Master Thesis
Established Firms and Innovation:
Why Established Firms Fail to See or
Realize the Potential of Disruptive
Innovation and how to Overcome these
Problems?
University of Groningen
Faculty of Economics and Business
MSc Business Administration – Strategic Innovation Management
20th January 2015
AMIT BANGAR
Hoendiep 23A
9718TA Groningen
+31 (0) 639330775
a.b.bangar@student.rug.nl
S1938800
Supervisor:
dr. W.W.M.E. Schoenmakers – University of Groningen
Co-Assessor:
dr. T.L.J. Broekhuizen - University of Groningen
2 Abstract
3 Table of Contents
1. Introduction ... 5
2. Established Firms and Innovation ... 6
2.1 Nokia – An example ... 8
2.2 Blockbuster – An example ... 8
3. Methodology ... 9
3.1 How the Information was Collected ... 9
3.2 Sample ... 10
4. Problems Identified in Literature ... 11
4.1 Corporate Culture ... 11
4.1.1 Bureaucracy ... 11
4.1.2 The corporate mindset ... 13
4.1.3 Risk averse corporate climate... 15
4.2 Activities and Routines ... 16
4.2.1 Listening to current customers ... 16
4.2.2 Unwillingness to cannibalize ... 17
4.2.3 Blind spots in competitive analysis ... 18
4.3 Chapter Conclusion ... 20
5. Possible Solutions ... 21
5.1 Exploration and Exploitation – Ambidextrous Structure ... 21
5.2 Manager for the Exploratory Unit ... 22
5.3 Structure for the Exploratory Unit ... 22
5.4 Customers for the Exploratory Unit ... 23
5.5 Experimentation in the Exploratory Unit ... 24
5.6 USA Today – An example ... 24
6. Insights from Industry ... 24
6.1 Corporate Culture Problems ... 25
6.1.1 Bureaucracy ... 25
6.1.2 The corporate mindset ... 26
6.1.3 Risk averse corporate climate... 27
6.2 Activities and Routines Problems ... 28
6.2.1 Listening to current customers ... 28
6.2.2 Unwillingness to cannibalize ... 29
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6.2 Possible Solutions ... 30
6.3 New Insights ... 31
7. Synthesis ... 33
7.1 Overcoming Corporate Culture Problems ... 33
7.1.1 Overcoming bureaucracy ... 33
7.1.2 Overcoming the corporate mindset ... 34
7.1.3 Overcoming risk averse corporate climate ... 34
7.2 Overcoming Activities and Routines Problems ... 35
7.2.1 Overcoming unwillingness to cannibalize ... 35
7.2.2 Overcoming listening to current customers... 35
7.2.3 Overcoming blind spots in competitive analysis ... 35
7.3 Synthesis Conclusion ... 35
8. Discussion and Conclusion ... 36
9. Limitations and Future Research ... 38
Acknowledgements ... 39
References ... 39
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“Innovation represents the core renewal process in any organization. Unless it changes what it offers the world (product/service innovation) and the way in which it creates and delivers those offerings (process innovation) it risks its survival and growth prospects.”
- Bessant, Lamming, Noke and Phillips (2005, p. 1366)
1. Introduction
Many scholars identify innovation as a key element for both firm growth and survival, as well as aggregate economic progress (Porter, 1990; Seagerstorm, 1991; Wong, Ho, & Autio, 2005). In this day and age, rise in global competition, rapid technological advancements, increasing customer knowledge and shorter product life cycles have put increasing pressure on firms to innovate for their survival (Greis, Dibner, & Bean, 1995; Teece, 1992). Although important, innovation is a difficult process for many firms (Van der Panne, Van Beers, & Kleinknecht, 2003). The common perception is that established firms are good at innovating (Chandy & Tellis, 2000; Winter, 1984). This perception is based on the assumption that established firms possess financial resources, access to competitive resources and have the capability to fully exploit these resources effectively, which in turns leads to higher rates of innovation (Burns & Stalker, 1961; Hewitt & Dundas, 2006). However, examples from industries present a rather different view.
The capabilities of established firms are strongly reinforced when it comes to incremental innovations, however established firms encounter numerous difficulties when facing revolutionary changes in their markets (Assink, 2006; Christensen & Overdorf, 2000; Henderson & Clark, 1990). Christensen (2013) argues that well-managed companies which listen to their customers and invest in new technologies, still lose market share. Christensen (2013), explains that paradigm of good management, listening to the best customers, investing aggressively where profit margins are the highest and develop products or services where market opportunities are the greatest are the main causes behind the failure of well established firms. This occurs because these firms employ practices which are targeted to sustaining an innovation strategy that when the market disrupts, problems arise for the established firms.
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business model that significantly transforms the demand and needs of an existing market and disrupts its former key players” (Thomond & Lettice, 2002, p. 4). Therefore, the aim of this thesis is to explain why established firms, fail to see new markets or new technological breakthroughs. Hence, the research question to explain why established firms fail to stay on top of their game is:
Why established firms sometimes fail to see disruptive innovation or realize the potential of disruptive innovation, and what might be the possible solutions to these issues?
The remainder of this paper is organized as follows: Chapter 2 further explains the problem statement. Chapter 3 describes the methodology of how this study was conducted. Chapter 4 highlights the issues concerning why established firms do not see an innovation or realize the potential of an innovation. Furthermore, this chapter will also provide examples from industry to provide a better picture. Chapter 5 will discusses the possible solutions for established firms to help them see or realize the potential of innovations. Afterwards, interviews will be conducted to gather insights from different industries. Chapter 6 will discuss the insights gained from these interviews. Furthermore, chapter 7 will provide a synthesis of the literature and insights from the industry. Chapter 8 will present the conclusions of this study. Lastly, chapter 9 highlights the limitations of this research, and provide recommendation for possible future research.
2. Established Firms and Innovation
“Several studies show that breakthrough inventions are often likely to originate with entrants rather than incumbents”
- Ahuja & Lampert (2001, p. 521).
This chapter will elaborate more on the problem at hand. The problem is that established firms are not as good as entrants when it comes to seeing or realizing the potential of disruptive innovations.
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behind entrants because established firms contain structures and systems which might be inappropriate in seeing innovations.
Researchers (O’Reilly & Tushman, 2008; Uotila, Maula, Keil & Zahra 2009) find that established organizations seek to exploit the area they specialize in. By exploiting their area of expertise, they become efficient in using what they know. In turn, this makes the established firm dominant in the short run but potentially make it prone to become obsolete in the long run (O’Reilly & Tushman, 2008). Established firm seek to exploit for higher profits, to remain a top of their market and to provide the best value for their customers.
Ghemawat (1991) finds that established firms are liable to ‘technological inertia’, because they have invested heavily in the market they operate in to retain that position. When it comes to incremental innovations, established firm’s capabilities are reinforced. However, they face numerous difficulties in seeing new innovations (Henderson & Clark, 1990). This is because they are so concerned with what is best for their investors and customers, which they try to satisfy, and in turn, they fail in seeing disruptive innovations.
New innovations are more likely to originate from entrants rather than established firms (Cooper and Schendel, 1976). In their book, Blank and Dorf (2012) write that a reason for start-ups to be more innovative is because established firms try to execute existing business models while start-ups try to find a business model they can work with. Meaning, start-ups are trying to survive and since they are new, they are building towards a model rather than executing one which worked in the past (Blank & Dorf, 2012). Henderson (1993) finds that established firms invest more in incremental innovation than entrants. Henderson (1993) also finds that entrants’ efforts in radical innovations was significantly higher than established firms. When new innovations are found, established firms often find it difficult to incorporate the innovations into existing products (Mitchell, 1989).
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2.1 Nokia – An example
Nokia, a Finnish multinational communication and information technology firm was once a market leader in the handheld phone industry. The mobile handset industry has dramatically changed over the last decade (Butler, 2011; Gandhewar & Sheikh, 2010). Nokia’s annual turnover has declined from USD 78,565,940 in 2007 to USD 32,612,956 in 2013 (Orbis, 2013). This decline is mainly due to new mobile operating systems such as Android and iOS which overshadowed Nokia’s Symbian operating system. Both Google and Apple entered the mobile phone market with Android and iOS respectively. Symbian, a closed source operating system could not compete with Google’s open source Android and its open handset alliance or Apple’s iOS (Butler, 2011). According to Gartner, a major information technology, and research and advisory company, Symbian operating system market share declined between 2007 and 2012. In 2012, Nokia discontinued the operating system (Orbis, 2013). In 2007, the Symbian market share was 65.6% and in 2012, it declined to 1.2%, meanwhile Android had 69.7% of the market share (Gartner, 2008; Gartner 2013). Nokia lost market share in both high end and low end phones. In 2013, Microsoft bought Nokia’s mobile phone business and has now applied the Windows Phone operating system (Orbis, 2013).
Nokia could have joined the open handset alliance and use Android as their operating system but they decided to stay with Symbian. Why did Nokia not make the switch? Why did Nokia, with all its resources and capabilities predict the shift in market with the announcement of Android and iOS? Why did Nokia not see or realize the potential of the Android and iOS innovations?
2.2 Blockbuster – An example
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Netflix took away Blockbuster’s market share with these methods. In 2012, Netflix had 23 million subscribers and dominated the market with 60% of the shares. Blockbuster filed for bankruptcy while Netflix dominates the market (Halal, 2012).
Why did Blockbuster not see or realize Netflix as a competitor? Why did Blockbuster not see the capabilities of faster internet or video compression technologies? Why did Blockbuster not make the switch from a bricks and mortar company to an online video-on-demand service? Why did Blockbuster not see or realize these changes in its market?
The two examples of both Nokia and Blockbuster are perfect examples of a well-established firms and leaders in their respective markets who struggle to see and realize new innovations. The purpose of this exploratory study is to see why this occurs. To answer the research question, the following methodology was adopted.
3. Methodology
3.1 How the Study was conducted
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from the articles. Here, semi-structured interviews will be piloted to gather insights from highly qualified professionals, to discover if what was found in articles was also applicable in practice to their firms and established firms in general. Furthermore, the questions were also aimed at discovering new information on why established firms do not see or realize the potential of disruptive innovation. The interviews were then transcribed and the most important findings are reported in chapter 6.
3.2 Sample
Four highly qualified individuals from different fields and different innovative industries were interviewed. Table 1, displays the profession and the firm the interviewees work or worked for. The variation of different professions in different field provides a result which can be generalized. Their insights should provide enough variety to see if the problems and solutions can be applied to their firm or established firms in different markets.
Table 1
Interviewee’s name profession and duration of the interview*
Name Profession Duration
Interviewee 1 Ex Executive Vice President of Nokia, Finland 35 minutes Interviewee 2 Manager of Sales Distribution/Export at Benthin,
Germany
46 minutes
Interviewee 3 Business Architect at Global Projects Re-engineering at Hewlett-Packard (HP), Singapore
30 minutes
Interviewee 4 Co-Founder, Vice Chairman of Utopia, Singapore 36 minutes
*Transcriptions of the interviews are available at request
The interviewees were asked questions surrounding the topic of the problem rather than the problem itself to avoid biased answers. For example, if they would have been asked about bureaucracy, and if this was a problem for their firm, the might fully disagree as bureaucracy is something people would not like to associate their firm with.
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Afterwards, a synthesis of all the findings, from both literature review and interviews are reported in chapter 7. A synthesis is where all the information gathered is summarized and linked to other information. The synthesis provides new added value as this is the part where new potential knowledge is produced (Crossan & Apaydin 2010).
The next two chapters, chapter 4 and 5 of the study reports the finding from the systematic literature review, both problems and solutions respectively.
4. Problems Identified in Literature
After effectively conducting the process of finding problems established firms face in literature, the following findings are presented in this chapter. Throughout literature, (1) corporate culture, and (2) activities and routines have been identified explaining why disruptive innovation is sometimes hindered in established firms. Firstly, this chapter outlines these reasons and how it affects an established firm’s ability from not seeing or realizing the potential of disruptive innovation. Lastly, a figure is developed to conclude the inhibiting factors found.
4.1 Corporate Culture
Corporate culture is defined as “pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with the norms for behavior in the organization” (Deshpande & Webster, 1989, p. 4). Examples of corporate culture that sometimes hinders an established firm’s ability to see or realize the potential of disruptive innovation are bureaucracy, corporate mindset and risk averse corporate climate (Assink, 2006; Brown, 1998; Chandy & Tellis, 1998; Chang et al., 2012; Chesbrough, 2010; Damanpor, 1996; Rice et al., 2000). The following sections explain how these three elements of corporate culture affect an established firm’s ability to see or realize innovations.
4.1.1 Bureaucracy
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employees based on their technical competence. High degree of presence of these six dimensions would mean that a firm is highly bureaucratic. These six dimensions help bureaucratic structures accomplish their aim, which is to provide precision, reliability and efficiency (Weber, 1948). However, high degree of these six dimensions suppresses creativity, has a negative impact on employee motivation and creates dissatisfaction among the organization’s members (Adler & Borys, 1996).
According to Thompson (1965), many behavioral scientist believe that bureaucratic firms are characterized with productive efficiency but not innovative capacity. He states that innovation is the generation, acceptance and implementation of new ideas, processes, products or services. In his article, he claims that bureaucratic firms are based on a production ideology (Thompson, 1965). This type of ideology tampers with innovation because jobs in this ideology require only a portion of employee’s training or knowledge. Thus, generation of new ideas, process, products or services are repressed. Employees requiring only a portion of the employee’s training or knowledge falls into Hall’s first dimension (1963), labor force is separated in terms of functional specialization.
According to Damanpour (1996), centralization is an inhibitor to innovation as well because it creates a less participatory work environment which in turn reduces employee awareness. High centralization also means employees are provided with limited information and reduced involvement. If employees are less aware and are provided with limited information, then this could be a source for the firm as an entity to not see or realize potential for innovations. High centralization falls into the second dimension of Hall (1963), hierarchy of authority is well defined.
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Drucker (1969) argued that firms carry out bureaucratic practices to accomplish their goals. In his article, he also claims that when managers were confronted with organizational problems, the “ability to do better rather than the courage to do differently” is more acceptable (Druker, 1969, p. 50). Doing things differently is one of the key attributes to innovation. If managers approach problems by ‘doing things better’ rather than ‘doing things differently’, the chances of innovative behavior is lowered as the structure of the firm is not challenged (Kirton, 1976). Kirton (1976) argued that bureaucratic firms prefer manager ‘doing things better’ because it imposes less threat to the firm structure. This damages probable innovative behavior as innovation requires new approaches to existing problems. This falls under Hall’s sixth dimension (1963), where merits are inappropriately aligned.
Thus, it can be concluded that established firms, with their bureaucratic firm practices cause’s employees to have low degree of autonomy, thus less information which in turn makes them less aware of the situation that surrounds them. This employee affect as a whole is bad for firms, since this type of practice hinders good task conflict, creativity and “doing things differently”. This firm structure hinders employees from seeing or realizing the potential of an innovation as they are only programed to carry out tasks in a specific manner.
4.1.2 The corporate mindset
“All of [our] capabilities were of a business model that had fallen widely out of step with marketplace realities.”
Lou Gerstner, CEO IBM (quote from: Herreld, O’Reilly & Tushman, 2007, p. 27)
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The inability to unlearn is described as firms and its employee’s incompetence to eliminate old logic and replace it with new logic (Baker & Sinkula, 2002). Established firms find it difficult to unlearn because their practices are well rooted into their employees. Sinkula (2002) finds that unlearning in an organization is usually caused by external shocks. Assink (2006) finds that a firm’s inability to unlearn has an influence on how the firm collects information, analyzes it and how it acts on it. When a firm is faced with new innovations, inability to unlearn could affect how the firm interprets its market and therefore has a possibility in not realizing the potential of an innovation. The ability to unlearn helps firms overcome obsolete mental models and theories the firm uses. Thus, it is vital for firms to be able to unlearn so they can see new innovations.
Brown (1998) argues that mental model of a firm is one of the most difficult element to change. Francis and Hobday (2003) describe mental models and theories in use as tacit. Tacit factors are know-how factors that are difficult to interpret and well embedded. Established firms become dependent on the previous business model of the firm which was once successful. They do their best to preserve that. Established firms, when faced with change find it difficult to move away from the mental model that the employees have deeply embedded within them. Baker and Sinkula (2002) find this to be an inhibitor in disruptive innovation because being dependent on the business model creates path dependency, which can lead to a learning traps known as the familiarity trap (Ahuja & Lampert, 2001).
The familiarity trap (Ahuja & Lampert, 2001) occurs when the firm becomes too used to a technology or model. This happens because the more the firm uses a technology or model, its competence in terms of usage and experience also increases. The firm then finds alternatives technologies or models less attractive and potentially less rewarding. In turn, the status quo of the firm is not challenged and the firm lacks heterogeneity in this problem solving arsenal. This is an example of how firms become so used to their practices that they are blind sighted by what could be a potential benefit to their firm.
Consequently, the mindset is an inhibiting factors for established firms to see or realize the potential of an innovation. Falling into the familiarity trap because of inability to unlearn or due to sticking with successful business models. As suggested in literature, this is a perfect example of how core capability of the firm becomes a core rigidity (Assink, 2006).
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Research Center (PARC), a Xerox company. The co-creator of the Ethernet cable, Robert Metcalfe, formed 3Com (Computer Communication Compatibility) and commercialized the Ethernet cable outside of PARC (Chesbrough, 2010). The Palo-Alto Research Center was a powerhouse in developing new technologies that play a great role in today’s life. However, many of their inventions were commercialized by another party. “In fact, Xerox literally did not know what to do with these technologies, which became ‘orphans’ within the company” (Chesbrough, 2010).
4.1.3 Risk averse corporate climate
Risk averse corporate climate is where firms can predict high return on investment, reduce risks and uncertainties.
Harper and Becker (2004) find that a firm’s ability to predict financial returns on investments inhibits the firm from innovating. Assink (2006) finds that established firms have high revenue expectations. Christensen (1997) states that a 4 billion dollar firm needs over 800 million dollars to continue its growth. Managers try to avoid new markets where return on investments are time consuming and managing innovation costs are high (Assink, 2006). Not investing in emerging markets causes firms to miss out on realizing new innovations. Thus, established firms aim to invest in markets that they are familiar with, large markets, where they can reap the most financial benefits. However, when the emerging market has finally grown into a large one, it might be too late for established firms to enter them (Christensen, 2013). If an established firm has an innovation, but it does not launch this innovation, or pursue this innovation due to its high revenue expectations, then this can cause the firm to not realize the potential of the innovation.
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4.2 Activities and Routines
Activities and routines in literature are described as means by which firms reach their objectives (Feldman & Pentland, 2003). Although important for the established firm to carry out its tasks, they are also a source of inertia (Feldman & Pentland, 2003; Hannan & Freeman, 1984). Examples of activities and routines which sometimes hinder an established firm’s ability to see or realize the potential of disruptive innovation are listening to current customers, unwillingness to cannibalize and blind spots in competitive analysis (Assink, 2006; Chandy & Tellis, 1998; Christensen, 2013; Enkel, Kausch and Gassmann, 2005; Hannan & Freeman, 1984; Leonard, 2002; Zahra & Chaples, 1993). The following sections explain how these three elements of corporate activities and routines affect an established firm’s ability to see or realize innovations.
4.2.1 Listening to current customers
Integrating customers into the innovation process can lead to an increase in potential innovation (Urban & von Hippel, 1988). Urban and Von Hippel (1988) find that firms that listen to their users, find potential for new innovations because the firm understands the unfilled needs and wants of their users by interacting with them (Urban & von Hippel, 1988). In a similar vein, Chesbrough (2003) states that customers can also be a vital source of information for innovation. Firms use external resources to leverage innovative capabilities. Chesbrough (2003) claims that firm’s most advanced and demanding customers can enhance the service or product of that firm, and thus it is important that firms listen to their customer’s needs. Therefore, firm’s interacting with their customers can potentially lead to new knowledge and new learning capabilities for the firm (Chesbrough, 2003). However, when established firms listen to their current customers, they face numerous difficulties in response to market shifts (Henderson, 2006).
When a firm involves its customer in the innovation process, the firm is then heavily influenced by its customers’ needs and wants (Wynstra & Pierick, 2000). Customers who are involved in the primary stages of the innovation process, consciously or subconsciously influence the outcome of the innovation (Enkel et al., 2005).
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be buying the final good or service (Christensen, 2013). This supports the resource dependence view, where firm’s external units (e.g. customers) are limiting the way the firm operates (Pfeffer & Salancik, 1978). In his research, Christensen (2013) finds that when firms are faced with new innovations, and the firm finds that their customer’s needs and wants are not satisfied with the new innovation, the firm will not pursue the new innovation.
Another problem established firms are presented with by listening to their customers is that they might become limited to incremental innovations (Enkel et al., 2005; Leonard, 2002). For instance, the company could become too dependent on their customers or the firm becomes limited to only incremental innovations (Enkel et al., 2005). Many champions often become failures because they lose their innovative edge (Paap & Katz, 2004). Firms that listen to their customers encounter ‘functional fixedness’ (Leonard, 2002). Functional fixedness refers to a customer being fixated on an objects typical use (Leonard, 2002). Customers will use their experience to find how to improve the product they have become familiar with instead of trying to discover a different use for the same product. Firms who limit themselves to incremental innovation, improving the dominant design, find themselves overtaken by entrepreneurial firms when markets disrupt (Assink, 2006). Hence, customer’s personal experience could hinder the possibility of seeing new solutions (Leonard, 2002). This could potentially lead to situations where established firms are not able to see an innovation or realize the potential of an innovation because they are too focused on developing progressively.
Thus, listening to customers can cause the firm from not seeing or realizing the potential of an innovation. Firms that involve their customers can become blinded by them. By trying to serve their needs and wants, they might not realize the potential of a new innovation. Firms can become customer dependent, where their resources are controlled by their customers or they might fall prone to only incremental innovations. These two scenarios can blindside the firm into not seeing or realizing the potential of an innovation.
4.2.2 Unwillingness to cannibalize
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new innovations because often times they are unwilling to cannibalize their own investments. This happens because firms that dominate the market have invested heavily into that market and become reluctant to change that due to change in costs, which usually rises (Brown, Bessant & Lamming, 2013).
Moreover, Hannan and Freeman (1984) find that if established firms cannot change their strategies and structures when the industry and market is dynamic, they are prone to have entrant firms as competitors. In their research, Hannan and Freeman (1984) explain that firms that have high levels of reproducibility, or in other words being able to carry out the same activities over and over the same, which generates strong level of structural inertia. This means that established firms have become so comfortable in doing what they do that they become rigid or inert. Hannan and Freeman (1984) provide the example of IBM, a well-managed established firm which failed to move quickly in adapting to new technologies and in turn created space for new organizations to enter its industry. IBM failed to move quickly as it was accustomed to its own technologies and waited too long to adapt, thus not realizing the potential of an innovation.
If established firms are unwilling to cannibalize their investments or be fluid enough to adapt quickly, they are refusing to realize the potential of the innovation because of costs. An example of this is Kodak, the senior management of Kodak hesitated in cannibalizing the chemical film process and switch to digital printing technology which at the time cost more (Lucas & Goh, 2009). Kodak was reluctant to change as it had invested too much in chemical film process and therefore lost its market to better products. When the established firm does become willing to cannibalize, it is often too late for the firm (Christensen, 2013) or creates space in their industry for new entrants (Hannan & Freeman, 1984).
Therefore, a firm’s inability to cannibalize and continuing with existing activities are major factors in terms of realizing the potential of an innovation. Like explained in the cases of Kodak and IBM, established firms do not want to see their investments as a loss, and in turn do not realize the potential of new innovations (Assink, 2006).
4.2.3 Blind spots in competitive analysis
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incomplete or mistaken view of the industry and competitors that participate in that industry (Zahra & Chaples, 1993). There are three types of blind spots which can lead an established firm to not see or realize the potential of an innovation. These are: (1) misjudging the industry boundaries, (2) poor identification of the competition and (3) an emphasis on competitors visible functions (Zaiac & Bazerman, 1986; Zahra & Chaples, 1993).
Misjudging the industry boundaries can cause blind spots in competitive analysis. Zahra and Chaples (1993) argue that the most vital factor in competitive analysis is the firm awareness of its industry and its industry boundaries. Kline and Rosenberg (1986) argue that it is difficult for a firm to understand the impact of an innovation because the impact of an innovation does not always fall within the industry boundary. This means that innovations from other industries can have an impact in the industry the firm operates in. Typically, a firm will focus on its own market (e.g. chocolate production), it will pay less attention to other parts of its industry (e.g. food industry) and even less in industries it is not involved in (e.g. clothing). Hence, the firm might have possible delays in spotting the change in boundaries of its market (Zahra & Chaples, 1993). Not knowing which firm can enter your market from other industries is an inhibiting factor in not seeing innovations. An example of this is the newspaper industry, where firms such as the New York Times failed to see the Television as a source of news. Although the newspaper industry still exists, today, its boundary has expanded from printing to broadcasting, internet websites and social media.
Another reason why competitive blind spots exist is due to poor identification of the competition. Hamal and Prahalad (1989) find that a competitor analysis is usually conducted on present competitors, only on competitors that can diminish the market share of the established firm. Established firms put themselves in a bad spot because this competitive analysis prohibits them from seeing innovations from other non-established firms which do not possess the same resources or capabilities as they do.
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innovations coming because analyzing invisible factors is a difficult process and in some cases immeasurable.
An example of this is Honda and Chrysler. Honda did not have the manufacturing tome, technical proficiency or the vast resources as Chrysler did, and at the time, did not even export cars to the United States of America. Honda had smaller car models than American car models. This was the invisible factor American car companies did not notice, the effect of model size on fuel cost. American firms did not focus on the product design of Honda’s cars. Thus, by 1987, Honda manufactured as many cars as Chrysler worldwide and started exporting cars to the United States of America (Hamal & Prahalad, 1989). American car manufactures did not consider industries beyond their national borders to be a threat to their market share. Firms not analyzing any potential competition is a source of not seeing innovation. Moreover, overlooking competitors as their resources and capabilities are not a threat to the firm at the time, causes the established firm from realizing potential of new innovations in the future.
As a result, the three factors of competitive blind spots are reasons as to why firms do not see or realize the potential of an innovation. Firm’s inability to measure all potential competitors and being incompetent in measuring more than visible factors hinders the firm from seeing or realizing potential innovations, as not all competitors are taken into account.
4.3 Chapter Conclusion
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also found to be an inhibiting factor for firms to see or realize the potential of innovations. These reasons were found in literature and are presented in figure 1.
Figure 1
Inhibiting Factors that Prevent Established Firms from Seeing or Realizing the Potential of Disruptive Innovation
5. Possible Solutions
This chapter is concerned with identifying how established firms can foresee innovations and realize the potential of an innovation. This chapter will explain the solutions that established firms can employ. There is no single solution to each of the problems presented in chapter 4. This chapter identifies how a firm corporate culture, and activities and routines should be so they can foresee and realize potential of innovations.
5.1 Exploration and Exploitation – Ambidextrous Structure
Teece (2007) argues that for firms to able to adapt to change, they must not only focus on exploiting their current assets but also discover ways to exploit new markets and technologies. Firms that are able to do this have the ability to pursue an exploration and exploitation strategy (March, 1991), also known as being ambidextrous (Tushman & O’Reilly, 1996). Visser et al. (2010) find that many firms in the United States of America do not employ an ambidextrous structure even though the arguments for having an ambidextrous structure is becoming increasingly popular.
Not Seeing
or Realizing
the Potential
of Disruptive
Innovation
Corporate Culture 1. Bureaucracy 2. Risk Averse CorporateClimate 3. The Corporate
Mindset
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Tushman and Smith (2002) argue that structural ambidexterity’s exploitative function is to meet the current customer’s needs and the explorative function is to meet the needs of emergent customers. An ambidextrous firm structure is a prominent way to resolve the problems established firms face (O’Reilly & Tushman, 2008). O’Reilly & Tushman (2008) state that firms that employ an ambidextrous structure are able to simultaneously compete in both mature and emerging markets, they can both exploit and explore (O’Reilly & Tushman, 2008). Although an ambidextrous structure is necessary to see new innovations, it is however complicated to achieve due to its paradoxical nature of combining exploitation and exploration (Raisch & Birkinshaw, 2008). To overcome this paradoxical nature, firms can create separate organizational unit which has some link to the core business (O’Reilly & Tushman, 2004). This would require a manager with exception capabilities to manage the separate organizational unit (O’Reilly & Tushman, 2004).
5.2 Manager for the Exploratory Unit
The manager is in control of two types of business unit here, the existing business unit (exploitative) and the emerging business unit (explorative) (O’Reilly & Tushman, 2004). This presents new challenges for the senior managers. “Ambidextrous organizations need ambidextrous senior teams and managers” (O’Reilly & Tushman 2004, p. 81). Managers who are responsible for an ambidextrous structure should be able to search for new markets and market needs and at the same time reinforce existing product-market (Tushman & O’Reilly, 1996). To be able to achieve this, managers need to have the ability to follow a wide range of conflicting needs, opportunities and at the same time, goals (O’Reilly & Tushman 2004, 2004). They must also have both short and long term orientation (O’Reilly & Tushman 2004) or as Brown and Eisenhardt (1997) call them; ‘Tarzan’ like managers. They refer to these managers as ‘Tarzan’ because they swing on current vine (short-term oriented) while having an eye for the next vine (long-term oriented) (Brown & Eisenhardt, 1997). One way to do this for managers to do this is to be able to test a variety of lost cost probes (Brown & Eisenhardt, 1997). This gives managers the flexibility, as they are not replying on a single plan for the future and at the same time are being proactive (Brown & Eisenhardt, 1997).
5.3 Structure for the Exploratory Unit
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exploration oriented can be expected to be small, decentralized and have loose processes to promote innovative behavior (Tushman & O’Reilly, 1996).
Therefore, established firms explorative department must employ a structure which encourages creativity. One way to promote creativity is to give employees task autonomy. Task autonomy refers to the degree of freedom an employee has to carry out a task in terms of which method he/she will use (Hackman & Oldham, 1980). In a study conducted by Zhou (1998), she finds a direct link between task autonomy and creativity. By giving the employee the freedom on how to carry out a task, makes it more challenging, which requires more thinking and promotes innovative behavior (Vegt & Janssen, 2003). Jung and Chow (2003) also find that leaders which give task autonomy to their employees have more innovative behavior.
Moreover, Laursen and Foss (2003) find that job rotation is a good method to promote innovative behavior. One way to promote information dissemination is to create a structure where job rotation is present. Job rotation refers to the transfer of employees within an organization concerning jobs (Champion, Cheraskin & Stevens, 1994). An example of job rotation leading to information dissemination and staying ahead of the competition is Toyota. Toyota sends out its employees to other divisions of its organization to better distribute the knowledge (Dyer & Nobeoka, 2002). In turn, Toyota has created a network where employees are aware of most of the information. However, job rotation is not only beneficial for information dissemination. Madjar and Oldham (2006) find that job rotation leads to creative behavior within a firm.
Additionally, Clercq, Thongpapani and Dimov (2009) find that moderate task conflict promotes innovative behavior. The exploratory department must also encourage moderate task conflict as it promotes innovative behavior within the structure of the firm. However, relationship conflict should be avoided as it has a negative effect on innovation (Clercq, Thongpapani & Dimov, 2009).
5.4 Customers for the Exploratory Unit
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in their explorative business unit as this way they can see or realize innovations that not part of the core business.
5.5 Experimentation in the Exploratory Unit
Managers of the explorative unit must also experiment with new technologies so they do not fall into the familiarity trap (Ahuja & Lampert, 2001). Exploring new technology, or novel technology gives the firm more heterogeneity in the way it approaches problems (Ahuja & Lampert, 2001). Christensen and Overdorf (2000) also claim that firms can acquire new businesses to see innovations. However, if the processes and values of the new acquired business differs from the core of the firm, then they should leave the acquired firm as it is to promote innovative behavior which differs from the core (Christensen & Overdorf, 2000).
5.6 USA Today – An example
An example of a firm applying these solutions is USA Today, a newspaper company (O’Reilly & Tushman, 2004). The newspaper industry, in the 1990s had a difficult time. The amount of people reading newspaper was declining. This was due to new media such as the television and the internet. For USA Today, whose core business was the newspaper, meant that they would see decline in their profits which could make the firm run out of business. Tim Curley, the president and publisher of the USA Today at that time realized that the firm had to go beyond its newspaper business in order to stay competitive. USA Today applied an ambidextrous structure where it would use its exploitation of the newspaper industry and exploration in television and internet technology as a medium to deliver news (O’Reilly & Tushman, 2004). This way, they did not have to cannibalize all the investments they made in the newspaper printing business. This helped USA Today to explore new ways of delivering the news. This can also be seen as overcoming the problem of the ‘doing things better’ rather than ‘doing things differently’.
6. Insights from Industry
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6.1 Corporate Culture Problems
6.1.1 Bureaucracy
In literature, bureaucracy, which is characterized by high centralization, inflexibility on how to carry out tasks, limited information, and rules and regulations to solve problems is can be seen as an inhibiting factors to see or realize the potential of an innovation. To see if established firms had this, questions A1 to A8 (see appendix) were asked.
In the case of Nokia, Utopia and Benthin, the three firms do not have the problem of centralization. The interviewee’s claim that tasks are assigned top-down, bottom-up and horizontal as well. However, in the case of Hewlett-Packard, the interviewee strongly agreed that information is passed down. Moreover, in the case of HP, task are only assigned top-down as well. When asked if they or their employees had the flexibility in how to carry out tasks, all interviewees disagreed to strongly disagree. All interviewees claim that they have flexibility in how they can carry out tasks. All four answered disagree to strongly disagree in question A3. Even if the tasks are assigned top-down, there is freedom in how they can perform the task, according to the interviewees. Nokia, Utopia and Benthin, all stated that employee’s go beyond the job description to perform tasks. However, in the case of HP, the interviewee claims that some people do and some do not go beyond the job description. In question A4, interviewees from the four firm, two disagreed and two agreed when asked if all employees receive the same information. In the case of Nokia and Benthin, there are various levels of confidentiality and departmentalization, so there is segmentation of information. Utopia and Benthin claim that information which is not necessary should not be provided to the employees because they do not need it, it just a bother for them. In the case of HP, there is no segregation of information.
When asked about guidelines for problem solving, the responses varied. In the case of Nokia, the response was disagree. However, the interviewee said that there are exceptions to this, such as following the six sigma approach. The interviewee from Benthin agreed, his/her firm has strict guidelines as they have to comply with ISO 9001, which is a quality management system. Utopia also agreed, the guidelines are there but they have some flexibility around them. In the case of HP, it was neutral, for the same reason as Utopia.
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stated that this is a good way to solve issues. In the case of HP and Utopia, it depends on the conflict itself.
In general there is some evidence of bureaucratic firm structure. In the case of HP there is clear evidence of centralization. When the interviewee was asked about this, the response was they become somewhat bureaucratic due to their complexity. HP is a very big company, as they keep acquiring and merging, the processes need to be aligned and the firm in turn becomes bureaucratic. The problem of limited information was found in the case of Nokia and Benthin. All firms have some guidelines they must follow, they are not strict but there are there. Moreover, there was no sign of rules and regulations to solve task.
Thus, there might not be high degree of all six dimension of bureaucracy at the same time for the firms in the interviewees, but some are present to some degree (Hall, 1963). Moreover, in the open ended segment of the interview, when the interviewees were asked about bureaucracy, they all claimed that it could be a problem.
6.1.2 The corporate mindset
Corporate mindset was also found to be an inhibitor for established firms to see or realize the potential of an innovation. In literature, sticking to old business model which was once successful causes the firm to possess the inability to unlearn and thus fall into the familiarity trap. To see if established firms had these problems, questions A13 to A16 (see appendix) were asked.
In the case of Nokia, Utopia and Benthin, the interviewee’s claim that although the business model is clearly stated they are flexible around it. The interviewee from Nokia said that you try to follow the business plan but the market is so dynamic and changes quickly that you do more damage by sticking to the business plan rather than adapting. Moreover, the interviewee at Benthin also argued that the business and plans have to adapt to the development in the market or business life.
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have grown over the decades and are outdated. Moreover, the interviewee said that these processes and systems are well embedded into the employees which are there for a very long time, that when new employees come in, they have to adapt to the systems of old employees. This is a clear indication of inability to unlearn.
Thus, it can be said that established firms have a business model they can deviate from, but in some cases like HP, the business becomes too complex that following business models is what the firm becomes stuck to. This is a problem for established firms as the inability to unlearn becomes greater, they tend to not see or realize innovations.
6.1.3 Risk averse corporate climate
In literature, it was found that established firms will prefer markets that are large and yield higher revenues as the small markets do not satisfy their growth needs. It was also found that risky and uncertain markets are avoided. Not taking risks and not launching innovations even if they are good due to low revenues returns causes firms to not realize innovations. To see if these problems occur in established firm questions A17 to A20 (see appendix) were asked. In the case of Nokia and Utopia, the established firm’s interviewees agreed to strongly agree that markets that yield the highest revenues are prioritized. The interviewees from Benthin and HP responded neutral. This was because they both said that some markets do not yield revenues in the short term but could in the long term. When asked if their firm if their firm avoids risky and uncertain markets, the interviewees all disagreed. In the case of Nokia, the interviewee said that risky and uncertain markets are not avoided but also do not receive the same resources as profitable markets.
Lastly, the interviewees were asked if they launch products that were not part of their business. Here, the responses varied. In the case of Benthin and Utopia, they do not launch products that are unrelated to the core. Benthin and Utopia are both heavily specialized and leaders in the specific field and they have a range of products related to their field only. The interviewees from these two firms claim that diversification into other ventures is not something they are worried about as are in the top of their market. In the case of Nokia, it was agree and in the case of HP, it was neutral for the same reason. The reason was they have a wide range of products in multiple markets.
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place because of the financial success. The firm tried to maintain its financial success which made the firm more risk averse. To maintain the financial success, product testing becomes less of a focus. The firm becomes more interested in short term performance rather than long term, and innovation by default means long term commitment according to the interviewee from Nokia. Moreover, the interviewee from Utopia gave an example of SAP, as SAP is one of the major customers. SAP is focused on pushing its legacy products, and when firms do that, other entrants can enter their market with a different product. This is another example of risk averseness causing the firm to not see innovations.
6.2 Activities and Routines Problems
6.2.1 Listening to current customers
In literature, listening to customers was found to be a problem for established firms in not seeing or realizing the potential of an innovation. This was because listening to current customers can cause ‘functional-fixedness’, only incremental innovations which could blind side the firm and the resources are driven by the customers rather than the firm. To see if these problems existed for the interviewee’s firms, questions A9 to A12 (see appendix) were asked.
All interviewees strongly agreed when asked if it was important for them to interact with customers. All interviewee’s also disagreed when asked that only current customers were involved in the innovation process. They all claimed that for new developments, it is important to involve customers who do not buy your products. The interviewee from Nokia claimed that this is not always the case, you can see innovations sometimes without interacting with non-customers. The interviewee gave the example of Apple and how Apple did not do much market research as the boss at the same claimed to know it all, this boss was Steve Jobs. However, the interviewee also said that for most firms, such as Samsung, HTC, Ericson and Microsoft, there is extensive research on both existing and non-existing customers.
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In literature, unwilling to cannibalize was found to be a problem for firms to realize the potential of an innovation. To see if this problem occurred for the four interviewee’s firms, question A21 to A23 (see appendix) were asked.
In the case of Benthin and Utopia, all the responses for this section agree, meaning their firms are willing to cannibalize. However, in the case of Nokia and HP, the willingness to cannibalize was a lot lower compared to Benthin and Utopia. The case of HP displays the perfect example of firms unwilling to cannibalize. The interviewee claims that HP is unwilling to cannibalize its core business and that the firm has invested heavily into many technologies that it is not easy for the firm to abandon those investments. The interviewee from HP described the case of their launch of the TouchPad, a tablet. The interviewee claims that they were too late to enter the tablet market as it was different to their core, and when they did, it was too expensive for the firm. As stated in section 4.2.2, when established firm are willing to cannibalize, it is often too late for them.
The case of Nokia was similar, the interviewee claims that organizational latency is a cause of not being able to cannibalize investments in the short run. The interviewee goes further in acknowledging that Nokia and other established firms focus too much existing technologies that they miss to see new opportunities. Thus, unwilling to cannibalize is a problem established firms face.
6.2.3 Blind spots in competitive analysis
The last problem identified was corporate blind spots. Misjudging industry boundaries, poor identification of competition and emphasis on competitor’s visible functions inhibits established firms to see or realize the potential of an innovation. To see if competitive blind spot was a problem, questions A24 to A27 (see appendix) were asked.
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application variety of the iPhone. According to the interviewee, this was the problem to why Nokia, a telecom company failed to see Apple, an internet company as a competitor.
Thus, competitive blind spot exist as a problem for established firms. Established firms try to see each and every competitor in their market and beyond their market but still have blind spots in their competitive analysis due to the dynamism of the market they are in.
As it turns out, that established firms try to avoid these problems but they fall into these problems due to their complexity and business practices. Overall, even if the problems did not apply to these firms, the interviewees in general agree that these are problems for established firms.
6.2 Possible Solutions
Questions B1-10 were about the solutions found in literature. Employing an ambidextrous structure, where the exploratory department has its own unique structure was found to be a prominent solution for established firms to see and realize the potential of an innovations. In the case of Nokia, HP and Utopia, the interviewees agreed that employing an ambidextrous structure would help in seeing new innovations. In the case of Benthin, the interviewee argues that the people employed for current ventures are also best in seeing new ventures. Thus, three out of the four interviewees find the ambidextrous structure to be a solution.
Moreover, when asked if the exploratory unit of the firm should have its own values and process, three out of the four employees disagreed. The interviewee from Utopia explains the case of Utopia Labs, a unit of the firm dedicated to explore new ventures. However, this new venture is only for technologies that have to do with the firm’s core, so there could be a problem of the familiarity trap in the future. In the case of Benthin, this new was also disagree because an exploratory function would just raise costs, this is an example of risk averseness. The interviewee from Nokia found this solution to be very prominent. The interviewee explains that people have high pressure to deliver ‘bread and butter’ results, thus they are less likely to deviate their time and focus to test new things, and testing new things often leads to new innovations.
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behavior. An example from Nokia was in line with what was found in literature. Whenever the firm went beyond its core market to see how new innovations would work out, the firm experimented with many mock ups and samples. This would help the firm see both the manufacturing process and quality of new innovations.
All interviewees agreed that task autonomy helps in seeing new innovations. However, when asked about job rotation, the interviewee from Benthin said this is not a solution. When asked to elaborate, the interviewee claimed that job rotation is only good for boring technical jobs where tasks are repetitive. The interviewees, all four of them, also agree to strongly agree that investing in novel or emerging technologies, moderate task conflict and interacting with non-customers are good ways to see new innovations.
When asked about acquiring a firm to see innovations, and the process and values of the firm differs from the core, three out of the four employees agree that it is better to create a spin-off organization of the acquired firm. In the case of Utopia, the interviewee claimed that this is not a solution to his/her established firm. The interviewee claims that this is because integrating a firm completely will create better synergy for his/her firm. A reason for this could be that Utopia is the lead firm in its niche market, thus they would want to acquire firms to fully exploit them, and this could be a problem in the long run as suggested in literature.
6.3 New Insights
In the case of HP, CEOs that are hired to return the firm from struggle are concerned with cutting cost and increasing sales. To cut cost, CEOs at HP employed virtual methods for communication and operations. The interviewee from HP claimed that this tampers with innovation as employees have less face to face time. According to the interviewee, a human connection goes further than virtual connection when it comes to the way information is transferred. The interviewee claimed that this gets in the way of being innovative. Therefore, becoming virtual can hinder established firms from seeing or realizing the potential of innovations.
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employees from diverse cultural background hinders with experimenting with new innovations, according to the interviewee. However, the interviewee claimed that hiring people from diverse professional background can help increase the potential of an innovation. A problem indicated by the interviewee from Benthin was departmental conflict on ideas. The interviewee gave an example of his/her personal experience. When the employee presented solutions to the research and development team, the professional at the research and development team did not see the solution as viable. This is because of the field they specialized in, the professional at the research and development team does not see the solutions from sales team as a viable solution, thus rejects the idea.
The interviewee from Nokia described listening to the stock market rather than doing as they pleased as a problem. Something that was not found as a problem in the literature. In the case of Nokia, the interviewee said that a firm has a lot of marker share, there is evidence of doing something really good, and therefore the firm tries to maintain that. The interviewee from Benthin brought a very similar insight. The interviewee said established firms become too happy with what they have that they might not see innovations. The interviewee said this might become a problem for Benthin as well as they have over 90% of the market and are happy.
The interviewee from Nokia claimed that a solution to this would be practicing ‘constraint’. The interviewee claimed that “without constraint there is no innovation”. This is an interesting solution as most of the problems identified have to do with the firms not being free enough. However, interestingly enough, the interviewee from HP said that because the firm grows they fall into many problems and some of the problems presented in literature become solutions for the complexity.
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were content with their financial performance. As the interviewee from both Nokia and Benthin explain, established firms become ‘too happy’ with what they are doing and this causes them to not see innovations. A solution to this is practicing ‘constraint’ as identified from the interviewee from Nokia. This means that a lack of freedom to a certain extent is a fundamental prerequisite for an innovation, according to the interviewee from Nokia. Similarly, the interviewee from Benthin said “if you try to maintain what you have, you will fall behind”.
7. Synthesis
The synthesis chapter provides a compilation of the information found in the literature review and from the interview. This leads to the emergence of new information. In this chapter, the problems and solutions will be merged to answer the research question. Which was to identify problems established firms face and what are the possible solutions to the problems found. The problems found were presented in figure 1. These problems include: bureaucracy, listening to customers, corporate mindset, risk averse corporate climate, unwilling to cannibalize and blind spots in competitive analysis. The solutions found in literature was to employ an ambidextrous structure where the explorative unit has its own structure. Insight from the industry supported these problems and solutions. Furthermore, new problems and solutions were also found from the interviews.
7.1 Overcoming Corporate Culture Problems
7.1.1 Overcoming bureaucracy
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stated by all interviewees, this helps seeing things from a new perspective. Limited information was also found to be a problem in established firm, at least to a certain extent. A solution to this could be job rotation, as it has a direct link to innovative behavior as information is disseminated and employees see things from a new perspective. However, as stated by the interviewee from Nokia, there is a limit to how much freedom is productive and counterproductive in innovative behavior.
7.1.2 Overcoming the corporate mindset
Established firms also have the problem of corporate mindset as an inhibitor to see or realize the potential of innovations. Established firms become too successful with past business models that they suffer from inability to unlearn and follow obsolete mental models which can cause them to fall in ‘familiarity traps’. In the interviews, the case of HP clearly displayed that this problem occurs. Moreover, all interviewees agreed that this becomes a problem for firms that are on top of the food chain. An exploratory function is can help overcome this problem as well. As this unit has a totally different mindset that is different to the main business model. Employing managers who are like ‘Tarzan’, who focus on both the core and non-core, short-term and long-term are key to overcoming the problem of corporate mindset. The exploratory unit has new structures which are not embedded into the organization. This helps firm move away from the tired business practices. The interviewee from Benthin claimed that hiring people from different technical background can help see innovations as problems are seen from a new angle.
7.1.3 Overcoming risk averse corporate climate
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7.2 Overcoming Activities and Routines Problems
7.2.1 Overcoming unwillingness to cannibalize
Unwilling to cannibalize can cause firms to not realize the potential of an innovation because firms do not want their current investments in manufacturing or marketing to become obsolete. The case of Nokia, as the interviewee said is a perfect example of this problem. Established firms invest a lot into the market they are dominant in, that changing resources around can incur many cost. With an exploratory unit, unwilling to cannibalize is reduced as the firm is testing new technologies which means creating new assets rather than converting or abandoning old ones.
7.2.2 Overcoming listening to current customers
In literature, problems of listening to current customers was that the established firm becomes too dependent on its customers, current customers could cause ‘functional-fixdness’, and therefore the firm’s resources are driven by its customers. From the interviews, it was found that the firms in question do not encounter these problems as they employ non-customers in the innovation process, a solution that was found in literature. As the exploratory unit of the established decoupled from the core business so the firm does not become bogged down with the core business, the exploratory unit should focus on non-customer base innovation. As supported by the interviewees as well, including non-customers help firm see and realize new functions of the current lineup of products or an entirely new needs and wants that do not exist.
7.2.3 Overcoming blind spots in competitive analysis
The problem of blind spots in competitive analysis is very difficult to overcome. Blind spots in competitive analysis refers to firms misjudging industry boundaries, poor identification of competition and emphasize on competitors visible functions. The case of Nokia is a very good example of this problem. Nokia, even though they thorough analyze competition within and outside their industry, they still failed to realize the invisible functions of the Apple’s iPhone which caused them to not realize the potential of an innovation. An explorative unit helps firms see competition which is different to the core business. This was also the suggestion from the interviewee from Nokia.
7.3 Synthesis Conclusion
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unit must have decentralized activities such as job rotation, task autonomy and moderate task conflict, which in turn promotes information flow and creativity. The managers that are the head of this exploratory function need to be like ‘Tarzan’, short and long term oriented. These manages must be able to take risks in high uncertain markets and interact with non-customers to see innovations and realize the potential of an innovation. By employing this type of structure, the firm is also reducing its risk averseness. The establish firm is launching products in its core market as risk averse firms do, but at the same time they are also exploring new possible markets where they are not afraid to lose as profit is not the main concern in these markets. The exploratory unit which has its own structure and managers which are like ‘Tarzan’, can help overcome the mindset barrier as the business unit is away from the core. Finally, the unwillingness to cannibalize is also reduced as the exploratory function is concerned with discovering novel technologies that can yield new innovations. The exploration unit of the firm with its own structure can help established firms see or realize the potential of new innovations as it’s concerned with ‘doing things differently’ rather than ‘doing things better’. The established firm is concerned with not only maximizing its profits but also seeing the possibilities to enter new emerging markets which are characterized with low profit margins and high risks.
8. Discussion and Conclusion
The main purpose of this thesis was to identify why established firms which are dominant in their respective market fail to see or realize the potential of disruptive innovation, and what might be possible solutions to overcome these problem.
Two main inhibitors to not seeing or realizing the potential for disruptive innovation were (1) corporate culture, which includes bureaucracy, the corporate mindset and risk averse corporate climate, and (2) corporate activities and routines, which includes listening to customers, unwilling to cannibalize and blind spots in competitive analysis. Afterwards, an ambidextrous structure where the exploratory unit has its own structure, processes and values was suggested as a solution to these problems.
