«From Disruptive Technology to Disruptive Business Model Innovation: In Need for an Integrated Conceptual Framework»

Solomon R. Habtay and Magnus Holmén. School of Economic and Business Sciences, Faculty of Commerce, Law and Management, University of Witwatersrand, 2012. Paper. See references in the original publication of this text.

«Discussions and Conclusions

»This study modelled the evolutionary development of disruptive business model innovation by proposing two hierarchically linked phases. Consistent with previous research, the result of this paper suggests that latent disruptive innovation is negatively related to incumbent’s managers’ mainstream customer orientation at initial stage (Govindarajan et. al., 2011; Adner, 2002; Christensen, 1997). This negative relationship should define a potentially disruptive innovation, and should distinguish at the most basic level between disruptive and sustaining innovations. In addition, it should also distinguish disruptive kinds of innovations from other types of discontinuous innovations, e.g. radical innovations that are positively related to incumbent’s managers’ mainstream market orientation (Govindarajan et al., 2011).

»In the long run, however, incumbents’ mainstream customer orientation can be positively associated with the emergence of a potentially disruptive niche market. This suggests that beyond the disruptive innovation’s endogenous characteristics, exogenous asymmetric cognition orientations between the innovator and incumbent can inform the disparate trajectories.

»This insight provides theoretical reasoning to consider ex ante incumbents’ customer orientation as one of the precursors of a potentially disruptive niche market. This negative (incumbents) customer orientation towards disruptive innovation arises because neither the new business model’s disruptiveness potential nor its trajectory is perceptible ex ante (Danneels, 2004; Gilbert, 2003; Nightingale, 2004) in niche markets that emerge outside of incumbents radar (Christensen and Raynor, 2003). While the flood of new firms in a niche market can increase the threat of disruption, incumbents’ absence or possibly misguided responses to disruptive firms during the niche market phase may also increase the disruptiveness potential of the niche market. We find support in Christensen’s (1997) argument that established firms are likely to flee the niche market in order to concentrate on profitable markets, consequently providing new firms a competitive free space and momentum to grow the niche market.

»The incumbent’s part of the disruptive innovation model hypothesized that a potentially disruptive niche market business model innovation can be transformed into disruptive innovation, if conditions amplify asymmetric capabilities and incentives and associated incumbents’ managerial dilemma. Studies on technological change have argued that technical competencies mismatch can cause incumbents misfortune in face of discontinuous innovation (Henderson, 2006; Henderson and Clark, 1990; Tushman and Anderson, 1986). But our findings suggest the notion of capabilities misfit may not be present in disruptive innovation phenomena.

»Confirming to Christensen’s (1997) argument, our result suggests that incumbents may be disrupted, despite mastering radical, competence-destroying or architectural innovation capabilities. There are two possible explanations. First, some disruptive business model innovations, such as no-frills low-cost airlines, insurance and banking models may create misfits in downstream capabilities such as in distribution and sales, but they do not significantly depart from established upstream technical activities. When conditions allow, incumbents can leverage accumulated capabilities and thus respond successfully. Second, although some technologically sophisticated disruptive innovations entail downstream and upstream capabilities misfit, resource endowed firms may either hire skills and technologies or acquire disruptive firms to develop disruptive capabilities.

»This study confirms that disruptive innovation is the function of asymmetric incentive systems and managerial dilemma. The economic asymmetric explanation depicts disruptive innovation as a process outcome when entrants pursue competition through low-cost high volume business models against differentiated business models in the mainstream market. This creates a dilemma for incumbents which in turn may trigger disruption.

»Theoretical and managerial implications

»Our study makes several key contributions to theory and practice. First, most business model innovation studies adopt entrants’ entrepreneurial perspectives in examining new business model development. Conversely, extant disruptive innovation research begins when these studies “end” and adopt incumbents perspectives in exploring firms impediments to adaptive efforts. This study systematically links both perspectives together and explores disruptive business model innovation. Second, disruptive innovation theory attributes to technological change or asymmetric economic motivations for the departure of disruptive paradigm. Beyond these explanations, this study shows how asymmetric cognitive orientations can inform the disparities between the disruptive and sustaining business models trajectories.

»Third, this study systematically unpacks the differential effects of capabilities, incentive systems and managerial cognition as underlying mechanisms of disruptive innovation. While asymmetric incentives and cognition orientations can explain disruptive innovation, asymmetric technical capabilities have no effect on disruptive innovation. The study further breaks down the cognitive explanation into incumbents’ customer orientation and incumbents managerial dilemma. Incumbents’ customer orientation refers to ex ante difficulties in identification of latent or emerging disruptive niche market. On the other hand, incumbents dilemma is an ex post construct that explains the difficulties incumbents’ managers encounter in responding to disruptive innovation when the incumbent confronts disruptive innovation.

»Limitations and Future Research

»First, although the business model literature has offered a number of important theoretical frameworks of business model concept, strategic management research has yet to offer psychometrically reliable, valid and widely agreed upon definition with operational constructs of the concept that can assist for innovation research on the topic of disruptive business model innovation (Markides, 2008). Since the business model concept is evolutionary, complex, dynamic and multidimensional that considers all aspects of business activities over development period, this study focused only on few aspects. Other important explanatory constructs could have been excluded from our analysis.

»Second, we tested the conceptual model on aggregated data from five industries. However this attempt to generalize the findings across industries makes data interpretation problematic. Disruptive innovation is relative, “not an absolute phenomenon” (Christensen, 2006: 42). In other words, disruptiveness can only be defined in relation to a certain incumbent’s business model in a specific context. If each disruptive innovation is investigated separately across the five industries, each could have drawn alternative explanations. Study on disruptive business model innovation heterogeneity across industries could thus shed further knowledge.

»Third, our results show that a potentially disruptive niche market business model does not have inherent disruptive capacity on its own. Although a latent disruptive innovation can initially create a niche market, some business models functioning as “tickets to entry” may fail (Brink and Holmén, 2009), while others may remain isolated in niche markets. Still in other circumstances some may progress over time through a disparate performance trajectory to spark an era of disruption. But this situation appears unpredictable and difficult to make theoretical connections ex post.

»The challenge of identifying early signals of latent disruptive innovation remains unsolved. Further research could investigate the inherent features of latent disruptive business model innovation in order to distinguish from other types of low-cost business models that do not materialize disruptive threats. Furthermore, little is known of incumbents competitive behaviour before disruption unfolds. Our conclusion that incumbents’ customer orientation leads to absence is a necessary generalization and considers incumbents as homogenous. A future study on the heterogeneity of incumbents’ reactions during a potentially disruptive niche market evolution period could be an interesting topic to explore.»

Innovation Typologies
Thematic Readings

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