Stronger together: Establishing collaborations during disruptive innovations

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Stronger together:

Establishing collaborations during

disruptive innovations

A case study research

within the Dutch music industry

By

Pieter van der Zweep

S1702491

University of Groningen Faculty of Economics and Business Msc BA Small Business & Entrepreneurship

Thesis

Supervisor: P.S. Zwart Co-assessor: E. Croonen

June 20, 2016

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Abstract

Since the birth of the recorded music industry many disruptive innovations had their influence on the way music is consumed, promoted and distributed. Since 2000, falling physical sales due to the expansion of digital sales have been a struggle for the global music industry.

This research is focused on the relevant factors for SME’s within the Dutch music industry when they decide to establish a coopetitive relationship and the factors that should be advised in order to maintain an atmosphere of high loyalty within the coopetitive relationship.

This qualitative research, that is based on a single case study, reveals the findings that can be derived from primary data that was gathered through interviews with the most important actors within this specific coopetitive relationship and from secondary data, such as news articles and industry reports. The results of this study reveal that a focus on disruptive innovation, the capabilities of an organization, the seven preconditions to achieve a mutual beneficial relationship and the advantages of coopetition have a positive influence on the decision to engage in a coopetitive relationship.

This research furthermore found that a high level of trust, good communication and the possession of (needed) resources should be advised in order to maintain an atmosphere of high loyalty within the coopetitive relationship.

This study contributes to the existing literature on the driving forces of coopetition in SME’s, the underlying forces that influence the decision of SME’s to engage in a coopetitive relationship and the factors that should be advised to maintain a solid coopetitive relationship between SME’s.

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1. Introduction

Since the birth of the recorded music industry at the end of the 19th century, many technological innovations have had their impact on the way recorded music is consumed, promoted and distributed (Moreau, 2013). Back in the days the challenges for major record companies were attributed to the rise of vinyl, the audiocassette, cd’s, the rise of new music genres such as Rock & Roll and R&B and the possibility for smaller and independent record companies to create their own studios and recordings at affordable cost (Moreau, 2013), but from 1999 the internet changed the consumption, distribution and production of music drastically (Molteni & Ordanini, 2003). Due to the internet, nowadays a more direct relation between creative producers and consumers can be facilitated than was possible in the past. This development imposes a threat to the position of established record companies within the music value chain (Freedman, 2003). Since 2000, falling physical music sales have been a struggle for the global music industry (Swatman & Krueger, 2006). The revenues of record companies were mainly acquired through these physical sales and thus they need to search for new business opportunities.

A way to find new and successful business opportunities for established record companies can be, for example, through cooperating with companies that are active within other fields of the music industry. In 2013 Armada Music, a Dutch record label that is specialized in dance music, launched Armada Bookings, a new division that is focused on the bookings of the artists signed by Armada Music. This new division originated from a close collaboration with Extended Music, which is part of AT Productions’ Bookings Division (Entertainment Business, 2013).

In 2014, Sony Music Entertainment started an exclusive collaboration with record label ECM focused on the sales and distribution of artists that are signed by ECM (Entertainment Business, 2014). The question that arises is why we see this happen a lot in an industry where recent technological advancements disrupted business as usual?

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disruptive innovations may benefit from incumbents and start-ups that decide to collaborate. This specific topic and the fundamental motivations of the collaboration have not been clearly discussed in the existing literature.

Bouncken et al. (2015) state that interorganizational collaborations have become an important part of corporate strategy to cope with faster business dynamics and higher uncertainties. Even more interesting, Harbison & Pekar (1998) state that half of these relations take place between competitors. The article by Bengtsson & Kock (2000) highlights that competitors can be involved in a cooperative and a competitive relationship witch each other and benefit from both. This relationship that emerges when two firms cooperate and compete at the same time is known as coopetition. A positive relationship between coopetition and innovativeness has been stressed by many empirical studies (Bouncken et al., 2015). The overall competitive performance of an organization and the success they have in developing radical innovations also shows a positive relationship with coopetition (Bouncken & Fredrich, 2012).

Research on coopetition has mainly been focused on larger businesses since the strategy is mostly used as a tool to increase the power of large companies, but coopetition is also preferred by small and medium sized businesses. For example, SME’s can enter bigger markets, be more innovative, attract qualified employees and achieve economies of scale, thus the strategy is very helpful for SME’s that have to deal with scarce resources (Akdogan & Cingoz, 2012). SME’s are characterized by their limited resources, limited capabilities and their smallness and thus being innovative can be a challenge for these organizations (Gnyawali & Park, 2009). Through collaboration, competing SME’s can strengthen their position and create value (Bengtsson & Johansson, 2012).

Even though the literature described above helps to gain a better understanding of the theory of coopetition, Gnyawali & Park (2009) state that coopetition is still an emerging phenomenon and that limited research has been conducted to systematically examine the coopetition. They furthermore suggest that future research should conduct in-depth case studies to deeply examine the drivers of coopetition. Bouncken et al. (2015) also explain that coopetition is nowadays an accepted and growing stream of research, but additional research is required to further explore the strategic applicability, the conceptualization and the management of coopetition in different settings.

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important to maintain a coopetitive relationship with a high level of loyalty. To gain a better understanding of coopetition and its drivers, the following research question has been developed:

Which factors are relevant for organizations within the Dutch music industry when they decide to establish a coopetitive relationship and which of these factors should be advised in order to maintain an atmosphere of high loyalty within the coopetitive relationship?

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2. Theoretical Background

This chapter will start with an explanation of disruptive innovation and its drivers. After this explanation, the responses to disruptive innovations will be discussed, followed by a detailed explanation of coopetition and its advantages. The risks and disadvantages of coopetition will also be discussed. This chapter will end with a conceptual model.

Disruptive innovation

The theory on disruptive innovation gained much attention since the work on disruptive technology by Harvard Business School Professor Clayton Christensen. Christensen’s notion of disruptive technology was summarized in the article by Danneels (2004) as follows; initially, a disruptive technology underperforms the established technologies in serving the mainstream market, but eventually the disruptive technology will replace the established ones. As a consequence, the entrant enterprises that supported the disruptive technology will replace the incumbent firms that supported the established technology. At the start of the changing technology process, the disruptive technology does not satisfy the minimum requirement along the performance metric that is most valued by the mainstream market. Therefore, incumbents within the mainstream market see the disruptive technology as inappropriate in satisfying the needs of their customers, thus, initially the disruptive technology only serves a niche market segment. In time, the investments in research and development and the maturing process of the disruptive technology will improve the technology to a point where it also serves the needs of customers within the mainstream market. The incumbent firms, who were only focused on improvements of the established technologies, cannot catch up with the emerging entrants that implemented the disruptive technology and therefore the replacement of incumbents by new entrants is associated with disruptive technology.

Christensen & Overdorf (2000) explain that successful organizations are good at responding to sustaining innovation, these are the type of innovations that cause evolutionary changes within the market. Sustaining innovations are mostly developed and introduced by established leaders within the industry. Quite frankly, these established leaders are not very good at dealing with disruptive innovations. They furthermore state that managers should have to know precisely what types of change the organization can or cannot handle. Their research suggests a framework of three factors that influence the capabilities of an organization: its resources, its processes and its values.

 Resources

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such as people and equipment, but also in the intangible resources, for example information and relationships with customers, distributors and suppliers.

 Processes

Processes also have their effect on what an organization is capable of. Processes are best explained by the patterns used to interact, coordinate, communicate and the decision making that employees use to transform the resources into services or products. Within an organization formal (defined and documented) and informal (routines that evolve over time) processes can be distinguished. The most important capabilities of an organization are not embodied in the formal processes, but it is more likely that these capabilities are embodied in the informal processes that mostly support the decisions about where the resources should be invested. The most important disabilities in coping with change reside within these informal processes.

 Values

Values are defined as the standards that employees use to set priorities concerning an attractive or unattractive case within the organization, for example an order or a new product. It is very important for managers within larger and more complex organizations to train their employees in making independent decisions that are consistent with the strategy and the business model of the organization. Due to the strict rules that need to be followed by employees, these consistent values also define what an organization is not capable of.

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an emerging market since they can embrace smaller markets through their values and they can deal with lower margins through their cost-structures.

Summary

A disruptive technology is a technology that initially underperforms the established technologies in serving the mainstream market, but eventually the disruptive technology will replace the established ones. As a consequence, the entrant enterprises that supported the disruptive technology will replace the incumbent firms that supported the established technology.

Another type of technology innovation can be distinguished; sustaining innovation. Sustaining innovations cause evolutionary changes within the market and are mostly introduced by established leaders within the industry. Quite frankly, these established leaders are not very good at dealing with disruptive innovations. Managers need to know what types of change the organization can handle. The capabilities of the organization are influenced by resources (tangible and intangible), processes (formal and informal) and values (standards within the organization). At the beginning of the life-cycle of an organization, resources are of great importance since the key people can be seen as the drivers of success. When an organization matures, processes and values become the more important capabilities. The fact that established organizations are not good at dealing with disruptive innovations can also be explained through its resources, processes and values since their capabilities are mainly focused on the development and introduction of sustaining innovations.

Responses to disruptive innovations

The traditional ways of competing are not inferior to disruptive strategic innovations, since it is not always self-evident that a disruptive innovation will conquer the market field. When a disruptive innovation is embraced too quickly, it can be very damaging to an organization and other responses to disruptions can be seen as more sensible in particular situations. Five key responses to disruptive innovations are indentified (Charitou & Markides, 2003).

 Response one: focus on and invest in the traditional business

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 Response two: ignore the innovation – it’s not your business

Charitou & Markides (2003) uncovered in their research that, in comparison to the traditional way of doing business, the disruptive innovation requires other skills and competences, offers different value propositions and ultimately targets different customers.

The difference with the previous response to disruptive innovation is that within response one the innovation is seen as a threat to the business and therefore the organization invests to make it more attractive to customers. In this second response the innovation is not seen as a threat, the organization continues its way of doing business as if the innovation does not exist.

 Response three: attack back – disrupt the disruption

This response can be explained as follows: the established organization has its own way of doing business, it emphasizes certain product attributes and it targets certain customers. Disruptive innovators attack the established organizations by building their success on new product or service attributes that attract new customers. Over time, the disruptive innovators are also able to deliver the attributes that customers of the established organizations value and thus they attract customers that were once loyal to the established organizations. In order to attack the disruptive innovators, the established organizations can then respond by developing newer and different product attributes.

 Response four: adopt the innovation by playing both games at once

Another response is the simple adoption of the disruptive innovation. The decision to embrace the disruptive innovation must be based on a detailed cost-benefit analysis. The research by Charitou & Markides (2003) showed that the established organizations that embraced the disruptive innovation saw the conflicts that could arise between the traditional way of doing business and the innovative way of doing business as manageable. Those organizations that saw the possible conflicts as serious risks to their existing business, did not embrace the disruptive innovation.

The majority of the organizations that decided to embrace the disruptive innovation established a separate business unit. This separate unit needs to have the autonomy to make their own decisions.

 Response five: embrace the innovation completely and scale it up

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Off course these five responses are not the only responses to a disruptive innovation. Christensen & Overdorf (2000) describe a framework, consisting of three possible ways to create a new organizational space where capabilities, processes and values can be developed to respond to the disruptive innovation.

One of these three responses is to let managers create new organizational structures for the

development of new processes. This way of responding is successful when the capabilities of the

company reside in its processes and when the new challenges require new processes. In order to develop these new processes, managers need to pull the relevant people out of the organization and draw a new boundary around this new group. These new team boundaries facilitate new working patterns that can ultimately blend as new processes.

Another response is to create an independent organization out of the established organization in which new processes and values can be developed in order to solve the problem concerning disruptive innovation. This is in line with the fourth response from the five responses that were identified by Charitou & Markides (2003). This way of responding is useful when the values of the established organization see the allocation of resources to an innovation project as incapable. When this is relevant, the company should spin the innovation project out as a new venture.

The last response is to meet the requirements of the disruptive innovation by acquiring a different

organization that possesses the values and processes that are needed. Companies that successfully

want to gain new capabilities through acquisitions have to know where those specific capabilities reside within the acquisition and they need to be assimilated efficiently.

The framework by Christensen & Overdorf (2000) is built in order to introduce into the thinking of managers that the capabilities that make their organization effective also define their disabilities. The reason that innovation is such a difficult topic for established organizations, lies in the fact that these organizations set their highly capable people to work within organizational structures whose processes and values were not designed for the specific (new) task (Christensen and Overdorf, 2000).

Since the five responses explained by Charitou and Markides (2003) and the framework of Christensen and Overdorf (2000) both have their influence on the successful responding to disruptive innovations , this research will take both into account as can be seen in the conceptual model.

Summary

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organization in which new processes and values can be developed or acquiring a different organization that possesses the values and processes that are needed are three possible ways to create a new organization space where capabilities, processes and values can be developed to respond to the disruptive innovation.

Coopetition

Knowledge combination allows firms to develop a combination of their resources and their knowledge with the new ones of the ally. Eventually synergetic and novel combinations can be produced that stimulate the development and the introduction of new products and markets (Bouncken et al., 2014, Christensen, 1997). Many companies do not have all the resources and capabilities that they need in order to compete with their rivals. The attack on powerful rivals can be risky and since (smaller) organizations are not willing to take these risks alone they need new strategies to deal with the internal and external environment. An important tool for the organizations within this context is collaboration, but even more important is the emergence of coopetition (Akdogan & Cingoz, 2012).

Co-opetition describes a business situation in which independent parties co-operate with one another and co-ordinate their activities, by collaborating to achieve mutual goals, but at the same time competing with each other as well as with other firms (Zineldin, 2004). The research by Zineldin (2004) describes seven preconditions for developing a mutually beneficial business relationship:

1. Organizations are willing to be engaged in an interactive exchange relationship, 2. Each party possesses resources that the other party wants,

3. Each party is willing to give up its some resource to receive in return the resource belonging to

the other party,

4. Each party is free to accept or reject terms and conditions of exchange that will leave them better off (or at least not worse off) than before the exchange,

5. The parties are able to communicate and interact with each other,

6. The parties recognize the ethical values and norms, interdependences, commitment and sustainable long-term relationship,

7. The parties can strike a positive balance between the pros and cons of the relationship.

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 Cooperation-dominated relationship

(These coopetitive relationships consist of more cooperation than competition)

 Equal relationship

(Cooperation and competition are equally distributed in such coopetitive relationships)

 Competition-dominated relationship

(These coopetitive relationships consist of more competition than cooperation)

Zineldin (2004) mentions that characteristics of a coopetitive relationship are that the involved parties adapt their processes and products in order to achieve a better match, the parties share information and their experiences and try to minimize or eliminate sources that create uncertainty and insecurity. By doing so, commitment is demonstrated and this ultimately leads to a higher level of trust and a better environment for the creation and enhancement of an ongoing strategic business relationship. This research also states that, once a coopetitive relationship is established, it could lead to benefits such as: economies of scale, low costs, skilled labor force, a higher level of R&D, access to superior technology and new markets, greater added customer value and profit for all the parties within the alliance.

The research by Morris, Kocak and Ozer (2007) supports the findings by Zineldin (2004). Their research states that SME’s within an industry need to collaborate with competitors in order to create economies of scale, decrease risks and leverage resources together.

Gnyawali and Park (2009) argue that collaboration with competitors is unique and important in several ways. While collaborating with competitors there is a high degree of similarity within the resources and a high degree of market commonality and thus the involved parties will find that their resources are most useful to each other. When the involved parties work together and combine their resources, they are able to deal with these pressures more effectively. Because of ongoing challenges and resource constraints from large competitors, SME’s are most likely to benefit while engaging in coopetition. The research by Bouncken and Fredrich (2012) highlighted that that coopetition is more beneficial for radical innovations, than it is for incremental innovations.

Summary

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and a better environment for the coopetitive relation. A successful coopetitive relationship can lead to advantages such as; economies of scale, low costs, skilled labor force, high level of R&D, access to superior technologies, access to new markets, greater added customer value, more profit for the involved parties, decreased risks and leverage resources together. collaborating with competitors is unique and important since the combination of the resources of the involved parties can be a tool to effectively deal with pressures, resource constraints and ongoing challenges from large competitors.

Risks of coopetition

Coopetition is highly important for small and medium sized enterprises that operate in alliances and clusters (Bouncken & Kraus, 2013). Even though coopetition knows many advantages, as listed above, this phenomenon does not go without certain risks. The research by Cassiman et al. (2009) mentions that coopetitive relationships are troubled with opportunism and knowledge leakage.

Zineldin (2004) argued that the ‘dark side’ of coopetition deserved more attention from scholars. This research mentioned several downsides of a relationship that is too coopetitive. The following risks were identified:

 Investing in a close relationship is resource demanding and can be seen as an uncertain investment without a certain outcome. A virtuous circle can turn into a closed loop of cause and effect and can ultimately destroy efficiency, productivity and profitability.

 When there is no experience in working together with new partners, considerable demands on the time, attention, efforts and energy of the management can be made. This may lead to neglect of the core business activities.

 Since time and resources within a coopetitive relationship are devoted to learning about each other, a coopetition strategy may incur too many costs in the coordination and the controlling of the strategies.

 Technological, economical, cultural, psychological or administrative adaptations require resource mobilization. The returns on such investments are uncertain

 A loss of freedom is inevitable since sharing of activities and giving up control over some resources can be seen as an automatic consequence of close relationships.

 Due to conflicting goals of producers and distributors a strategic opportunity may be lost when a coopetitive relationship is managed poorly.

 A party involved in the coopetitive relationship can use its power (technical, political, emotional, financial) to force the other party to act in a way that is most beneficial to the other party.

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 A coopetitive relationship that is too close can be a barrier to leave the relationship.

Zineldin (2004) furthermore mentions that it may be a greater problem to maintain an atmosphere of high loyalty than the creation of such an atmosphere in the first place. This is the main challenge of coopetition.

The research by Sherman (1992) highlights another important factor that has its influence on the coopetitive relationship. This research states that the biggest stumbling block for a successful coopetitive relationship is a low level of trust. When there is a high level of trust, there is no need to develop detailed contracts consisting of clauses that accurately define what the involved parties require from each other. When the coopetition partners experience a high level of trust they will rely more strongly on oral commitments and promises (Bouncken and Fredrich, 2012).

Gnyawali and Park (2009) describe that technological risk can also be seen as a downside of coopetition. If an organization gets an opportunistic partner or is not careful enough it could lose its secret knowledge to the competition. Finally, the management of the coopetitive relationship is a complex and challenging task.

Summary

Even though coopetition knows many advantages, this phenomenon does not go without certain risks. Coopetitive relationships are troubled with opportunism and knowledge leakage. Previous research has identified even more downsides of a coopetitive relationship, such as; investments in the relationship are uncertain, the neglecting of core business activities, high costs of coordinating and controlling, loss of freedom and control, abuse of power and an increased vulnerability because the organization becomes too dependent. The main challenge of coopetition is maintaining an atmosphere of high loyalty, this is even a greater challenge than the creation of such an atmosphere in the first place. A low level of trust can also be seen as one of the biggest stumbling blocks for a successful, coopetitive relationship. Furthermore, technological risk (losing secret knowledge) and complex management are some risks for the coopetitive relationship

Conceptual model

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3. Research Design

Setting

This research was conducted within the Dutch music industry. As mentioned in the introduction, the music industry in general has known many disruptive innovations since its birth in the 19th century, but none of these innovations was as radical as the rise of digitization within this industry.

The march of the internet brought a vigorous challenge to the existing media culture within the distribution of recorded music. The internet facilitated a more direct relationship between producer and consumer than was possible in the past and this development still threatens the position of established record companies (Freedman, 2003). The ‘Recording Industry Association of America’ showed that the market share of online music as a percentage of total sales of recorded music rose up to 50% in 2011, in comparison this percentage was only 1,5 in 2004. As shown by the NVPI (Nederlandse Vereniging voor Platen Industrie) in 2015, 45,7% of the sales within the Dutch music industry consists of online music.

Even though the major record companies were familiar with the mp3 format in the early 1990’s, it took them until 2003 to enter the digital market. The major record companies could have been the pioneers and the leaders in the online distribution of music, but other actors such as Apple and the mobile telephone operators had all access to the field due to the inertia of the major record labels. The question today is if the established firms are capable of re-organizing on their own (Moreau, 2013)? Given the disruptive nature of digitization that the music industry has to deal with nowadays, this is an interesting setting for the research on coopetition and its underlying forces. Yu & Hang (2010) mentioned that disruptive innovations may benefit from incumbents and start-ups that decide to collaborate and Bouncken et al. (2015) stated that interorganizational collaborations have become an important part of corporate strategy to cope with faster business dynamics and higher uncertainties.

Case selection

For this study the recent collaboration between the Dutch record label 8BALL and Pro Bookings, a Dutch organization which is specialized in bookings was researched. Both of the organizations are SME’s, according to the definition that is used by Storey and Greene (2010, p. 33), since Pro Bookings has only 4 employees, 8BALL Music has nine employees and the turnover of both businesses is less than €10.000.000.

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artists are some of the most successful singers and bands within the Dutch music industry. The activities of the company are divided in five divisions: 8BALL Music, 8BALL TV, Dino Music, Powerhouse music and 8BALL Bookings. 8BALL Music is the head label, while 8BALL TV is responsible for all of the artists who are known for their activities on radio stations or television. Dino Music represents the artists that primarily sing in the Dutch language, Powerhouse Music is focused on dance music and 8BALL bookings is the booking division of the organization. Furthermore, 8BALL music is responsible for the digital sales and distribution for different independent labels and music producers (8ballmusic.nl). In 2012, 8BALL Music decided to extend its activities with a booking division. This new division originated from a close collaboration with ‘HetBoekingsburo.nl’ (Entertainment Business, 2012).

Pro Bookings is an organization which is specialized in the bookings of entertainment in its broadest sense. Next to their booking activities, they develop media concepts and they organize events (pro-bookings.nl). The organization was founded in 2012 and is thus relatively young, but its owner has had over more than 16 years of experience within the entertainment industry.

Even though 8BALL has its own booking division nowadays, I recently discovered that the bookings for their new artists are not managed by 8BALL Bookings anymore, but by other organizations that are specialized in bookings, such as Pro Bookings. Why did 8BALL decide to neglect their own booking division and to assign their artists to other bookings organizations? Can this decision be attributed to the presence of a disruptive innovation?

Data Sources

The primary data for this research was gathered through face to face, semi-structured interviews with the most influential managers from 8Ball and Pro Bookings. Semi-structured interviews are well suited for the exploration of a respondent’s opinion and perception with regard to sensitive and complex issues. The semi structured interview enables probing for more information and a clarification of a particular answer (Louise Barriball & While, 1994), furthermore, the semi-structured interview allows the researcher to obtain both retrospective and real-time accounts by those people experiencing the phenomenon of theoretical interest (Gioia et al., 2013).

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to be working on similar organizational positions within the coopetitive relationship in order to decline the risk that the information was measured from a different perspective.

To provide the interviewees with the opportunity to get familiar with the topics of this research, they received a phone call before the interview in which the basic information on disruptive theory, disruptive innovations with regard to the music industry and coopetition were discussed. Providing the interviewees beforehand with this basic information was helpful in taking away their uncertainties about the topic and it also enlarged the knowledge of the interviewees and thus more detailed information could be obtained.

In order to acquire a deeper and more detailed view on the setting and the selected organizations, news articles and industry reports were also used as a source of data.

Data Collection

The interviews were conducted in a face to face interview that lasted approximately 120 minutes. The actual interviewees were conducted with the general manager of Pro Bookings, Mark Mozes and the artist manager/head of promotion of 8BALL Music, Ronald de Bas.

I hoped to interview more employees within these two organizations but after the identification of suitable participants these were the only two employees that were actively involved within the coopetitive relationship. As well Mark Mozes as Ronald de Bas declared that they could be seen as the most important actors within the coopetitive relationship and that other employees within the small organizations only executed supportive tasks for these two managers. To obtain as much information as needed, I decided to take long interviews through which a detailed view on the coopetitive relationship and the relevant factors could be achieved. These face to face interviews were taped and written down, to diminish the risk of losing important information.

The interview consisted of 5 sections, in order to reduce the research bias an interview guideline was used. This interview guideline can be found in appendix 1. The first section was based on the actual presence of a disruptive innovation and its consequences. The second section was focused on the capabilities of the organization. The capabilities of an organization are seen as an important factor in dealing with disruptive innovations. The third section concentrated on the possible responses to disruptive innovations and the ones that were relevant for the organizations within this research. The fourth section was about coopetition and the actual coopetitive relationship between the two organizations. The fifth and last section was based on the risks that Pro Bookings and 8BALL Music face within the coopetitive relationship.

Data Analysis

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of the process. (Eisenhardt, 1989). Since case study research traditionally produces a large volume of data, within-case analysis is an important part of this research. During the within-case analysis the acquired data of the case study, for as well Pro Bookings as 8Ball Music, was written down in detail and later on in the process the data was summarized and compared. This process allows the unique patterns of each case to emerge before investigators push to generalize patterns across cases. However, the overall idea is to become intimately familiar with each case as a stand-alone entity (Eisenhardt, 1989).

Controllability

Van Aken et al. (2012) state that controllability can be seen as a precondition for the evaluation of reliability and validity. To provide controllable results, this research describes the methodology in detail. This detailed description consists of the selected case, data sources, data collection, data analysis and interview guide.

Reliability

To ensure that the research is reliable, the results of the study should not depend on the characteristics of the study. Four potential biases can affect the reliability of a study: instrument, situation, respondent and researcher bias (van Aken et al., 2012).

The instrument bias is minimized by the use of primary data, the interviews with Pro Bookings and 8BALL Music, and secondary data, the use of news articles and industry reports.

By discussing multiple factors that may influence the decision to engage in a coopetitive relationship within two different organizations, the situation bias is minimized.

In order to decrease the respondent bias, the participants for the interviews were chosen after a well-thought selection procedure and were active within different organizations.

The researcher bias was reduced by the use of a standardized, semi-structured interview guide. A standardized process of data gathering reduces the researcher bias.

Validity

A valid research measures what is intended to measure and the results need to be justified by the way it is generated. Internal validity, external validity and construct validity are the main sources concerning the validity of the research (van Aken et al., 2012).

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External validity is the degree to which conclusions in the study would hold for other persons in other places and at other times (Trochim, 2006). The external validity of this research was strengthened by the use of more than one participant and organization.

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4. Results

This chapter describes the results that were derived from the case study research. The literature that was used for this research is divided in five sections. The results concerning each of these sections will be handled in the following order: disruptive innovation, capabilities of the organization, responses to disruptive innovation, coopetition and risks of coopetition.

Disruptive innovations

Both of the organizations see the rise of digitization as a disruptive innovation within the music industry. Even though Pro Bookings is not focused on the release and distribution of music, Mark Mozes recognizes the digitization as a disruptive innovation and he remembers that many of the record labels had to find new business opportunities to survive within the industry. Ronald de Bas mentions that digitization was a disruptive innovation, but the biggest problem was the possibility to download music illegally. ‘Selling music on the internet made us change our way of thinking and our traditional

way of doing business, but I personally think that the access to illegal downloads was one of the main issues why record labels lost loads of money’. Ronald de Bas furthermore mentions that 8BALL

Music was focused on selling digital music since the organization was founded. ’When we started this

business 10 years ago, providers such as iTunes already existed. We decided to focus on physical sales but we also recognized that digital music would take over the industry eventually and thus we also released our music on the internet’. The falling physical sales forced the record labels to be creative

and innovative but since the labels mostly became the rightful owner of the valuable master tapes through their contracts with artists, they managed to survive. ‘I did not see many of our competitors

fail, because most of the record companies are worth a lot of money due to the ownership of valuable master tapes and this value is very stable. I did see a lot of employees within the record labels lose their jobs, because the labels had to reduce the costs’. The rise of digitization did not change the

Dutch music industry completely, since most of the major record companies are still active, but it became easier for self-publishing artists to release and distribute their music.

Capabilities of the organization

Pro Bookings, as well as 8BALL Music acknowledge the importance of the resources within their organization. As Mark Mozes described: ‘In our company we work with relatively young employees

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more employees and thus a greater network, but I also think that since there are many divisions within these majors and every employee has a specified task, the quality of their work is lower due to a lack of knowledge. Our employees are flexible and able to perform any task within the organization and they work hard to broaden their network’. Ronald de Bas mentions that the processes within the

organization are mostly informal: ‘Formal processes are not handy within small organizations since

they decline the overall flexibility. If necessary, we want to enable change quickly’. Mark Mozes also

states that most of the processes (due to their creative nature) are informal, but since Pro Bookings wants to grow he thinks that some processes could become more formal within the future. Both of the organizations implement changes within their processes through staff meetings. With regard to the values, both of the organizations mention that quality and creativity are the most important values of all. Pro Bookings and 8BALL Music agree on the fact that resources are the most valuable capabilities of an organization during a disruptive innovation. As Mark Mozes mentions: ‘My business would be

doomed if I did not have these motivated and capable employees, they are the basis of everything’.

Responses to disruptive innovations

Within Pro Bookings and 8BALL Music innovation in general is not seen as a difficult topic. Mark Mozes mentions that innovation is an everlasting process which mostly comes by itself within his organization: ‘We are a relatively new organization and we work with highly motivated people. We

work hard to be innovative and to obtain our place within the market’. Ronald de Bas states: We are a small organization and we have to react quickly to changes within the market, so innovation is one of our main goals’. Both of the organizations are focused on sustaining and disruptive innovations.

Ronald de Bas mentions the following: We are still focused on the traditional ways of doing business

since the music industry is filled with old-school people. Next to that we are very progressive in our contracts because we are the only record label which has all of the aspects of the industry in-house. We can provide our artists with record deals, distribution, management and bookings’.

8BALL Music responded to the rise of digitization (the actual disruptive innovation within this research) by adopting the innovation and playing both ‘games’ at once. Digitization was not a direct threat to Pro Bookings, but Mark Mozes also states that 8BALL started playing both games at once. Ronald de Bas mentions: ‘We had to deal with the growing digital sales, but physical sales are still

part of the music industry. We decided to focus on the sustaining and the disruptive innovation so we could make profit on both sides. I do think that within two years the physical sales will have disappeared completely’. The abilities and the motivation to respond to the disruptive innovation was

present in both of the organizations. Mark Mozes highlights one of the most important aspects: ‘in

order to successfully respond to innovations, I decided to engage in a close collaboration with 8BALL Music. Through this relationship we can exchange our knowledge and skills and eventually deal with the disruptive innovations’. Ronald de Bas mentions that the organizational structures within his

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house. This new way of thinking made us less of a traditional record company, but it made us more innovative than any other record label’. Pro Bookings did not change its structure, but due to the close

relationship with 8BALL Music Mark Mozes states that more employees and divisions will be needed within the future. None of the organizations have created an independent organization out of the established organization or acquired a different organization to solve the problem concerning disruptive innovation.

Coopetition

Pro bookings and 8BALL Music met all of the seven preconditions for the development of a mutual beneficial business relationship. Mark Mozes decided to engage in such a relationship to broaden its network and to strengthen its position. Ronald de Bas mentions the following: ‘Due to the digitization

and the other changes in the music industry we had to be creative and we decided to launch 8BALL Bookings. This division was harder to manage than we expected since we had no access to the knowledge that was needed and thus we decided to engage in a coopetitive relationship with a successful organization that was specialized in bookings’. The actual coopetitive relationship can be

defined as an equal relationship in which cooperation and competition are equally distributed. Ronald de Bas and Mark Mozes highlight that the most important aspect for the structure of their relationship is communication. The relationship is informal and there are only formal contracts between the artists, represented by 8BALL Music, and Pro Bookings. When 8BALL Music signs a new artist, the most suitable booking organization has to be found. Once this booking organization is found, all of the matters concerning the bookings of an artist are carried out by, in this specific case, Pro Bookings. Even though the organizations are satisfied with the structure of the relationship, both of the organizations would want to change the structure within the future. As Mark Mozes says: ‘I believe

that we can conquer the whole music industry if 8BALL Music would acquire shares in Pro Bookings . This would strengthen the position of both organizations and costs can be declined since we can be more flexible with the commissions’. Ronald de Bas also stresses the importance of acquiring shares in

Pro Bookings: ‘When we partly own Pro Bookings we can obtain more control on the organization

and we get the opportunity to become more influential on the development of the booking aspect of our artists. Nowadays it seems as if we produce products that we cannot sell ourselves, or at least we have no influence on the selling process’.

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engaged in the coopetitive relationship for the following reasons: ‘Mark is a friend of mine and I had a

good gut feeling about this collaboration. I also believe that we can get access to new markets, lower our costs, can use a skilled labor force, decrease risks and make more profit. Both of the organizations

feel that they are more able to compete with larger organizations through their coopetitive relationship. Mark Mozes mentions: ‘This relationship provides my organization with a better reputation and since

8BALL Music is known for its high standards, I’ve noticed that people sooner accept my beliefs. I believe that we can obtain a larger share of the market through this collaboration since our visibility is enlarged’.

Risks of coopetition

All of the disadvantages that were described in the literature on coopetition were recognized by Mark Mozes, but not by Ronald de Bas. Ronald de Bas mentions that the relationship does not need many uncertain investments since the product is already there. He also states that neglecting the core business, investments concerning resource mobilization and the barrier to leave the relationship are risks for Pro Bookings since this organization is smaller and more dependent.

One of the biggest problems within a coopetitive relationship is to maintain an atmosphere of high loyalty. Ronald de Bas states: ‘Communication is key and you have to be open and work transparent.

It is important that agreements that need to be documented are actually documented so that we can always rely on these documents in case of conflict. Personally I think that trust is one of the most important aspects of the relationship’. Mark Mozes also stresses the importance of communication

and the following of agreements that have been made. As Ronald de Bas already mentioned, Mark Mozes sees trust within the coopetitive relationship as the most important factor. He says: ‘We work

on creative processes which mostly have an informal nature. Therefore, I do not want to have doubts on the other party in any way. I want to trust the other party completely and luckily we have reached a high level of trust within this coopetitive relationship’. Due to the high level of trust, both of the

organizations have no fear that the other party will steal important business information and they do not feel that there is a loss of control within the relationship. Concerning the management of the relationship, both were very clear and provided a simple and similar answer: ‘Communication is the

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5. Discussion

This research was focused on the relevant factors for organizations within the Dutch music industry when they decide to establish a coopetitive relationship and the factors that should be advised in order to maintain an atmosphere of high loyalty within the coopetitive relationship. The music industry had to deal with many disruptive innovations and since previous research has shown that collaboration is a powerful tool in dealing with disruptive innovations this industry provided an interesting setting for the study.

Christensen & Overdorf (2000) explain that managers have to know precisely what types of change the organization can or cannot handle and if they are able to respond to disruptive innovations or if they are only good at responding to sustaining innovations. The capabilities of the organization are influenced by resources, processes and values. Christensen & Overdorf (2000) mentioned that in the beginning resources are seen as the most important capabilities of the organization, but eventually processes and values become more important. The evidence from this study revealed that resources are always seen as the most important capabilities within the organization. The capable employees and their broad network are seen as the basis of success and without these resources an organization would eventually fail. Due to the network, the capabilities of the employees and the informal processes, the organizations have the ability and flexibility to focus on disruptive innovations.

Bouncken & Fredrich (2012) mentioned that the success of businesses in developing radical innovations shows a positive relationship with coopetition. This study revealed that 8Ball focused on disruptive innovation as well as sustaining innovation, but with regard to the disruptive innovation they had to find new opportunities and wanted to broaden their market. Therefore, the company decided to engage in a coopetitive relationship with Pro Bookings. The results of this study did not show that all of the five responses that were identified by Charitou & Markides (2003) and the three-way framework that was described by Christensen & Overdorf (2000) had a direct effect on the decision to engage in a coopetitive relationship. The results did show that ‘playing both games at once’ and the creation of new organizational structures had a positive influence on the decision to engage in a coopetitive relationship. The focus on sustaining innovation was not seen as a difficult topic within 8BALL Music and for this type of innovation coopetition was not beneficial.

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aspects of the music industry were developed in-house. They eventually had to admit that their own bookings division (8BALL Bookings) could never become a strong competitor within the booking industry due to their lack of the right capabilities. Therefore they decided to engage in a coopetitive relationship with Pro Bookings. Pro Bookings wanted to grow and broaden their market. In order to achieve this goal, a collaboration with a powerful partner such as 8BALL Music was helpful and needed.

The possession of resources that the other party wants is one of the preconditions for a mutual beneficial relationship that were described by Zineldin (2004). The results of this study showed that both of the companies met all of the seven preconditions and they could meet these preconditions since they were already embodied in their resources, values and processes. We can state that the seven preconditions have a positive influence on the decision to engage in a coopetitive relationship, since it resulted in a mutually beneficial relationship within this specific case. This study furthermore showed that the possession of capabilities (the ones that the company could exchange with the other party, but also the lack of the needed capabilities) had a positive effect on the decision to engage in a coopetitive relationship.

Three types of a coopetitive relationship are defined by Bengtsson & Kock (2000). The results of this study did not show that these three types of a coopetitive relationship had a direct influence on the actual decision to engage in a coopetitive relation. During the interviews, it was revealed that the decision to focus on disruptive innovations was positively related to the decision to engage in coopetition. The choice of one of the three possible coopetitive relationships can be seen as a logical next step, when the decision to engage in coopetition has already been made.

The literature on coopetition highlights multiple advantages that may exist within a coopetitive relationship (Zineldin, 2004; Morris, Kocak & Ozer, 2007). The results of this study showed that the advantages of coopetition were an important reason to engage in a coopetitive relationship, since it can strengthen the position of the involved organizations. The most important advantages for 8BALL music were: lower costs (due to the disruptive innovation and the falling physical sales the costs within the organization have to be lower in order to survive), skilled labor force (The knowledge within Pro Bookings was needed for the bookings aspect), access to new markets (due to the relation with Pro Bookings , 8BALL Music has more influence within the bookings industry) and greater profit (due to the relationship there is more control over the dividing of revenues).

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the coopetitive relation, Pro Bookings also has access to these technologies and this can be used as a competitive advantage on other booking companies who don’t have the access to these technologies), greater profit (more control over the dividing of revenues) and the decreased risks (8BALL Music works with the biggest artists in the Dutch music industry and when Pro Bookings becomes the exclusive booker of these artists, the risks can be decreased).

Next to the advantages, some risks are identified within the literature on coopetition (Cassiman et al., 2009; Zineldin, 2004; Sherman, 1992; Gnyawali & Park, 2009). Even though these risks have to be kept in mind while engaging in a coopetitive relationship, the results of this study showed that these risks did not outweigh the advantages of coopetition. 8BALL Music mentioned that the loss of freedom and control, conflicting goals, abuse of power, increased vulnerability and a low level of trust were the most influential risks. Pro Bookings stated that neglecting the core business, high costs of coordinating and controlling, uncertain returns on investments, loss of freedom and control, conflicting goals, abuse of power, increased vulnerability, barrier to leave the relationship and a low level of trust were the most influential risks within the relationship.

This study revealed that Pro Bookings experienced more risks than 8BALL Music. This can be explained by the fact that Pro Bookings needs to implement more changes within the organization since they are smaller and they expect to grow more rapidly within the future. Furthermore, 8BALL Music has more power within the Dutch music industry and thus Pro Bookings needs to deal with more possible risks within the relationship.

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6. Conclusion

Innovation can be seen as one of the longest standing and most important business mantras (Blichfeldt, 2009). A central theme in innovation is the creative destruction of existing theories (Bergek et al., 2013). Even though the specific field of disruptive innovations has been substantially studied by researchers, there is still room for improvement in different aspects of the disruptive innovation theory. Disruptive innovations may benefit from incumbents and start-ups that collaborate. This topic and the motivations have not been clearly discussed in the existing literature (Yu & Hang, 2009). Research on coopetition is mainly focused on larger businesses, but coopetition is also preferred by small and medium sized businesses (Akdogan & Cingoz, 2012).

Therefore, this study focused on disruptive innovations and coopetition in SME’s within the Dutch music industry. To increase the knowledge on the underlying forces of coopetition and the importance of this strategy in dealing with disruptive innovations, a single case study was conducted.

This research provides an answer to the research question: Which factors are relevant for

organizations within the Dutch music industry when they decide to establish a coopetitive relationship and which of these factors should be advised in order to maintain an atmosphere of high loyalty within the coopetitive relationship?

Previous research revealed that the capabilities of an organization are influenced by its resources, processes and values. Together, these capabilities determine if an organization is able to focus on disruptive innovations, sustaining innovations or both at the same time (Christensen & Overdorf, 2000). Once an organization has decided to focus on disruptive innovations, several responses can be identified (Charitou & Markides, 2003; Christensen & Overdorf, 2000).

An important tool for organizations within this context is coopetition (Akdogan & Cingoz, 2012). Businesses need to meet seven preconditions for the development of a mutual beneficial relationship (Zineldin, 2004) and need to choose between three types of a coopetitive relationship (Bengtsson & Kock, 2000). Once the organizations decide to engage in a coopetitive relationship, many advantages and risks arise.

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(meeting these preconditions leads to a mutual beneficial relationship) and the advantages of coopetition (strengthens the position of organizations).

The results furthermore stated that the following factors should be advised in order to maintain an atmosphere of high loyalty within the coopetitive relationship: a high level of trust, communication and the resources.

The organizations mention that, since their relationship is mostly based on informal processes and oral agreements, the other party needs to be fully trusted. It was mentioned many times during the interviews that communication is the key that leads to openness and transparency. Another important factor are the resources of the organizations. This study showed that both of the businesses see their resources as the most important capabilities within the organization. The capable employees and their broad network are seen as the basis of success. To develop a mutual beneficial relationship it is very important that a party possesses resources that the other party wants.

Theoretical and managerial implications

This study contributes to the existing literature as follows: first, this research adds knowledge to the literature on incumbents and start-ups that decide to collaborate in order to deal with a disruptive innovation and the fundamental motivations of this collaboration.

Second, the previous research on coopetition is mainly focused on larger businesses since the strategy is mostly used as a tool to increase the power of larger businesses. This study can be seen as the first case study within the Dutch music industry that is specifically focused on SME’s. Therefore, this study also increases the knowledge on coopetition and its drivers within SME’s.

As a whole, this study contributes to the existing literature on the driving forces of coopetition, the underlying forces that influence the decision to engage in a coopetitive relationship and the factors that should be advised to maintain a solid coopetitive relationship between SME’s.

The managerial implications of this research are based on the fact that the results revealed that resources are always seen as the most important capabilities within the organization, this is in contrast with previous literature which states that resources are important in the start-up phase, but processes and values eventually become more important (Christensen & Overdorf, 2000). The results also mentioned the importance of trust and communication. A low level of trust was already seen as a stumbling block within a coopetitive relation (Sherman, 1992), but the fact that communication was one of the most important factors of a solid coopetitive relationship is new to the literature on coopetition. Managers need to achieve a high level of trust and need to invest in good communication.

Limitations and future research

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positive and optimistic than it would have been if other, less important actors were also interviewed. The view from the influential actors can be biased due to the fact that the coopetitive relationship originated from their ideas.

The topic of coopetition within SME’s and its underlying forces should be further tested in future research. A larger case study could provide more insights on this topic and a larger case study would also improve the generalizabilty of the research.

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Stronger together: Establishing collaborations during disruptive innovations