The Incumbent's Curse? Incumbency, Size, and Radical Product Innovation

Abstract

A common perception in the field of innovation is that large, incumbent firms rarely introduce radical product innovations. Such firms tend to solidify their market positions with relatively incremental innovations. They may even turn away entrepreneurs who come up with radical innovations, though they themselves had such entrepreneurial roots. As a result, radical innovations tend to come from small firms, the outsiders. This thesis, which we term the “incumbent's curse,” is commonly accepted in academic and popular accounts of radical innovation. This topic is important, because radical product innovation is an engine of economic growth that has created entire industries and brought down giants while catapulting small firms to market leadership. Yet a review of the literature suggests that the evidence for the incumbent's curse is based on anecdotes and scattered case studies of highly specialized innovations. It is not clear if it applies widely across several product categories. The authors reexamine the incumbent's curse using a historical analysis of a relatively large number of radical innovations in the consumer durables and office products categories. In particular, the authors seek to answer the following questions: (1) How prevalent is this phenomenon? What percentage of radical innovations do incumbents versus nonincumbents introduce? What percentage of radical innovations do small firms versus large firms introduce? (2) Is the phenomenon a curse that invariably afflicts large incumbents in current industries? Is it driven by incumbency or size? and (3) How consistent is the phenomenon? Has the increasing size and complexity of firms over time accentuated it? Does it vary across national boundaries? Results from the study suggest that conventional wisdom about the incumbent's curse may not always be valid.

Forecasting consumer perception of innovativeness

“…Some new product development researchers view product innovativeness as a separate, singular construct consisting of three dimensions (technological discontinuity, market discontinuity, and customer discontinuity) that is distinct from related constructs such as product advantage (McNally, Cavusgil, and Calantone, 2010). On the other hand historical innovation scholars (Chandy and Tellis, 2000;Sorescu, Chandy, and Prabhu, 2003) have typically used retrospective classifications based on experts as raters (e.g., academics or information obtained from public bodies such as the Food and Drug Administration), and define innovativeness as "the extent to which the technology involved in a new product is different from prior technologies [and] the extent to which the new product fulfils key customer needs better than existing products" (Chandy and Tellis, 1998). Likewise, Sorescu and Spanjol (2008, p. 115) define breakthrough innovations as "…new products that are the first to bring novel and significant consumer benefits to the market…" and incremental innovations as "…new products that do not deliver novel and significant consumer benefits to the market…", explicitly recognizing the role of novelty and superior consumer benefits.…”

Interesting and impactful research: on phenomena, theory, and writing

“…Very few allow for a reverse path from success to strategy. However, many firms suffer from the incumbent's curse, where success leads to glorification of the past, complacency, and blindness to the next big innovation (Chandy and Tellis 2000). Success sows the seeds of failure.…”

Credibility and legitimacy in policy-driven innovation networks: resource dependencies and expectations in Dutch electric vehicle subsidies

“…First, we control for the type of organization, this can be Small or Medium sized Enterprise (SME), Large Enterprise (LE), or Knowledge Institute (KI). SME's are usually credited with being more innovative, while LE's have more resources and experience (Chandy and Tellis 2000). KI's are assumed to bring in the required scientific knowledge for innovation.…”

“…The effects of age on innovation are ambiguous and mixed (Chandy and Tellis 2000). A popular thought, voiced by a large number of authors is that older firms are less prone to develop innovations than younger firms (Nelson and Winter 1982;Henderson and Clark 1990;Henderson 1993).…”

“…On the other hand, older firms usually have the resources to develop new innovations. Chandy and Tellis (2000) demonstrated that organizational age does not influence the likelihood of introducing radical new innovations. An advantage of older firms is that they have an observable historical track when developing innovations and the experience to do so.…”