial forces, on firm innovativeness in the
context of B2B SMEs involved in new service development. Inertia concerns a firm’s
reluctance to change. We conceptualize it as the firm’s lack of willingness to cannibalize
sales, routines and prior investments, which has been shown to be an important
determinant of firm innovativeness. Firm innovativeness refers to the degree to which a firm
develops and introduces innovative new products and services on a regular basis; a firm
turns out products and services that are radically different and that depart from pre-existing
product and service concepts.
Literature review. A customer orientation is at the heart of successful programs that enable
firms to constantly improve their offerings to customers. It benefits a firm’s new product or
service development, helps to increase perceived product/service quality, and ultimately
raises customer loyalty. However, some authors have warned about potential negative
effects of a strong customer orientation. Relying too much on existing market definition and
overt customer attention, firms may become subject to the tyranny of the served market.
Being very close to the currently served market biases perceptions and enhances
management beliefs that can prevent responding effectively to emerging trends and new
technologies. Consequently, it results in a shift towards improved solutions rather than real,
more radical innovation that may create new markets. Firms with a future market focus
understand that current customers are often incapable of articulating their latent (future)
needs and are not a good source for identifying potentially new customer segments. A focus
on lead users and new customer segments rather than current customers is more likely to
result in ideas for truly innovative new products and services.
