Stepping Forward: Why Incremental Innovations are Important

If you are like us, you have heard a lot about radical innovations and how while they are important for the economy and society they are challenging for managers. Look at the smartphone, look at the digital camera, look at mobility as a service, and they say you will learn how businesses move ahead. It makes sense and it is also wrong.

Why is it wrong? Radical innovations are eye-catching, but they are also rare. Most progress is through incremental innovations. Also, many of the stories told about how firms respond to radical innovations are exaggerated to the point of being mostly untrue. Have you heard the story of Kodak ignoring digital camera technology? Funny thing is that the first professional digital camera and the first consumer digital camera were both Kodak cameras.

Why does it make sense? It is important to understand how firms respond to innovations so we should do systematic research and teach the results. But because incremental innovations are more common than radical ones and represent the bulk of technological and product progress in the world, let’s look at them too!

In a paper published in Industrial and Corporate Change, Marc-David Seidel and I compared two incremental and one radical innovation in the airline industry. And to make the comparison interesting, one of the incremental innovations required reorganizing the business to fully exploit, making it organizationally complex. The other incremental innovation and the radical innovation (technologically) were organizationally incremental.

So what did firms do? I like to think of us as one of the first diffusion studies finding no imitation of others, because the innovation that was incremental technologically and organizationally (Airbus A320neo) spread purely based on its commercial benefit. 

But we also found that firms imitated each other, and it did not matter whether the innovation involved radical technology or need to reorganize. They copied the leaders, and they also committed to the innovation after first trying it out. This was true for composite-hull jets (radical technology) and regional jets (reorganizing required).

So, what does this mean? There is a lot of research and a fair amount of teaching and managerial talk about how firms imitate each other, and how that means that leadership is about choosing when to go first. All of this is true, but it is conditional on innovations having a lot of uncertainty – either technological or organizational. Lots of the literature focuses just on that technological uncertainty, but we must also consider the organizational uncertainty. For other innovations where the technological and organizational uncertainty is lower, firms are quite capable of assessing the value without looking at their peers. They are smarter than we think. This simple and intuitive insight has major implications for how innovators can get their creations adopted, as well as how regional ecosystems can help their innovators thrive.

Greve HR, Seidel M-DL. 2025. Innovation diffusion uncertainty: incremental and radical innovations compared. Industrial and Corporate Change.

CEOs Want to be Understood. No Really, because it Increases Firm Value

Have you ever noticed how talkative CEOs are and how they jump at opportunities to explain their firm, its products, and its markets to all sorts of media? Perhaps you thought that was because they have sizable egos that need to be maintained by seeing themselves in prominent media outlets. Perhaps you are right. But there is also something else going on, something that is quite important for stock market valuations of firms, and something that we have been doing research on.

Firms differ in how easy they are to understand. Now, I am not talking about their customers. Firms with products and services that customers find hard to understand will not be around for long. If the world had been filled with people like me, bubble tea outlets would not exist – I truly don’t understand them. But firms can offer a lot of products that each is easy to understand for the customer, but those who assess their management – especially security analysts who recommend investments to equity holders – may still find the combination hard to understand.

Usually, we think of firms that operate in multiple industries as being hard to understand, unless there is some obvious connection between the industries, and indeed single-industry firms generally have higher valuations in the stock market. But industries are an old-fashioned way of looking at modern firms. Apple are in many industries, but we see them as coherent because most of their products are easy-to-use and stylish lifestyle offerings to individuals, and their offering to firms (like iCloud) overlap with their offerings to individuals.  

The keyword is “we see them as coherent”, which means that Apple presents a story to the world that is generally accepted and that lets security analysts recommend them to investors. In research published in Organization Science, Sang Won Han and I found that this holds for firms in general, and it had some interesting implications. First, we were able to measure how well firm self-description and analyst understanding matched, and we showed the consequences of mismatch. It led to lower valuation, and worse penalty for operating in multiple industries. We also showed how this could change over time. Firm self-descriptions could bring analyst understanding closer, improving valuation, but the central mover in this connection remained the analyst.

So regardless of why CEOs want to talk, we know it is useful. The stock market valuation of a firm is not only about value creation; it is also about story creation.

Han SW, Greve HR. 2025. The Categorical Imperative vs. Linguistic Alignment: Organizations Use Language to Modify Environmental Expectations. Organization Science forthcoming.

Are Quarterbacks Smarter than CEOs? Pass Choices Say Yes

What does it mean to be smart when making decisions? We usually take that to mean that there is a situation with some goals to fulfill and some constraints and risks to consider, and the decision is one that weighs these factors to give a good chance of fulfilling the main goal and preferably also other goals. Football is a good example. The goal is to win, a sub-goal that helps the goal of winning is to advance the ball by running and passing, and the risks and constraints are that the opposing team can stop runs, prevent pass completion or intercept the pass, sack the quarterback, and so on.

These risks and the associated rewards are why we enjoy watching football, in addition to the spectacular athletic performances we see on the offence and defense. We also recognize that football can be a model of life. Maybe there isn’t an opposing team, but there are certainly goals and risks. Indeed, business has the same match of goals, sub-goals, actions that can help accomplish the goals, and risks associated with each goal.

Research on business firms has produced a depressing conclusion when it comes to managers and executives pursuing firm goals. It is not unusual to see them pursue one goal to the exclusion of other goals, including sub-goals that would help the main goal be accomplished. That strikes researchers as being slightly less smart behavior than we would like to see.

What about football? This is where the contrast gets even bigger. We know that football teams are a bit like organizational teams. The offensive coordinator calls the play, but the quarterback can modify the play either before or after receiving the ball when observing the defensive formation or the offensive and defensive movement. The sub-goal of advancing the ball to get a first down is prominent, but it is scoring that matters. Can they do smart tradeoffs between these goals? Absolutely. In a paper published in Journal of Management Studies, Xavier Sobrepere and Henrich Greve show thatt hey make tradeoffs between these goals that are intelligent and effective for winning the game.

Why, then, do sports teams seem to be smarter than firms? Maybe it is because they practice their plays a lot and repeat them over and over again, so they actually have more learning and more experience embedded. But there is also another explanation. It is hard for researchers to observe exactly how goals are ranked into main goals and sub-goals in firms, and it is especially difficult to find goals that have a sequence as natural as we see in football. First downs come before scoring, scoring comes before winning. Firms are more interdependent. So, maybe executives are equally smart and we just have not discovered it yet.

Sobrepere, Xavier and Henrich R. Greve. 2025. Goal Hierarchies: Understanding Sub-Goal and Primary Goal Interdependency. Journal of Management Studies, forthcoming.