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.
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.