Rahul Kapoor, the Wharton School, and Thomas Klueter, IESE Business School, Barcelona
Academy of Management Journal, June 2014
Abstract: The emergence of radical technologies presents a significant challenge to incumbent firms. We study firms’ management of radical technological change by separating their actions into upstream research (“R” of R&D) and downstream development (“D” of R&D). We introduce two contingencies to explain when incumbents’ research investments in radical technologies facilitate adaptation by leading to product development, and when these investments may get voided by organizational inertia. First, radical technologies can differ in how they conform to incumbents’ existing business models, impacting the extent to which the movement of research outputs toward development will be subject to inertial pressures. Second, incumbents can invest in a radical technology through a variety of modes (internal research, external research contracts, alliances, acquisitions). These modes represent unique combinations of who does research and who is involved in the decision for subsequent development, and, hence, differ in the extent to which they are shielded from inertial pressures. This difference helps explain why incumbents, despite responding to radical technologies, may still be unable to adapt and what types of investments will be more effective in helping firms navigate technological change. Evidence from pharmaceutical incumbents’ pursuit of monoclonal antibodies and gene therapy offers strong support for our arguments.