The effect of strategic industry factor innovation on incumbent reaction, survival and performance

An industry is in constant evolution. Competitors, innovators, or other industry stakeholders can introduce new (hitherto ‘unknown’) resources or capabilities that increase the basis of competition in an industry.

Resources and capabilities that form the basis of industry competition and that drive company performance are called ‘strategic industry factors’. The introduction of new resources or capabilities as strategic industry factors is called ‘strategic industry factor innovation’.

However, there are also strategic industry factor innovations associated with ‘known’ resources and capabilities. When considering new business models like Netflix, Zara, Dell, iPod/iTunes, amongst many others, the innovation is not necessarily applying ‘new’ resources or capabilities to the industry. Instead, these examples show that new combinations of existing, ‘known’ resources and capabilities can also be difficult for incumbents to respond to.

For his doctoral dissertation in Applied Economic Sciences, Bart Devoldere conducted 3 studies that relate to the concepts of strategic industry factors and strategic industry factor innovation:

1/ The first study (entitled “Growth Implications of Within-Industry Diversification: a Paradox between Resource Creation and Leverage”) theorises and models how diversification across product markets in a single industry relates to firm growth.

Bart links diversification to the underlying resource mechanisms that are initiated by deploying a dynamic capability when entering new product markets. The study shows that within-industry diversification leads to firm growth, based on underlying resource mechanisms such as resource creation, leverage, and configuration. In addition, Bart empirically shows a simultaneous, negative reciprocity between resource creation and leverage, which constitutes a core paradox when deploying a dynamic capability.

2/ The second study (entitled “Success Drivers of Launching a Business Model”) focuses on a particular type of strategic industry factor innovation: new business models. The study targets two main areas of uncertainty related to new business models:

First, the lack of knowledge on how to successfully launch a business model. For every innovator with a new business model, there are numerous copycats launching the same business model in a particular geographic market. However, there are large differences in success across market launches of the same business model. This second study addresses the lack of empirical and theoretical guidance regarding how ventures can succeed when launching a business model. Bart focuses on four market entry decisionsentry timing, product adaptation, scale of entry, and strategic control – which influence the business model’s value drivers and ability to create and capture value. Examining important main and interaction effects on how these entry decisions impact the survival chances of the launched business model, Bart argues that it is important to treat the business model as a separate unit of analysisdifferent from industry, firm, product, or technology. Moreover, he theoretically and empirically shows that there are not only differences but also an interplay between the business model and a product market strategy, which will make an important contribution to the market entry literature.

Second, the lack of knowledge on how firms can reduce their uncertainty with respect to launching a business model. It is especially difficult for incumbents to decide when to enter the new market niche related to a business model innovation; and, furthermore, incumbents face severe financial and managerial risks related to a lack of information about the new market niche.

3/ The third study (entitled “Learning and Signals Across Firms and Markets: Identifying Entry Spillover Types and Moderators”) looks into what information signals influence an incumbent’s entry timing decision in a new market niche created by business model innovation, and how these signals influence that decision. Focusing on information signals related to previous market niche entries triggered by the same underlying business model innovation, Bart models different types and moderators of entry spillover (i.e., previous market niche entries that influence a focal market niche entry decision).

By considering signals from an incumbent’s served as well as non-served geographic environments, and by modelling the actual instead of potential influence of signals on firm decision-making, he shows the existence of a type of entry spillover that is neglected in the literature: across-firm across-market entry spillover, which embodies an indirect spillover effect (or imitation behaviour) among non-directly competing firms across different geographic markets.

About Bart Devoldere

Bart Devoldere obtained his Master’s in Commercial Engineering degree at K.U.Leuven in 2006. Since 2007, Bart has been working at Vlerick Business School as a researcher in the marketing area. His research has been funded by the Belgian Intercollegiate Center for Management Science (I.C.M.), the Flanders District of Creativity (F.D.C., subsidized by the Flemish Government), and the Vlerick Academic Research Fund (A.R.F., subsidised by the Flemish Government).

Source: “On the effect of strategic industry factor innovation on incumbent reaction, survival and performance” by Bart Devoldere, Dissertation for the degree of Doctor in Applied Economic Sciences. Advisor: Prof Marion Debruyne. Co-advisors: Prof Bert Weijters and Prof Ruud Frambach.  

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