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.

Who Benefits from Entrepreneurship Opportunities? Check the Norms!

Many nations want more entrepreneurship to grow the economy. Many individuals want public support of their entrepreneurship efforts, or at least removal of barriers. When policies to make entry into entrepreneurship easier are introduced, a common logic is that they should benefit the economically weaker people because the privileged have the necessary resources to enter entrepreneurship. This logic has a problem, though: researchers have found that it is sometimes right and sometimes wrong.

Understanding the reasons for the inconsistency was the motivation behind research by Grady W. Raines, Peter S. Polhill, Shon R. Hiatt, and Ryan S. Coles published in Administrative Science Quarterly. Their underlying idea was that most support for entrepreneurship is about reducing financial barriers or friction in the form of difficult business registration requirements. Barriers against entrepreneurship don’t just come in the form of time and money, however, so these types of changes may not be enough. Other barriers exist in the mind: who in society think of themselves as potential entrepreneurs and are thought of by others as potential entrepreneurs? And another barrier resides in social relations and norms: who does a society believe should be entrepreneurs?

Why do these distinctions matter? Well, let’s imagine a society in which men are thought of as more natural entrepreneurs and where norms see men as those who should lead anything, including businesses. We don’t need to imagine it, of course, because many societies are patriarchal like that. In this research, the authors focused on reforms in Mexico that were intended to make entrepreneurship easier by reducing required procedures and office visits and thereby speeding up the business registration process by a lot – from a month to a day and a half.

So, what happened?  Mexico got more entrepreneurs, as we would expect. Male entrepreneurs. For women, there was no increase in the number of entrepreneurs following this reform, suggesting that the norms disfavored them. And remarkably, this lack of change was the best news from the perspective of women. Now for the really bad news: Fewer women had paid employment following this reform. Why? Because more of them did unpaid labor in the entrepreneurial enterprises of their male relatives. So, in this patriarchal society at least, easier entrepreneurship meant more male entrepreneurs and more unpaid women workers.

Is this a reason to be wary of entrepreneurship or of policies supporting entrepreneurship? Probably not. Is it one more reason to think that norms of inequality, such as patriarchy, find many ways to hurt society? Yes. And it is not clear that we have a good solution for this.

Raines, G.W., P.S. Polhill, S.R. Hiatt, R.S. Coles. 2024. Cultural Norms and the Gendered Impact of Entrepreneurship Policy in Mexico. Administrative Science Quarterly forthcoming.

Why Quit Your Job? Resources in Black and White

Employers have always been interested in why workers quit their jobs. It is often, and rightly, seen as a waste because those who quit to join another company are clearly seen as more valuable there, or see the other company as more valuable for them, suggesting that they were not used well enough or appreciated highly enough in their current job. High quit rates are problematic for companies.

They are also problematic for society because quit rates display racial differences. All racial groups in the US society have slightly different quit rates, but a glaring concern is that black workers quit so often even though they face discrimination in getting a new job. Why?

Recent research by Adina D. Sterling published in Administrative Science Quarterly gives a clear answer: it is about resources. In resource access, there is, on average, a big black and white difference. Black workers face greater problems with public transportation and health, both of which can prevent workers from staying in their jobs. White workers have greater resources for starting a new venture or returning to education, and this allows many of them to leave their jobs. So, the same behavior – quitting the job – has very different meaning, though the root in both cases is resources: too few resources for the black worker to stay, too many resources for the white worker to want to stay.

If the answer is all about resources, where is the discrimination? We can find it in two places. The first is the economic and social history behind these resource differences. If we look at the family income distribution by race, we see that black workers’ families are a majority in the bottom 25th percentile of family income even though they are a minority in US society. Sure, they are also found in the top 25th percentile, but given the lasting effects of slavery and legalized segregation and discrimination, there they are scarce.

The second place is in black workers’ greater difficulty in gaining jobs, and especially gaining jobs that are close enough to their homes to reduce their dependence on public transportation for getting to those jobs. Difficulty in gaining a nearby job translates to lack of resources and inability to keep the job, which too often places black workers on the job market again, facing the same difficulty. Sterling’s research highlights this vicious circle: a crucial step in keeping employers and policymakers focused on providing what can matter most for a worker trying to stay on the job.

Sterling, Adina D. 2024. “This Is Why I Leave”: Race and Voluntary Departure. Administrative Science Quarterly, forthcoming.

How to Detect Fraud in Cryptocurrency Markets? Learning From Ambiguity and Cues

How do you like cryptocurrencies? How do you like fraud? As we know from the press, especially news reports on
convictions such as that of SamBankman-Fried, the two questions are closely related. The unregulated nature of cryptocurrencies means that actions that are blatantly illegal in regular securities markets have a weaker legal proscription in cryptocurrency markets, and some people take advantage of it. That creates a problem for those who want to keep such markets healthy and make use of the currencies.

How they deal with this problem was the question studied by Bryan Spencer and Claus Rerup in research published in Administrative ScienceQuarterly. They examined a crypto-investment community that was hit by a series of fraudulent promotions by a group of actors who coordinated with each other to execute classic “pump-and-dump” schemes of minor cryptocurrencies. The problem, of course, was that the world of cryptocurrency movements and the world of online news are both ambiguous, so detecting coordinated fraud is difficult.

A major reason the researchers could detect that fraud was happening and that the investors were – after a while – becoming aware of this was that the researchers had access to the database containing public and group chats about the cryptocurrencies, which included the conversations among the fraudsters that were kept hidden from the other crypto-investors.

So, what did the investors do? Over time, they learnt. But they followed a path of nontraditional learning based on learning by making inferences from interpreting cues. They would question the intent behind the appearance of innocent-looking information (such as false analyst reports) supporting a currency. They would look for similarity between new information releases and earlier fraud cases. They would infer the intent behind the release of information even when they did not know who was behind the information release. And once they had made enough interpretation and inference, they would have stories ready about the true nature of the unfolding events and would be able to act in response. They acted by more systematically monitoring releases of information and by routinizing public responses to information releases that looked suspicious, so that other investors would become aware of the price pumping and could avoid entering.

In all, this article is a very interesting report on how a community can act to protect itself in the face of ambiguous information and repeated fraud attempts. But also, it is a reminder of why markets are regulated and why financial markets are regulated especially strictly. After all, the lengthy penalty of Sam Bankman-Fried was based on wrongdoing not in the cryptocurrency operations, but in regular and regulated financial markets.

Spencer, Bryan and Claus Rerup. 2024. The Dynamics of Inferential Interpretation in Experiential Learning: Deciphering Hidden Goals from Ambiguous Experience. Administrative Science Quarterly, forthcoming.

Learning from No Experience: How Firms Handle an Unprecedented Crisis

“Learning from experience” describes a process that underlies many of our essential skills. I am grateful that I was made to practice driving before getting my driver’s license, and grateful that others did too. By the same token, most people would worry about how they might respond to a critical situation that they had never seen. I was in Tokyo during the 2011 Tohoku earthquake (Magnitude 9) and was pleased with myself after coping with the shaking building and two small kids and knowing when and how to evacuate. Still, I can imagine other surprises that I would handle less well.

Similarly, firms sometimes encounter a completely new crisis. How do they handle it? I looked for answers in research published in Strategy Science onhow the airline industry responded to the COVID-19 crisis and the suddenrestrictions on mobility. This was a pandemic the likes of which the world had not seen since the 1917-1918 Spanish Flu, long before the airline industry existed. The best solution was timely storage of many aircraft and scrapping of others, but this was a difficult decision to make. Would the data show evidence that some airlines handled the crisis better than others because of learning? Surprisingly, the answer was yes.

Understanding why this happens requires taking a broader view of learning. The airlines had never seen nation states shutting down mobility, including air traffic, in response to a pandemic, but some of them had experienced abrupt reductions in demand before. The 9/11 attack led to a big drop in air travel in the USA, and the Financial Crisis had a similar effect in most rich countries. Airlines in any of those places at the time of the crisis, but not those that were founded later, responded better to the pandemic. Their current leadership could draw from stories about the old crisis and their good and bad responses, including those of their competitors at the time. They learnt from history.

Equally important, airlines that were in regions that were hit hard by the crisis also responded well, and not just by imitating their nearby peers. Observing a severe crisis allowed them to understand many different actions taken by their peer firms, accelerating their learning and allowing better responses. We often refer to such learning as bricolage, because the executives were picking up many pieces of information and putting them together to form better decisions. They learnt from diversity.

Learning from experience is not just learning from taking the same action repeatedly, and from facing the same situation repeatedly. Firms learn from history and diversity in ways that involve more consideration, and such learning allows some firms to perform better than others.

Greve, Henrich R. 2024. Airline Responses to the COVID Collapse:Applying Learning to an Unprecedented Crisis. Strategy Science, forthcoming.