Response of established firms to disruptive strategic innovation: empirical evidence from Europe and North America

Charitou, Constantinos (2001) Response of established firms to disruptive strategic innovation: empirical evidence from Europe and North America. Doctoral thesis, University of London: London Business School.

Abstract

It is widely recognised that the way firms interact in the marketplace through the ongoing exchange of competitive actions and responses is of paramount importance to strategic management. This dissertation is concerned with the response of established firms to a particular type of competitive action, namely disruptive strategic innovation, that leads to the identification of a new strategic position (or business model) in an existing industry. This new position involves a fundamentally different way of competing in the industry which conflicts with the traditional way of doing business. Two questions are examined: (1) What factors influence the decision by established firms to embrace a disruptive strategic innovation? (2) How can established firms compete effectively in two different and conflicting strategic positions in the same industry simultaneously? Based on an action-response framework, several factors that influence a firm's likelihood and effectiveness of response are identified by drawing on different theoretical backgrounds and insights from field research. These response determinants are tested empirically using large sample questionnaire data from eleven European and North American industries. Contrary to suggestions in the strategic positioning literature, the main findings indicate that established firms can compete in two different and conflicting strategic positions in the same industry simultaneously. On average, firms that create a separate unit to compete in the new business will be more effective in playing two games at the same time. Their effectiveness is higher when the two positions are strategically related. The results also suggest a crucial role for corporate headquarters in employing the appropriate administrative mechanisms and controls in the new unit. Specifically, the degree of autonomy granted to the unit to take strategic, financial and operational decisions, as well as the budgetary and investment policies, and the evaluation and incentive systems used to manage this new organisation are important determinants of a firm's effectiveness.