Incumbent Performance in the Face of a Radical Innovation: Towards a Framework for Incumbent Challenger Dynamics

Abstract

When radical innovations impact an industry, established incumbents are sometimes displaced by new challengers, yet at other times, survive and prosper. What are the factors that influence these possible outcomes? Extensive as the studies are in providing insights into incumbent-challenger dynamics (ICD), the fragmented nature of the literature and the isolated treatment of various constructs at a particular level of analysis, merit a review and analysis. We (1) identify, collate and analyze several constructs from three categories; the industry, the firm and the challenge, (2) discuss the interactions among these constructs and (3) show that incumbent failure or success can be better understood when these constructs are concurrently analyzed. We derive several propositions for stimulating research and develop a holistic multi-level framework for understanding incumbent-challenger dynamics. We pull together strategic management theories at the industry level with those at the organizational and inter-organizational levels in the context of disruptive innovations. We contribute by bringing in the challenge dimension across these levels to inform whether an innovation is disruptive in its effects, not just ex post but also ex ante. For illustrative purposes and to concretize our arguments, we draw on both primary data from the Dutch television industry and archival data from four episodes of disruptive innovations.

Keywords: Incumbents, radical and disruptive innovations, challengers, new entrants, technology, industry, markets, value networks, complementary capabilities

JEL Classification: M1, M10