Underinvestment and Incompetence as Responses to Radical Innovation: Evidence From the Photolithographic Alignment Equipment Industry

By Rebecca Henderson. 2015

468 citations recorded by the source corpus.

Neoclassical theory suggests that when an industry is shaken by radical technological change, incumbent firms will be replaced by entrants because entrants have greater strategic incentives to invest in radical innovation. Organizational theory suggests that incumbent firms fail in the face of radical innovation because they fall prey to inertia and complacency. I show that if organizational effects are significant, tests of neoclassical theory in isolation will yield spurious or noisy results. Using data derived from a detailed field study of the photolithographic alignment equipment industry, I show that as neoclassical theory predicts, established firms invested more than entrants in incremental innovation, but that in agreement with organizational theory, the research efforts of incumbents seeking to exploit radical innovation were significantly less productive than those of entrants.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/eec12872575761f3a8255268811e1b0fae679eb2

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Citations in the corpus

Market orientation, market disruptiveness capability and social enterprise performance: An empirical study from the United Kingdom (2019, background): “As developing market disruptive capability entails costs (Assink, 2006; Henderson, 1993) and risk (McDermott & O'Connor, 2002; O'Connor, Ravichandran, & Robeson, 2008), each organisation would make a calculative judgement in determining whether the cost associated with such innovation could be…”
Flexing the Frame: TMT Framing and the Adoption of Non-Incremental Innovations in Incumbent Firms (2017, unknown): “In contrast to incremental innovations, incumbent firms are less likely to adopt, or to incompetently adopt, non-incremental innovations (Henderson, 1993; Tushman & O'Reilly, 2002).”
Success Patterns of Exploratory and Exploitative Innovation (2013, background): “In fact, prior experience may even hinder the successful introduction of exploratory innovations to the market (henderson, 1993).”
The Schumpeterian entrepreneur: a review of the empirical evidence on the antecedents, behaviour and consequences of innovative entrepreneurship (2017, unknown): “This finding is in line with Henderson (1993), who utilizes data from the photolithographic alignment”
Motivation and Ability? A Behavioral Perspective on the Pursuit of Radical Invention in Multi-Technology Incumbents (2017, unknown): “The choice to pursue radical technologies is thus the decision to undertake organizationally radical invention (Henderson, 1993), i.e., to drawon knowledge sources that are fundamentally different from those used before, in the hope that these inventions will prove economically radical, i.e., they…”
Knowledge-Based Capital, Innovation and Resource Allocation (2013, background): “…on incremental improvements (Benner and Tushman, 2002), and young firms possess a comparative advantage in commercialising radical innovations (Henderson, 1993; Tushman and Anderson, 1986).4 Openness to trade is equally crucial because it fosters innovation via market size effects, tougher…”
Do non‐competition agreements lead firms to pursue risky R&D projects? (2014, background): “The decision to commit resources to a safe or risky R&D path has important implications for the stream of corporate returns and, therefore, has been extensively investigated in previous research (e.g., Cabral, 2003; Henderson, 1993; March, 1991).”
Cognition and Capabilities: A Multi-Level Perspective (2013, background): “Further, even if managers “rationally” deployed capabilities, this might lead to resource allocation that is ex post inadequate for the opportunity or threat at hand (Henderson, 1993).”
Measuring Technological Novelty with Patent-Based Indicators (2016, unknown): “Utterback (1996) defined radical invention or discontinuous change as “change that sweeps away much of a firm’s existing investment in technical skills and knowledge, designs, production technique, plant and equipment,” and Henderson (1993) described an invention as being radical in the organization”
Incumbent Adaptation to Technological Change: The Past, Present, and Future of Research on Heterogeneous Incumbent Response (2018, unknown): “Furthermore, larger firms are more likely to invest in incremental innovation (Henderson, 1993), and larger firms that introduce incremental innovations more frequently increase their likelihood of survival and market value, whereas smaller firms that bring about incremental innovations raise their ”
Innovation ecosystems and the pace of substitution: Re‐examining technology S‐curves (2016, methodology): “For two of the earliest generations, we supplemented the data from VLSI Research with product specifications reported in the Henderson Photolithography FIVE Data (Helfat and Klepper, 2007; Henderson, 1993).”
Banking Deregulation and Innovation (2013, background): “In contrast, explorative innovation involves experimentation with new alternatives to the firm and contributes to radical innovation since it is based on “learning-by-experimentation” (e.g., Henderson, 1993; Levinthal and March, 1993).”