Monday February 03, 2014
2:45PM - 4:15PM
RAMON JOSE LECUONA TORRAS, London Business School
When do firms introduce architectural innovation? The role of capabilities and incentives inside multi-business firms
Established theory suggests that firms familiar with existing products (a.k.a incumbents) suffer from inertia and thus seldom engage in architectural innovation. However, evidence from multiple industries shows that incumbents occasionally introduce this type of innovations. In this paper I reconcile extant theory with these observed facts by examining the interplay between inertia and incentives inside multi-business corporations. More specifically, I show that inside these corporations product-specific inertia can be overpowered by capabilities and incentives that reside outside of the business directly in charge of developing a focal product. Inertia may still trump over these incentives, however, when firms have more de-centralized R&D structures or when the product division accounts for larger shares of the firm's operations. I test my arguments on a manually-collected dataset that tracks innovations in cellular phones introduced by 91 firms. Implications for scholars working on innovation and corporate strategy are discussed.