| Published: | August 4, 2010 |
| Paper Released: | June 2010 |
| Author: | Kristina McElheran |
Executive Summary:
The connection between market leadership and the adoption of new technologies is central to understanding how firms maintain or gain competitive advantage over time. One key determinant of firm openness to either product or process innovation is how radical or incremental a particular change is for the organization. Using the context of IT-enabled business processes for e-buying and e-selling, a setting that offers a complementary view to studies that have focused on R&D expenditure and patents as measures of innovation, HBS professor Kristina McElheran sheds light on whether, when, and why market leaders might be more likely to adopt new innovations. This study represents the first robust, multi-industry evidence that market leaders are far more likely to adopt incremental rather than radical business process innovations. Key concepts include:
- Extensive survey data for 1999 show that e-buying constituted a relatively incremental process innovation, while e-selling was far more radical.
- Market leaders were more likely than laggards to adopt incremental business process innovations. External market factors and internal characteristics reinforced each other to make adoption relatively more beneficial and/or easier for the largest, most successful firms.
- Market leaders were less likely than laggards to adopt radical business process innovations. For the complex, strategically sensitive activity of e-selling, market leaders faced disproportionate risks and adjustment costs, making adoption less attractive for firms with the largest market shares.
- The combination of complexity, strategic sensitivity, and boundary-spanning created the particular challenge observed for market leaders in the case of e-selling and potentially other business process innovations.
- Inter-firm coordination is an important strategic consideration as businesses grow ever more dependent on the performance of their extended value chain for success. Lagging firms may discover new opportunities to leapfrog their larger competitors using certain business-to-business process innovations and IT-enabled supply chain relationships.
Abstract
This paper empirically investigates how market leadership influences firm propensity to adopt new business process innovations. Using a unique data set spanning roughly 35,000 plants in 86 U.S. manufacturing industries, I study the adoption of frontier e-business practices during the early diffusion of the commercial internet. Theory predicts that firms with greater market share will be more likely to adopt innovations that build on their existing strengths, while they will resist more radical technological advances. While prior work primarily focuses on product innovation, I extend the logic into the business process setting to find that leaders were far more likely to adopt the incremental innovation of internet-based e-buying. However, they were commensurately less likely to adopt the more strategically sensitive and complex practice of e-selling. This pattern is remarkably robust, holding across a wide range of industries and controlling for factors such as productivity and related technological capabilities. The results are explicated by a framework I develop for understanding the drivers of this behavior and making it possible to classify business process innovations as radical or not. While greater market share promotes adoption of all types of business process innovations, this effect is outweighed by additional co-invention and coordination costs whenever a technological advance address strategically sensitive and complex business processes that must also span the firm boundary. 44 pages
Paper Information
- Full Working Paper Text
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- Working Paper Publication Date: June 2010
- HBS Working Paper Number: 10-104
- Faculty Unit: Technology and Operations Management
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