Do you think incumbents and entrants should treat incremental and radical innovation differently? If so why? If not, why not?
Incumbents and entrants must treat incremental and radical differently in order to stay aligned with their company and division’s strategic business goals. Research at the University of California finds that, in the 20th century, small firms produced 2.4 times as many innovations per employee as small firms.
Profits: While incumbents are more likely to have the necessary funding (large research and development commitments) or from other sources (joint ventures), they are less likely to introduce radical innovations to the market because of the large investment it must make in a risk filled environment. Without a guarantee that it will be drive profits and increase shareholder value, incumbents will play in a safe ...view middle of the document...
The may lack the right leadership practices, customer relationships, production capabilities and work force to successfully deliver radical breakthrough and innovation.
Markets and Networks: A Harvard Business Review article by Bhaskar Chakravorti suggests that as markets become more like networks, it will be more challenging than ever for innovation to catch on. He uses an example that a bank is unable to shift to a faster transaction processing system if the change affects how the bank communicates with other banks. Entrants will undoubtedly have innovation hurdles to overcome, but they may also be more agile and responsive in a radical innovation environment.
Platforms: In class, we discussed strategic use of platforms: the key to controlling the platform is controlling standardization and innovation. If companies create platform competition, it has the potential to raise the level of openness and innovation in the market according to Parker and Van Alstyne at Boston University. For entrants, the value in an open platform is lower cost experimentation, transparency and lack of hold-up. With closed standards by incumbents, there is no sacrifice of platform profits because of limit pricing strategy.
Entrants and incumbents should continue to treat incremental and radical innovation differently until “corporate mindset” and culture can be adjusted on behalf of incumbents. Radical innovation is radical, and entrants may have smaller or fewer losses to suffer, unlike incumbents; therefore giving entrants an edge on innovation.
Chakravorti, B. (2004). The New Rules For Bringing Innovations To Market. Boston. Harvard Business Review. http://hbr.org/2004/03/the-new-rules-for-bringing-innovations-to-market/ar/pr
Parker, G. & Van Alstyne, M. (2008). Innovation, Openness and Platform Control. Boston University School of Management.
Stringer, R. (2000). How To Manage Radical Innovation. California. The Regents of the University of California.