Incumbent inertia upon disruptive change in
the airline industry: Causal factors for
routine rigidity and top management
moderators
Working Paper No. 9
Leipzig, July 2010
Chair of Strategic Management and Organization
HHL – Leipzig Graduate School of Management
Incumbent inertia upon disruptive change in the airline industry:
Causal factors for routine rigidity and top management moderators
Oliver Viellechner and Prof. Dr. Torsten Wulf
Working Paper Chair of Strategic Management and Organization
Copyright: Lehrstuhl für Strategisches Management und Organisation
Leipzig 2010
Jede Form der Weitergabe und Vervielfältigung
bedarf der Genehmigung des Herausgebers
2
Chair of Strategic Management and Organization
ABSTRACT
In the face of disruptive innovations, incumbent firms frequently encounter substantial rigidity in
business routines. Our article investigates the role of top management teams to overcome this
inertia. Based on a literature review including strategy, organizational and psychological
research fields, we conducted four case studies in the European airline industry and collected
data from qualitative interviews with senior executives. As a result, we find new causal factors
for routine rigidity in four groups, namely knowledge insufficiencies, inadequate self-concept,
inflexibilities and financial concerns. Further, we propose a comprehensive set of top
management team characteristics along individual members, team structure and team process,
which influence the impact of the identified causal factors to ultimately lower routine rigidity.
Our findings uniquely link existing research streams and allow practitioners to better prepare
incumbent firms for future disruptive change.
3
Chair of Strategic Management and Organization
INTRODUCTION
This article addresses the response behavior of incumbent firms when facing discontinuous
change by business model innovations. Almost always, this entails a problem of inertia, related
to the sluggishness of incumbent response due to insecurity in deciding on an adequate response
strategy. For instance, when low-cost carriers (LCC) introduced disruptive change in passenger
air travel, most incumbents tended to ignore the new phenomenon: "Our pricing strategy is not
for debate. Our high quality product justifies a substantial fare differential to LCC" (Anonymous,
2002), a Lufthansa board member stated in 2002. Only some years later, with LCC constantly
winning market shares, most airlines finally realized the challenge. The responses of major
European incumbents, however, were already late by two to five years.
After Christensen and Bower investigated disruptive technologies for the first time (Christensen
and Bower, 1996), the topic created broad interest, not only among academics. A Google search
yields more than 400,000 hits for the term "disruptive innovation". Christensen/Bower pioneered
the academic field by discovering the possibility that technologies with inferior performance
may supersede established incumbents. Their group of scholars also explained typical
maladaptive incumbent responses to disruptive technologies and provided several response
recommendations (Christensen, 2000; Christensen and Raynor, 2003; Christensen, Anthony and
Roth, 2004). More recently, scholars also investigated disruptive business models (i.e., disruptive
strategic innovations). Scholars categorized typical incumbent response behaviors and developed
normative response recommendations (Charitou and Markides, 2003; Markides and Charitou,
2004) or identified factors inhibiting incumbents to extract value from new strategic options
(Vlaar, de Vries and Willenborg, 2005). In addition, there are studies focusing on the refinement
of definitions, e.g., the development of a scale for the disruptiveness of innovations
(Govindarajan and Kopalle, 2006) or on specific sub-elements, such as demand conditions
enabling disruptive dynamics (Adner, 2002).
4
Chair of Strategic Management and Organization
Gilbert opened a new field of research centering on the struggle and inertia of incumbent firms
when facing disruptive strategic innovations. Research within this is still described to be
somewhere between nascent and intermediate stage (Edmondson and McManus, 2007). So far,
only one interpretive model by Gilbert exists for incumbent inertia that is sufficiently empirically
tested (Gilbert, 2005). He identified the role of rigidities and cognitive frames by unbundling the
sluggishness of response into denial of resource allocation (resource rigidity) and the change of
management processes (routine rigidity). Moreover, he found cognitive framing as threat or
opportunity as a key influence factor for incumbent inertia. Subsequently, more researchers
focused on rigidities by replicating and extending Gilbert's model and unbundling cognitive
framing into profit/loss perception and perceived control (König, 2009).
A number of questions, however, still remain unclear. In general, only a few studies
comprehensively explain incumbent response behavior and especially the role of top
management teams in light of disruptive strategic innovations (Chesbrough, 2001). Rather, many
studies investigate isolated aspects of incumbent response, without considering alternative
explanation approaches or different research disciplines. Further, studies are often difficult to
compare due to ambiguous terminologies and research designs (Gatignon et al., 2002). For
example, some work is purely theoretical and lacking empirical grounding, and other studies
facilitate either a single or multiple case study based approach. Since investigated discontinuities
and industries are highly heterogenous, it remains open if findings using qualitative empirical
data can be generalized without further research.
More specific, considering Gilbert's (2005) unbundling of inertia into resource and routine
rigidity, a detailed understanding of causal factors for routine rigidity linking various research
disciplines including strategic management, organizational science and psychology is still
missing. In particular, beyond financial concerns, it would be important to understand the role of
5
Chair of Strategic Management and Organization
the respective level of expertise, self-concept of the organization, as well as internal and external
flexibility. The study of Vlaar et al. (2005) identified several factors for incumbent failure, but
insights from our pilot interviews suggest that this list is not exhaustive yet. In addition, their
work is based on a literature review without empirical foundation.
Since by nature discontinuities like LCC are hard to predict, a central question emerges of what
prerequisites can help to prepare incumbents to respond more swiftly in such situations.
Certainly, the role of top managers at the apex of incumbent firms needs to be considered pivotal
in this respect. Since leadership in corporations is not a given and can be actively influenced, it is
particularly worthwile to consider for both research and managerial practice. So far, only König
et al. (2008) discussed the influence of several top management team (TMT) variables on the
impact of the CEO-framing on resource commitment. However, both the effect on routine
rigidity as well as the broader role of top management characteristics are still unclear.
Incorporating upper echelons research (Hambrick and Mason, 1984; Finkelstein, Hambrick and
Cannella, 2009), this should include individual members' characteristics, the structure of the
team or the process in the team.
Therefore, by developing four explorative case studies in passenger air travel, we will address
these aspects. Specifically, we asked why some incumbent airlines responded later than others
and how TMT aspects contributed to this. Since some previous work in the field is purely
theoretical and external validity to case-study based research is often debated, we established an
empirical foundation in the airline industry. Even though it is hardly possible to anticipate
discontinuous innovation, findings from this study will help incumbent firms to prepare for
future disruptive changes and allow recognizing them earlier. It is intuitive that TMT have
pivotal impact; however, a comprehensive understanding of the most relevant design parameters
will tremendously help not only airlines, but firms also in other industries.
6
Chair of Strategic Management and Organization
THEORY
In management literature, technological innovations and executive influence are not untapped
fields. On the one hand, a number of scholars already investigated the impact of technological
innovations on incumbent firms. Developed concepts include "strategic responses to
technological threats" (Cooper and Schendel, 1976), the "technology S-curve concept" (Foster,
1986), "competence-destroying innovations" (Tushman and Anderson, 1986), "architecturalchanging innovations" (Henderson and Clark, 1990), and "disruptive innovations" (Christensen
and Bower, 1996; Gilbert, 2005). On the other hand, a broad range of scholars already discussed
the influence of executives on corporate decision making (e.g., Helmich and Brown, 1972; Hage
and Dewar, 1973; Hambrick and Mason, 1984; Smith, Carson and Alexander, 1984; Gupta and
Govindarajan, 1984; Virany and Tushman, 1986; Pfeffer and Davis-Blake, 1986; Finkelstein,
1988; Cannella and Rowe, 1995).
However, the combination of both subject matters, that is, the study of top managers' effect on
incumbent response in the face of disruptive innovations, is a highly juvenile field. So far, only
one study exists which investigates the role of the CEO in overcoming incumbent inertia (König
et al., 2008). This is surprising, as disruptive innovation research has recently started to involve
related research disciplines as well, such as psychology, organizational theory, economics or
industrial organization (Hill and Rothaermel, 2003; Mellahi and Wilkinson, 2004; Vlaar, de
Vries and Willenborg, 2005; Assink, 2006).
In innovation research, Christensen/Bower (1996) discovered disruptive innovations by
explaining anomalies in the impact of technological innovations on large companies, which
previous studies could not sufficiently explain. Their theory relates to specific situations where
innovations are not necessarily better, but rather simpler, smaller and cheaper. The authors
distinguished disruptive from sustaining innovations. Whereas sustaining technological changes
7
Chair of Strategic Management and Organization
appeal to established customers in mainstream markets and provide demanding high-end
customers with more of what they had come to expect, disruptive innovations rather redefine the
technology trajectory by underperforming established products in mainstream markets and
offering other features that a few fringe (and generally new) customers value (Christensen,
2000). Low-end and new-market innovations constitute two different types of disruptive
innovations. Whereas the former address over-served customers with a lower-cost business
model, the latter create new growth by overcoming lack of deep expertise or high wealth for a
whole new group of consumers (Christensen, Anthony and Roth, 2004). In addition to both
distinct types, low-end and new-market approaches may also be combined. LCC must be
considered as a hybrid disruption by targeting both incumbent airlines' passengers and previous
non-air-travelers (Christensen and Raynor, 2003).
Disruptive innovation theory suggests that in sustaining circumstances, incumbents almost
always prevail, but in disruptive situations, entrants have an advantage over incumbents
(Christensen and Raynor, 2003). The reason is that as companies innovate and introduce new
products, they typically achieve a higher rate of improvement than what customers can utilize
and are willing to pay for. At a certain point, this pace eventually "overshoots" the absorption
ability of customers. Whereas disruptive innovations initially underperform customers'
expectations, they improve as well and at some point become good enough for the mainstream
market. In such situations, customers are more concerned with differences in absolute prices than
price/performance points (Adner, 2002). Ultimately, this results in incumbents failing or at least
facing considerable inertia in response.
So far, failure in resource allocation served as primary explanation for incumbent inertia.
Incumbents have little incentive to invest in disruptive innovations because their resource
allocation process tends to favor sustaining innovations (Christensen and Bower, 1996). In early
8
Chair of Strategic Management and Organization
stages, customers reject disruptive innovation due to their inferior performance. At the same
time, disruptive innovations only promise lower returns than investors ask for and hence, will not
receive funding (Noda and Bower, 1996). As a result of both concerns, "these companies find it
very difficult to invest adequate resources in disruptive technologies – lower margin
opportunities that their customers don't want – until their customers want them. And by then it's
too late" (Christensen, 2000).
More broadly, a conceptual study by Vlaar, de Vries and Willenborg (2005) considered
managerial, organizational as well as cognitive psychological research to explain the struggle of
incumbents to extract value from new strategic options. Despite not specifically linked to
disruptive innovations, the authors suggest five explanation factors for incumbent failure from a
literature review: cannibalization, conventional wisdom, corporate inflexibility, incompetence or
overconfidence and access to resources. Whereas the initial four factors have a negative
influence in the model on incumbents' ability to extract value from new strategic options, the last
factor is positively correlated.
Whereas initially researchers investigated incumbent inertia as discrete construct, Gilbert
unbundled inertia into two distinct categories, namely resource rigidity (failure to change
resource investment patterns) and routine rigidity (failure to change organizational processes
using those resources) (Gilbert, 2005). Both categories constrain an adequate response, but
feature different causal mechanisms. Gilbert focused his research on cognitive frames, especially
the framing of the innovation as threat vs. opportunity. In his work, threat perception was
associated with negative focus, emphasis on loss and sense of a lack of control. In contrast,
positive focus as well as terms like gain or in control were associated with opportunity
perception (Gilbert, 2005).
9
Chair of Strategic Management and Organization
By this, it was finally possible to explain previously conflicting findings on the effect of threat
perception on inertia. Some earlier studies have shown that threat framing increased inertia
(Dutton and Jackson, 1987), whereas in other cases it worked as a catalyst for change (Lant,
Miliken and Batra, 1992). In his final model, Gilbert illustrates that threat framing helps to
unlock resource rigidity, at the same time, however, increases routine rigidity. Opposite to this,
framing as an opportunity enables search processes and relaxes routine rigidities, however, may
lead to underinvestment and hence resource rigidity (Gilbert, 2006).
The discussion about the role of framing in incumbent response provides a link with the impact
of executives in organizations. Yet so far, only König et al. (2008) considered a broader range of
top management team variables to influence incumbent resource allocation. For this, the authors
integrated existing theory from different fields, namely communication science, organizational
studies and cognitive psychology and developed a holistic model of ten moderating variables,
grouped in message moderators, relationship moderators and top management team moderators.
They found that CEO-framing can have a positive influence on organizational resource
commitment even if the CEO uses an opportunity framing when communicating with the TMT
members. This is counter-intuitive to the theory of Gilbert, who proposed an opportunity frame
to overcome routine rigidity, but a threat frame to reduce resource rigidity. Instead, König et al.
argue that resource commitment in response to threat or opportunity framing is contingent on the
described moderating variables. It is to note that the study represents a conceptual approach,
even though the authors are using expert interviews to generate research hypotheses. Moreover,
the model only relates to resource rigidity, moderating factors of the CEO- or TMT-framing
effect on routine rigidities are not examined.
The approach of König et al. is based on the upper echelon model describing strategic choice
under conditions of bounded rationality (Hambrick and Mason, 1984). Back then, the authors
10
Chair of Strategic Management and Organization
argued that managers' characteristics influence the decisions they make and therefore the actions
adopted by the organization they lead. Specifically, their model suggests that due to executives'
different psychological and observable characteristics, an objective situation will be perceived in
different ways. Consequently, subsequent strategic choices and performance outcomes will vary
as well. The first class of psychological characteristics includes values, cognitive models,
cognitive style, personality and charisma, locus of control and self-regard. The second class of
observable experiences relates to rather tangible information including executive tenure,
functional background, formal education, international experience and age.
Acknowledging the fact that in practice, executives usually collaborate in teams, we understand
TMT as the CEO and the group of top executives involved in the strategic decision making for
an appropriate response to the disruption. Upper echelon scholars outlined three conceptual
elements of TMT: composition, structure and process (Finkelstein and Hambrick, 1990;
Finkelstein, Hambrick and Cannella, 2009). Composition relates to the collective characteristics
of TMT members, given by their values, cognitive bases, experiences and personalities. The
roles of members and the relationship among those roles define the structure of a TMT. Here,
role interdependence represents the degree to which the firm's performance depends on resourceand information-sharing, in addition to other forms of coordination within the TMT. The third
major element of TMT is process, referring to the nature of interaction among its members as
they participate in strategic decision making. The scholars conclude that all three conceptual
elements constitute the social makeup of the TMT.
11
Chair of Strategic Management and Organization
OPEN QUESTIONS AND RESEARCH MODEL Still, we find a number of questions unanswered by extant research, which we considered when
developing the research framework for this study. First, Gilbert's unbundling of inertia into
resource and routine rigidity is highly useful to investigate causes of inertia. Yet we find that
underlying explanations for resource rigidity are by far better understood than those for routine
rigidity, since Christensen initially did not distinguish between both types and Gilbert's
unbundling only occurred eight years after original development of disruptive innovation theory.
Therefore, there is a need for additional research to develop such causal factors for routine
rigidity. This shall also entail multiple perspectives from strategy, organizational and
psychological research disciplines. Second, in our literature review, we found that research on
the role of top management team in enabling incumbents to overcome inertia is still rare. So far,
only König et al. investigated the role of several TMT dimensions for the impact of CEOframing on resource rigidity. Conversely, the influence of TMT on routine rigidity is entirely
unclear yet. The objective is to investigate parameters for design and conduct of TMT, reducing
the impact of causes for routine rigidity so that inertia will be lower as one would expect without
moderators.
Addressing these shortcomings, we developed a research framework from theory, which guided
our empirical investigation. First, with regard to causes for routine rigidity, we incorporated
findings on the unbundling of inertia into resource and routine rigidity, the moderating role of
framing, external influence and structural separation (Gilbert, 2005) as well as evidence on social
proof as additional driver for rigidities, i.e., incumbents tend to benchmark with peers and as a
result stick with their old business model just like other incumbents do (Enders and König,
2009). Further, we incorporated Vlaar, de Vries and Willenborg's (2005) conceptual study
proposing cannibalization, conventional wisdom, inflexibility, incompetence and resource access
as categories for incumbent failure. Building on all this, we set out to investigate causes of
12
Chair of Strategic Management and Organization
routine rigidity and hence incumbent inertia stemming from various disciplines, incorporating
(1) insufficient knowledge, (2) inadequate self-concept, (3) internal/external inflexibility and
(4) financial concerns. Insufficient knowledge relates to the extent incumbents are savvy on the
nature of the disruption, the industry, customers or competitors, but also on management skills or
practices. Self-concept of the incumbent can include the firm's belief on own capabilities and
market dominance, manager confidence and openness. Inflexibilities describe the resulting
degree of freedom from the embeddedness of the incumbent in a stakeholder network of
suppliers, employees, investors, customers and partner firms. Finally, financial concerns include
issues like returns of existing and new products, future business development as well as upfront
investments.
Second, in the major part of this research, we determined how an organization's top management
team moderates the influence of these causal factors. In order to disaggregate TMT aspects into
more tangible constructs for empirical research, we built upon upper echelons theory. This
includes the work of Hambrick/Mason separating observable experiences from psychological
factors and Finkelstein et al. subdividing TMT characteristics into its members, its team
composition and team interaction. Based on this structure, we outlined TMT moderators along
the dimensions of their (1) individual members, their (2) structure as well as (3) process. The
member category may include executives' observable experiences, but also psychological
characteristics. Structure relates to effects from team composition, size or power distribution.
Process finally entails the way members collaborate and interact with each other as both
decision-making body and social group.
13
Chair of Strategic Management and Organization
METHODOLOGY
For this research, we selected a qualitative, case study-based methodology due to the nature of
the phenomenon and characteristics of the chosen industry. It features a high likelihood of
developing novel theory and permits for later quantitative testing of identified constructs
(Eisenhardt, 1989). Case studies are the preferred strategy to investigate our explorative, "how"
and "why" type research questions and when the phenomenon is of contemporary character (Yin,
2003). Response strategies to LCC are a contemporary event, since LCC have existed for almost
ten years now in Europe, yet in many countries new market entries and new incumbent responses
are still unfolding during writing of this article. By including contemporary data such as
interviews and observations, case studies are particularly suitable to investigate this
phenomenon. In addition, case study research is able to capture the complexity and richness of a
phenomenon such as LCC to a higher extent than other research techniques (Schöberl, 2007). All
these characteristics of the phenomenon render a case study design more appropriate than
laboratory experiments, because the latter separate phenomena from their social contexts
(Eisenhardt and Graebner, 2007). Furthermore, characteristics of the chosen airline industry also
point towards a case study design. Qualitative interviewing is clearly more practical than a
written survey for data collection from senior executives at the apex of incumbents. In addition,
the limited overall number of incumbent airlines only permits small-sample techniques.
We chose an explorative, multiple-case and embedded case design for the following reasons:
First, our primary research objective is exploring and explaining in order to arrive at a better
understanding of insufficient and somewhat contradictory previous findings. Second, we selected
a multiple case design because neither a critical incidence case from the outset existed given the
variety of response patterns by established airlines, nor had we access to a phenomenon
previously inaccessible to scientific investigation to develop a revelatory case (Yin, 2003).
14
Chair of Strategic Management and Organization
Further, since the investigation is grounded in a framework of existing theory, we considered it
necessary to integrate our emergent concepts right away (Eisenhardt, 1989). Third, an embedded
case design was preferred due to the need to consider multiple units of analysis demanded by our
research questions on causal factors and TMT moderators.
We focused the investigation on a single industry to control for extraneous variation (Gilbert,
2002). The disruption of European passenger airlines by LCC occurred in this decade. This
allowed us to study a recent, contemporary phenomenon to overcome retrospective bias during
interviews (Benewick et al., 1969). Furthermore, the industry's monopolistic or at most
oligopolistic structure makes it suitable to investigate incumbent response behavior
predominantly related towards entrants' actions. When selecting the cases, we relied on
theoretical sampling rather than statistical considerations (Eisenhardt, 1989). To ensure
replication logic, cases were investigated sequentially and newly gained insights were replicated
accordingly (Yin, 2003). We applied several criteria to sufficiently differentiate the cases among
each other: market leadership, differences in response patterns and degree of inertia. In addition,
access to executive board members or senior managers directly reporting to the board as
interview partners was another prerequisite for sufficient data quality.
In the end, our sample includes Austrian Airlines (OS), Lufthansa (LH), Iberia (IB) and British
Airways (BA). A brief review of the sample along the mentioned selection criteria shows: All
incumbents are market leading in their country, with a share of 40-60% of total intra-European
traffic from, to, and within their home market. LH, BA and IB are among the four largest
European incumbent airlines (Anonymous, 2009). By including smaller OS in the sample, we
aimed to assess the role of less complex organizations with close alliance-links to larger airlines
in other countries (e.g., LH). The sum of all cases covers a broad array of response types and
inertia periods. LH responded comparably late by founding a LCC subsidiary and differentiating
15
Chair of Strategic Management and Organization
high-end services even further. IB initially was highly routine rigid, yet finally chose to found a
low-cost subsidiary as well. OS responded with medium inertia, yet could not decide on
establishing a LCC subsidiary and rather evaded in a geographical niche positioning. BA
responded early with a low-cost subsidiary, yet reverted its strategy later by selling it off and
largely retreating from the segment.
In this study, we used a multi-method approach to enable triangulation of results from collected
data, namely by means of analyzing externally available information, conducting semi-structured
interviews with key executives and asking for internal archival documents (Saunders, Thornhill
and Lewis, 2003). All materials were collected in a comprehensive case study database. External
information included company press releases, annual and quarterly financial reports, investor
relations presentations, practitioner conference proceedings, investor and analyst conferences,
and press articles from newspapers and magazines. We used those to corroborate and augment
evidence from other sources, not as definite recordings of events (Yin, 2003). Explorative
interviews with company representatives provided the most important source of data. We
conducted 2 pilot interviews for conceptual clarification of the research design, followed by 10
in-depth interviews with executives from all four case companies. The latter included 6 members
of the airlines' boards and 4 senior vice presidents directly reporting to the board. 9 interviews
were conducted face to face, 1 by telephone. We taped each interview and literally transcribed it
within 24 hours. For each discussion, we used a semi-structured interview guide. Typical for
theory building research, we continuously adjusted the guide to newly gained information
(Strauss and Corbin, 1990). In line with scholarly recommendations, it consisted of both
investigative questions and narrative questions (Schnell, Hill and Esser, 2005). Finally, we
received several internal archival records, such as a photography of a decision flow chart used
during a board workshop.
16
Chair of Strategic Management and Organization
For data analysis, we combined evolutionary case write-ups of 20-30 pages using time-series
analysis, software-aided structural content analysis based on a scheme of 47 codes across four
hierarchical levels, as well as within- and cross-case analysis using pattern-matching technique
(Eisenhardt, 1989; Strauss and Corbin, 1990; Yin, 2003; Saunders, Thornhill and Lewis, 2003).
Since interviews were conducted sequentially, also the coding scheme was iteratively applied to
data. The repeated scan of materials ensured high intra-coder reliability. The idea behind withincase analyses was to become intimately familiar with each case as a stand-alone entity
(Eisenhardt, 1989). Cross-case search for patterns avoided leaping to conclusions from limited
data through cross-tabbed comparison of constructs for all cases. Finally, we condensed
hypotheses and compared those with literature in the field.
We took every step to ensure high quality of our research. For sufficient construct validity and to
reduce retrospective bias, we used various data sources to triangulate evidence and citations in
each case study report, documented evidence in the case study database aiming to maintain a
chain of evidence, and asked key informants to clarify open issues or misleading statements after
the interviews (Yin, 2003). The theory-informed frame of reference also helped in this (Mayring,
2003). We increased internal validity by applying pattern matching techniques, creating detailed
case write-ups (called "thick descriptions" by Miles and Huberman, 1994), conducted multiple
iterations and follow-ups and considered both confirming and competing explanations during
data collection and analysis (Eisenhardt, 1989). External validity was ensured by the multiplecase research design and comparatively analyzing findings across cases. Further, we applied
consistent structures and reference frames across case write-ups, within-case and cross-case
analyses (Yin, 2003). Further, we strived for high reliability by including several interviewees
per company, creating a detailed case study protocol and extensive case study database. Finally,
we followed scientific standards for transcribing and coding of data (Yin, 2003).
17
Chair of Strategic Management and Organization
CASE RESULTS AND HYPOTHESES
Causal factors for routine rigidity
We tested an initial set of causal factors from our literature review in the interviews and
identified 12 especially relevant factors causing inertia. Of those, six are new to academic
discussion (see Table 1).
Table 1: Identified causal factors for incumbent inertia at research sites
Austrian
Airlines
Lufthansa Iberia
British
Airways
Research
contribution
Group 1: Knowledge insufficiencies
C11
Insufficient knowledge on customer preferences
++
++
++
++
(new)
C12
Overestimation of entry barriers for new entrants
++
++
++
+
(new)
++
+
+
(new)
Group 2: Inadequate self-concept
C21
Status-oriented belief in current business model
+
C22
Filtered perception of information
++
+
+
n/a
C23
Insufficient use of external knowledge and support
+
+
+
+
(confirming)
C24
Fear of insufficient capabilities for new business
++
++
n/a
n/a
(confirming)
(new)
Group 3: Internal & external inflexibilities
C31
Interdependencies with partners
++
○
++
○
(new)
C32
Resistance by stakeholder groups
++
+
++
+
(new)
C33
Complexity of organization
n/a
++
n/a
+
(confirming)
C34
Inadequate employee incentives
+
+
n/a
++
(confirming)
Group 4: Financial concerns
C41
Fear of cannibalizing the existing business
++
++
+
++
(confirming)
C42
Fear of switching cost to new business model
○
+
n/a
n/a
(confirming)
+: contributed to incumbent inertia at research site; ○: no influence; n/a: no evidence; (double signs indicate strong evidence);
(new): first to identify increasing effect on routine rigidity; (confirming): in line with extant research
Knowledge insufficiencies. First, we found strong evidence on knowledge insufficiencies on
customer preferences (C11). At OS, managers missed a change in consumer behavior and
believed that the Austrian's great service would avoid business travelers to churn to LCC. With
knowledge mainly derived from in-flight surveys and CRM data, OS had inferior knowledge on
non-consumers. Similarly, LH initially believed "Germans would never buy those LCC
products". Yet also here, the airline admitted that it knew leisure passengers much less than
18
Chair of Strategic Management and Organization
business travelers. Managers at IB at first believed customers to share the same level of emotions
like them when flying and would never consider LCC, revealing that product-orientation clearly
dominated customer-orientation at IB at that time. Likewise, BA expected customers to focus on
quality rather than low prices, and was surprised by the increasing number of week-end travelers.
These results suggest that airlines were unaware of preferences of large customer groups once
LCC emerged, caught by surprise of growing LCC popularity and therefore required
considerable time to respond.
Existing literature includes only different notions. One found that on industry level, a shared
belief on customers, technologies and strategies can exist (Hill and Rothaermel, 2003).
Incumbents thereby tend to focus on most profitable customers, who demand further
improvements of established products or services (Chandy and Tellis, 2000; Czarnitsky and
Craft, 2004). Others argued incumbents would listen "too carefully" to their customers
(Christensen and Bower, 1996) or that a lack of knowledge about the disruption leads to routine
rigid strategies (Schöberl, 2007). However, our identified knowledge insufficiency does not
relate on the quality of the disruption as such, but rather on consumers' preferences and decision
criteria. Despite incumbents have broad and preferential access to a large customer base and
distribution channels (Chandy and Tellis, 2000), we found that they tend to fail in evaluating
minimum acceptable quality standards customers are willing to pay for. This is not to contradict
Christensen/Bower by saying that incumbents listen too little to customers, but clearly they are
not always asking them the right set of questions.
Hypothesis 1: Incumbents frequently have insufficient knowledge on customer
preferences and their ranking for decision-making purposes, which ultimately
contributes to inertia in response to disruptive innovations.
19
Chair of Strategic Management and Organization
Second, there was strong evidence on overestimation of entry barriers for new entrants (C12).
OS, for instance, assumed LCC would not be able to enter Vienna airport due to high charges
and unfavorable government support, until Air Berlin and NIKI proved the opposite by
establishing a base. LH expected Deutsche BA would deter other LCC from entering the market,
but TUIfly, Easyjet and Ryanair all expanded including local bases. In Spain, IB believed low
internet penetration and intense competition to hinder LCC, yet again reality with now even five
competing carriers was different. At BA, evidence was less clear, but still the airline assumed
Heathrow and Gatwick as sufficiently protected by slot constraints. Yet at least in Gatwick, LCC
now mark the dominant segment. In all cases, the perception of entry barriers made incumbents
feel more secure than they actually were and prevented them from launching response measures.
Extant literature does not include a discussion of this phenomenon. In our perspective,
incumbents, due to their sustaining conduct of business, have not experienced procedures for
setting up businesses for long. Consequently, they underestimate the ability of new entrants to
overcome presumably high entry barriers and as a result feel overly secure. In the meantime,
however, entrants use the time advantage to not only enter marginal segments of the market, but
in fact also move up to the established players' core business.
Hypothesis 2: Incumbents tend to overestimate entry barriers for disruptive new
entrants, making them feel overly secure in their position. As a result, they respond only
late to the entrants.
Inadequate self-concept. In this group, we discovered two new contributions to academic
discussion. First, we identified status-orientation (C21) issues. At LH, a cultural belief of the
company as inventor of aviation eradicating every competitor through its size was prevalent. As
prestigious national carrier, participating in the LCC model was initially unthinkable. Also OS
discarded a response since it believed passengers still thought of air travel as a privilege, and
20
Chair of Strategic Management and Organization
business passengers "would never board a LCC". At IB, a manager said the industry was full of
emotions and rationality would not always control it, since incumbents were considered as
national prestige. Related, BA for long believed that as all-purpose carrier it had to fly to all
destinations regardless of profitability.
So far, notions in literature focus on the incumbent's role as innovator: Foster (1986) argued
conventional wisdom would encourage maintaining focus on the current business and refrain
from innovating. Vlaar, de Vries and Willenborg (2005) found overconfidence to lead to a lower
ability to extract value from new strategic options. Other scholars stated difficulties from
adapting knowledge and mindsets from old business models to the reality of new ones because of
established beliefs or "dominant logic" for the firm based on its history (Henderson and Clark,
1990; Tripsas and Gavetti, 2000; Jones, 2003). In our case, we found an even graver issue in
status-orientation hindering incumbents not only from innovating, but also from imitating
measures that disruptors already took before them.
Hypothesis 3: Whenever incumbents show a status-oriented belief in their existing
business model, they tend to respond only late to disruptive strategic innovations.
Second, we found evidence on filtered perception of information (C22) to cause inertia at three
research sites. At OS, statements accounting LCC for substantial losses were politically
incorrect. At LH, LCC concerns were initially muted by the belief that since 80% of LCC
passengers were British, they would be uncomparable to much less price-sensitive German
customers. At IB, the cost gap was in fact much higher than managers believed in 2002, since the
"company did not want to listen to bad news". At all sites, these practices eased conflicts and
made the current business seem less threatened, thus reducing pressure to find an adequate and
swift response.
21
Chair of Strategic Management and Organization
So far, scholars elaborated on patterns in organizations to search for and process new
information only in general terms, yet not in disruptive contexts. Prahalad/Bettis (1986) argue
that organizations' cognitive structures may screen out information by using only information
that is adequate or easily available. When attempting to radically innovate, organizational filters
make firms less effective, as several other scholars found (Hannan and Freeman, 1984;
Henderson and Clark, 1990 and Chandy and Tellis, 2000). Hill/Rothaermel (2003) stated that
organizations tend to search only inside their established frames of references, determined by
information systems and processes. My findings suggest that in disruptive situations, patterns of
screening-out information make the imitation of measures as response to disruptors even more
difficult, since they inhibit a stronger and clearer framing of the disruption.
Hypothesis 4: Incumbents tend to filter information on new business models, which
increases their inertia in response to disruptive innovations.
Further, we confirmed existing research on the role of insufficient involvement of external
expertise (C23) and concerns of sufficient capabilities (C24) to cause inertia.
Internal & external inflexibilities. Here, we found two new explanations for inertia not yet
discussed in disruptive innovation literature. First, we identified a restricting effect of
interdependencies with partners (C31), and especially in the case of the airline industry,
incumbent alliances. We found strong evidence for this at OS and IB, which makes sense given
their role as junior partners in Star and Oneworld alliances. OS experienced constraints to
modifying its in-flight product and pricing structure due to obligations of alliance communality.
IB as well suffered inflexibilities in modifying product quality and sales channels. LH and BA
also voiced these requirements for communalities, however, stressed that as dominant airline in
the alliances, these had no impact on their responsiveness to LCC.
22
Chair of Strategic Management and Organization
So far, scholars only found the embeddedness of incumbents in a value chain network of
suppliers, customers and investors to potentially constrain the development of new business
models (Ghemawat, 1991; Argyres and Liebeskind, 1999; Christensen, 2000; Nickerson and
Silverman, 2003). Restricting effects due to corporate partnerships have not been mentioned.
Nickerson (2003) states that contractual commitments may create adjustment cost delaying
change. We found similar constraints to reduce the space of response measures, and hence,
reduce incumbents' propensity to respond at all. Despite the related underlying mechanisms,
alliances between incumbents as constraining factor are new to the scientific discussion.
Hypothesis 5: Interdependencies between the incumbent and partner firms in its network
(e.g., alliances or joint ventures), may restrict the degree of freedom by which
incumbents can respond to the disruption and increase inertia.
Second, we found evidence on resistance from stakeholder groups (C32). In many occasions,
conflicts with pilots caused major fear among managers. At OS, this made salary cuts difficult,
which were necessary to compensate fare discounts. Major strikes in the past at IB caused dread
of taking measures that could cause unrest among pilots, resulting in the late launch of its LCC
subsidiary. In addition, the public exerted pressure at OS to pursue a high quality strategy, since
it still perceived the airline as national prestige. In the case of LH, unions and especially pilots as
well resisted an earlier subsidiary launch. At BA, this antagonized workforce so heavily that the
board withdrew support for a previously launched subsidiary. Further, BA feared it could lose
the support of government for airport expansions if it responded too harsh against LCC.
Whereas scholars found that direct shareholders may create uncertainty for TMTs and limit
managerial discretion (Hambrick and Finkelstein, 1987), researchers so far have not investigated
the influence of stakeholders on the responsiveness to disruptions. Incumbents as larger
organizations also attempt to satisfy more stakeholders. Argyres/Liebeskind (1999) found that
23
Chair of Strategic Management and Organization
prior contractual commitments, both formal and informal, can limit a firm's future ability to
differentiate its governance arrangements. However, our research findings relate to a broader
context beyond simply binding commitments. The observed resistance stemmed from various
stakeholder groups as a whole, all sufficiently powerful to exert pressure on the organization,
e.g., by strikes. Neither of those yet considered the bigger picture behind the response measures
they were seeking to stall.
Hypothesis 6: Incumbents may face resistance from powerful stakeholder groups inside
and outside the organization, whose exerted pressure may constrain the set of available
response measures and as a result, increase inertia in response to disruptive
innovations.
Further we identified explanations for routine rigidity in organizational complexity (C33) and
inadequate incentive systems (C34), yet those causes have already been discussed in existing
literature. Further, with regard to financial concerns, we confirmed suggestions by previous
scholars, namely fears of cannibalization (C41) and switching cost to the new business model
(C42) as factors causing inertia (Charitou and Markides, 2003).
TMT moderators
Most important in our study, we also tested an initial set of moderating factors around
incumbents' TMT from our literature review and found 11 especially relevant moderators,
reducing the impact of causal factors on inertia. By either identifying new variables or revealing
different
results
to
earlier
work,
we
24
entirely
yield
new
findings
(see
Chair of Strategic Management and Organization
Table 2).
25
Chair of Strategic Management and Organization
Table 2: Identified TMT moderators on causal factors at research sites
Austrian
Airlines
Lufthansa Iberia
British
Airways
Research
contribution
Group 1: Members in TMT
M11
Risk propensity
––
–
––
–
(new)
M12
Organizational tenure
++
n/a
+
+
(new)
M13
Operations experience in industry
––
––
–
–
(new)
M14
Disruption experience in same/other industry
–
n/a
n/a
––
(new)
Group 2: Structure of TMT
M21
Heterogeneity of members' backgrounds
n/a
–
––
–
(new)
M22
CEO authority
U
U
–
–
(different result)
M22mod Risk propensity of CEO
amplifying amplifying amplifying amplifying (new)
M22
M22
M22
M22
Group 3: Process in TMT
M31
Consensus-focused culture
M32
Social integration of members
M33
Insufficient risk management & scenario planning
M34
Decisiveness, determination and persistence
n/a
+
mixed
++
–
n/a
n/a
–
(new)
++
n/a
n/a
n/a
(new)
–
––
––
–
(new)
(different result)
+: increases impact of causal factors; –: reduces impact of causal factors; n/a: no evidence; double signs indicate strong evidence;
(new): first to identify increasing effect on routine rigidity; (different result): contradicting to extant research
Members of TMT. In this group, we for the first time identified four TMT moderators on
inertia. Table 3 shows an example from each case. First, we identified a moderating factor in risk
propensity of TMT members (M11). OS did not seize several opportunities to participate in the
LCC segment, e.g., by expanding acquired Slovak Airlines. Managers accounted inferior risk
propensity for not starting such a venture. Massive changes in board configuration also
decreased members' readiness for highly visible response measures. IB explained airlines' strong
technology focus to result in an overly conservative, risk-averse culture. A manager also
differentiated between financial risk and personal risk: whereas it is comparably easy in the
industry to take financial risks by routing and pricing decisions, committing to LCC response
measures increases the visibility of the individual manager. At LH, a manager explained the
same issue and pointed to the high visibility of deciding for a LCC venture with seemingly small
upside and substantial personal downside potential for the manager. Only high individual risk
propensity enabled the launch of Germanwings and Lufthansa Italia. For the BA's launch of Go,
26
Chair of Strategic Management and Organization
the CEO was credited with high risk propensity and the readiness to overcome resistance in the
organization.
Table 3: Examples from research sites for identified TMT moderators (group 1)
Causal factor
Austrian Airlines
Lufthansa
Iberia
British Airways
ƒ Risk
propensity
(M11)
(– –) "(…) you need entrepreneurs who are really
ready to take risks, starting
from the board down to the
2nd management level. Only
then you are really able to
launch non-linear strategic
measures."
(–) "For a CEO the question
is, will I start a new venture
with all the attention and
reporting in my supervisory
board? Germanwings is
small - but still you report to
the supervisory board, and
labor representatives don't
think that's funny at all."
(– –) "The airline industry
was created in a very regulated environment. What was
really important was the
technical part, creating an
overly conservative culture.
And if you are in a very conservative culture, you won't
change."
(–) "Individual members
have to show a certain risk
propensity. You have to dare
such a venture and to have
the heart to overcome foreseeable resistance in the organization. That is a personal
character trait which must
not be underestimated."
(+) "I think our management
team has been too stable for
too many years. And I don't
think it's good, you need to
move. We need to change
every 5 or 6 years, otherwise
we'll lose the ability to innovate, to adapt."
(+) "Of course, most airliners are people who
worked for 20 years in the
industry and sat for years in
the same position, they are
entirely unable to recognize
such disruptions. And to
respond quickly."
(no evidence)
ƒ Organizational (++) "When you have a
change of paradigms, so that
tenure
(M12)
now you will have high
passenger numbers but low
yields, then it is essential in
my view that you implement
somebody who brings along
this new way of thinking."
ƒ Operations
experience in
industry
(M13)
(– –) "It is fatal if TMT
members are too traditional
and know aviation only as a
passenger in business class."
(– –) "It is really important
to have a feeling for things,
to know what a crisis means,
what are the connections,
what happened 5 years ago,
is this crisis bigger. Especially in a business, relatively sensitive and shortlived like ours."
(–) "The board members, if
they don't know the industry,
it's a complex industry. If
you know the industry, you
also know how you can filter
and how you cannot filter
information. I think this
works together with the
experience."
(–) "However, it is clear that
you need real experts of the
business. Every industry has
its specifics and economics.
That is absolutely important.
But those people are not
short in airlines, you find
them everywhere."
ƒ Disruption
experience in
same/other
industry
(M14)
(–) "The fact that the new
CEO already experienced
low-cost competition and
understood air travel as
commodity extremely
helped us to launch these
measures."
(no evidence)
(no evidence)
(– –) "In hindsight you can
say that we should have had
such a change agent, able to
immediately recognize this.
(…) But these outsiders are
rare, this is a very networked
industry."
Grey shade indicates new findings
Literature already discussed risk propensity of executives for long, yet rarely in the face of
disruptive innovation. Sitkin/Pablo (1992) found that the perceived risk of any given choice is
lower for a decision maker with higher risk propensity. Thus, several scholars argue that it
distorts decision makers' perceived risk of strategic issues (Brockhaus, 1980; Sitkin and
Weingart, 1995). This implies that also for disruptions, varying risk propensity of TMT members
leads to different situation judgements. On the direction of this impact on inertia, König et al.
27
Chair of Strategic Management and Organization
(2008) found that it moderates resource rigidity: the higher executives' risk propensity, the higher
the influence of the CEO-frame on resource commitment. Similar to resource rigidity, we
conclude that with high risk-propensity, TMT members perceive any choice that involves a
change in business routines as less risky than normatively appropriate.
Hypothesis 7: Incumbents with higher risk propensity of their TMT members can expect
less impact from causal factors on incumbent inertia and hence, a faster response to
disruptive threats.
We also found evidence for the influence of TMT members' organizational tenure (M12). Even
after privatization at IB, a manager reported that people were "too long in their position" and not
suited to take the company from a civil-servant mentality to the reality of LCC. A BA manager
also said that people in the industry have been active for 20 years and sat for years in the same
position, which made them unlikely to recognize change. At OS, managers similarly complained
that employees could not adapt to new high-passenger, low-yield realities and "drove with the
back mirror", since they experienced the old business for too long.
There is no discussion on the role of organizational tenure in disruptive situations in literature. In
general, upper echelon research argues that human beings become less flexible, creative and
adaptable the longer they live and work in a constant environment. Miller (1991) found that
firms with long-tenured CEOs are less likely to find appropriate strategies and structures
matching their environment. Shortly thereafter, Wiersema/Bantel (1992) argued similarly by
finding shorter average organizational tenure of all team members to promote strategic change of
firms. Finkelstein/Hambrick (1990) also argued that higher tenure TMT members followed more
persistent to central tendencies of the industry, since they become increasingly committed to
their previous course of action. My findings for disruptive situations do not contradict to those
claims. In the face of disruptions, longer organizational tenure of TMT members will reduce
28
Chair of Strategic Management and Organization
experimentation and increase focus on existing resources. According to Gilbert (2005), such
behaviors ultimately increase incumbent inertia.
Hypothesis 8: Higher organizational tenure of incumbents' TMT members increases
routine rigidity and inertia in response to disruptive innovations.
Third, we found evidence on the role of operations experience (M13). At OS, an interviewee
argued that more true knowledge of airline operations in the TMT would have been helpful,
since some managers were outsiders and knew the business only "from their own perspective as
a business class passenger". It was their influence upon which the company focused on the core
business instead of LCC. At LH, a manager also argued that insufficient operations knowledge
might lead to misleading judgements of the situation, strategic positioning and economics, i.e.,
how quickly airlines may accumulate substantial losses. Therefore, it would be crucial to know
market mechanisms by heart. At IB, evidence suggested that operations knowledge in the board
allowed better information filtering, reducing the impact of this factor. Due to the complexity of
network marketing economics of scale, airline expertise is essential for the right response. In
summary, operations experience seems to be beneficial, with effects of team heterogeneity
disregarded for the moment.
In existing literature, this topic is hardly discussed, as only some upper echelon findings on the
general role of formal education exist. Finkelstein/Hambrick/Cannella (2009) described the
greater the amount of formal education of top executives, the more innovative their firms are.
According to them, formal education is concomitant with open-mindedness, information
processing abilities and cognitive flexibility. More specific to industry expertise, research is rare
– likely since it seems too much common sense whether professional experience is beneficial for
organizational outcomes. However, two considerations seem important here: First, the studied
airline industry is far more specific than others, and it is difficult for outsiders to acquire a
29
Chair of Strategic Management and Organization
business understanding in short time. Second, our findings need to be considered along with the
beneficial role of TMT heterogeneity (see discussion on M21 later in this paper). So despite
firms should aspire for a heterogeneous TMT, as it will turn out, we argue that maintaining
profound industry expertise at the same time by at least one TMT member is paramount.
Hypothesis 9: Incumbents who cultivate profound industry expertise in at least one
member of the TMT are more likely to understand the disruption earlier and respond to
it.
Finally, we discovered indicative evidence on prior disruption experience (M14) as TMT
moderating factor. At BA, an interviewee argued that the industry is very closed-circuit in terms
of manager circulation, yet in fact an outside change manager with experience from disruptions
in a different industry, e.g., photocopiers, would have been helpful for a quicker response of BA.
A manager at OS argued that the CEO experiencing the LCC disruption before at another airline
resulted in a modern belief of air travel as commodity and helped to launch the Redticket
response measure.
There is no discussion on disruption experience of individual TMT members in academic
literature. Only on a corporate level, Burns/Stalker (1961) first discovered firms based in
environments with a history of instability as more likely to find more rapid responses to
unpredicted events. 40 years later, these findings were confirmed for disruptive situations (Hill
and Rothaermel, 2003). On the individual level, which is easier for firms to influence than on the
organizational level, findings are more general. Heffernan (2003) argued that a crisis can
encourage individuals to step outside the standard set of rules and procedures and to consider
how to improve. As a remedy, learning theory suggests that organizations need prior related
knowledge to better identify, assimilate and use new knowledge (Cohen and Levinthal, 1990).
Since disruptions are new to established firms, we argue that there is a benefit of integrating
30
Chair of Strategic Management and Organization
disruption-experienced managers from outside in the TMT. This will increase outside decision
influence on decisions and, in line with Gilbert (2005), ultimately improve the organizations'
readiness for discontinuous change.
Hypothesis 10: Incumbent firms, which feature experience from prior disruptions by at
least one TMT member's background, are more likely to respond to disruptions.
Structure of TMT. In this group, we identified two new TMT moderators on incumbent inertia
and one with results diverging from extant research. Table 4 shows an example for each
moderator. First, we found evidence on heterogeneity of members' backgrounds (M21). At IB, a
manager called for a mix of experiences in the TMT. In addition to airline experts, backgrounds
from multinationals or from other industries would have been "refreshing". Shortly after his
appointment, a new CEO with background in steel and tobacco industries announced the launch
of a new carrier business model for 2011. LH managers said that whereas teams with common
manager backgrounds tended to arrive at similar conclusions, those with multiple backgrounds
allowed everybody to ask unconventional, seemingly plain questions. Equally, at BA a manager
said that a mix of industry experts and change agents was the best configuration for a fast
response to LCC.
TMT heterogeneity has not yet been researched in disruptive contexts. More in general in upper
echelon research, scholars found diversity in functional background and educational level to
promote more innovative strategies (Bantel and Jackson, 1989 and Palmer and Wiseman, 1999).
Milliken/Lant (1991) found a lower commitment to the status quo of diverse teams.
Wiersema/Bantel (1992) explain that higher educational specialization heterogeneity first
increases the diversity of information sources and perspectives. Then, broadening through
diversity in cognitive perspectives facilitates adaption of strategic alternatives and hence, change.
However, the authors only control for scenarios of growth, profitability and concentration, yet
31
Chair of Strategic Management and Organization
not disruptions. As sole contribution for DSI contexts, König et al. (2008) argue that TMT
heterogeneity has a positive effect on resource commitment in the face of DSI. As our findings
suggest, TMT heterogeneity reduces routine rigidity as well.
Hypothesis 11: Incumbent firms with higher heterogeneity of TMT members' functional
backgrounds and educational curricula have a higher tendency to respond early to
disruptive challenges.
Table 4: Examples from research sites for identified TMT moderators (group 2)
Causal factor
Austrian Airlines
Lufthansa
Iberia
British Airways
ƒ Heterogeneity
of members'
backgrounds
(M21)
(no evidence)
(–) "I have a board colleague
with a law and political
background. I'm rather from
operations – how do markets
and production platforms
work. So I have the freedom
to challenge his ideas, he
explains things to me and
likes to think unconventionally. This was highly
helpful to deal with LCC"
(– –) "Probably, if you have
some experts from other
multinationals, from other
industries, that could be
refreshing. Look, if you
come from a highly competitive consumer industry,
you are more likely to react
to this. So a combination
would be good, yes definitely."
(–) "Experts can be found
everywhere, but the mix is
the critical issue. But these
outsiders are rare, this is a
very networked industry."
1
ƒ CEO authority (U) "I believe to recognize
these structural disruptions
(M22)
of industries... that it is
rather visionary leaders than
somebody who covers the
topic. It must be the people
from the top. Usually these
are charismatic leaders, with
high managing power."
(U)2 "The CEO needs to be
both, authoritarian and integrative. If he's too dictatorial, he chokes off fruitful
discussions. If he lets things
run, the organization does
not feel strategic leadership
anymore. So in that sense,
both is necessary."
(–) "But if you look back
into history of this industry,
almost in all the cases, successful leaders were leaders,
not boards. Individual people. Who had a vision, and
the ability to implement that
vision."
(–) "I remember Stelios
permanently critizizing that
Go was dominated by BA.
And we did heavy PR
against that. (…) a waste of
time. You need somebody
who thumps the table and
simply pulls it through."
ƒ Risk propensity of CEO
(M22mod)
(amplifying M23) "I am not
sure if CEO authority as
such is a sufficiently meaningful factor. If the CEO is
not ready to take risks, the
impact of his authority will
only be small."
(amplifying M23) "A strong
leader helps, but only if the
CEO is a very visionary type
of personality, not conservative. If the CEO is very
conservative, and strong,
then nothing changes."
(amplifying M23) "So, if the
CEO with high authority has
a broad spectrum of experiences, then this helps. But
when he is a conservative
airliner, then this is a problem"
(amplifying M23) [low risk
propensity increased negative impact of high authority
in the case of a particular
CEO]
Dark grey shade indicates new findings, light grey shade indicates findings contradicting to existing research.
1 Whereas higher CEO authority proved helpful, excessive levels had negative impact on the responsiveness of Austrian.
2 Whereas low and high levels of CEO authority increase incumbent inertia, a medium level relaxes it.
Further, we discovered interesting findings on the moderating roles of CEO authority (M22) and
CEO risk propensity (M22mod) on inertia. The latter amplified effects of the first. At OS and
LH, the effect of CEO authority was U-shaped, meaning that moderate levels reduced inertia, but
32
Chair of Strategic Management and Organization
excessively high or low levels in fact increased inertia. Moderate authority of one particular CEO
was a catalyst for response. Managers accounted his leadership strength for the mere response
measures of the airline. Higher authority of another CEO, however, impeded open discussions on
LCC and led OS to re-focus on its core business. Low risk propensity of this CEO even
amplified the effect of his strong authority. LH managers argued for the same effect, explaining
the negative impact of excessively low levels of CEO authority to result in some disorder, during
which the company was not able to agree on a response. However, interviewees pointed to the
CEO's risk propensity moderating the effect of his authority. A visionary and risk-seeking CEO
will have higher impact. At IB and BA, we found evidence on a positive impact of CEO
authority, without evidence on excessive levels. An IB manager pointed out the critical role of
the CEO to lead the company through privatization and launch Clickair. At BA, only the CEO's
commitment and readiness to take risks helped to launch Go despite concerns in the TMT.
In literature, authority of top executives has been discussed in the field of disruptions (Vlaar, de
Vries and Willenborg, 2005 and König et al., 2008). These findings differ to mine to the extent
that they suggest a positive, linear impact of CEO authority on incumbent responsiveness: Vlaar
et al. propose "strong leadership" to energize discussion on renewal within the firm. However,
the authors neither define the terminus strong leader, nor provide an empirical verification.
König et al. find higher authority to strengthen the CEO's influence on resource commitment. In
principle, our findings reiterate the positive influence of CEO authority on incumbent
responsiveness. Further, we agree that low levels of CEO authority tend to harm incumbent
responsiveness due to a lack of guidance and direction. This may result in lengthy discussion of
alternatives, which ultimately may stall decisions (Nooteboom, 1992; Finkelstein, Hambrick and
Cannella, 2009). At the same time, however, our findings contrast by suggesting that excessively
high levels may also harm incumbent response. In our view, this may induce contraction of
authority, which increases routine rigidity according to Gilbert (2005). Therefore, we are
33
Chair of Strategic Management and Organization
proposing an inverted U-shaped impact of CEO authority on responsiveness (i.e., a U-shaped
impact on inertia).
Hypothesis 12: Incumbents led by CEOs with moderate to high authority are more likely
to reduce inertia in response to DSI than others. In contrast, excessively high or low
levels of authority may increase inertia.
We also explain the amplification of the CEO's impact on incumbent responsiveness through his
risk propensity. Greater authority and hence lower involvement of other TMT members increases
the extent to which purely the CEO determines corporate strategy. So greater risk propensity will
not only strengthen his opportunity framing, but also increase his willingness to experiment,
ultimately relaxing routine rigidity (Gilbert, 2005).
Hypothesis 13: Risk propensity of the CEO amplifies the impact of his or her authority:
The more risk-seeking the CEO is, the more higher authority reduces inertia.
Process of TMT. Here, we identified another three new TMT moderators on incumbent inertia
and one with diverging results from other scholars' findings. Table 5 shows an example for each
moderator. First, we found evidence on the role of a consensus-focused culture (M31) negatively
impacting incumbent responsiveness. At LH, managers reported from controversial TMT
discussions on Germanwings, but explained that conflict was "casted" into LH's organization and
helped to question the established way of business. Two former CEOs at BA were both reported
to be consensus-focused, and managers attributed the period of inertia before the launch of Go
and after its sale to this. More conflict and polarization would have been more helpful to earlier
discuss a response to LCC. The CEO of Go was reported as less consensus-focused, which
contributed to BA's effective response during that time.
34
Chair of Strategic Management and Organization
Table 5: Examples from research sites for identified TMT moderators (group 3)
Causal factor
Austrian Airlines
Lufthansa
Iberia
British Airways
ƒ Consensusfocused
culture
(M31)
(impact not identifiable)
(+) "It must be possible to
have serious discussions.
Conflict is casted into our
organization. It is essential,
without friction you will not
be able to question your
current business and quickly
agree on a response."
(mixed impact, some interviewees suggesting conflict
to enable making tough
decisions, others argued for
the benefit of consensus to
broader support in implementing decisions)
(++) "With our previous
CEOs, we had two consensus types. (…) But to decide
on major transformations
such as LCC, this clogs
everything. Since you run
into endless discussions and
don't progress."
ƒ Social
integration of
members
(M32)
(–) "One from the super(no evidence)
visory board wanted to know
what really went wrong. I
said you don't have to search
for long. 5 different board
configurations in 7 years,
then you don't have to ask
further."
(no evidence)
(–) "We were put together
quite randomly and met only
for the meetings. Everybody
worked a bit only in his
domain (…) we should have
had a stronger link between
the meetings so you can
discuss the LCC issue also
informally off-topic."
ƒ Insufficient
risk and scenario management
(M33)
(++) "Our scenario man(no evidence)
agement was insufficient.
People were not really ready
to sit down really open, like
this was possible earlier."
(no evidence)
(no evidence)
ƒ Decisiveness,
determination
and persistence
(M34)
(–) "When you are doing
such a hybrid business
model, you need to be absolutely consequent within
the budget segment. And
neither did we see decisions
nor actions for this."
(– –) "Of course the governance model is important. To
have a clear description of
route profitability helps what do we accept, what not.
More objectivised, less
subjective."
(–) "Decision paths at BA
were always very slow, very
tenacious. We believed that
if we respond to fast, we cut
off our own nose."
(– –) "For Germanwings we
realized we need strong
commitment for a decision,
we will do that. Board,
group board, and a strong
project sponsor, this works.
Without this, the discussion
ends without decision."
Dark grey shade indicates new findings, light grey shade indicates findings contradicting to existing research.
Despite there is no specific research on the context of disruptions, our findings differ from other
researcher's suggestions on the generally beneficial role of consensus. Before, scholars suggested
consensus to result in greater agreement about the organization and its goals, allowing TMT
members to coalesce around this shared understanding of what the firm seeks to accomplish
(Dutton and Duncan, 1987 and Wiersema and Bantel, 1992). Further, it may lead to team
members establishing norms of interaction (Chatman and Flynn, 2001) and according to a
broader sharing of information (Finkelstein, Hambrick and Cannella, 2009). In our studies, we
suggest another effect to outweigh those benefits: in situations of disruptive change, an overly
consensus-focused culture may not sufficiently encourage open discussion in the TMT on
35
Chair of Strategic Management and Organization
applicable response measures either, since conflicts are not desired in those cultural
environments. However, since the new business model inherently does involve conflicts with the
old one, those would constitute obstacles in the decision process.
Hypothesis 14: In situations of disruptive change, an overly consensus-focused culture in
the TMT increases incumbent inertia.
Next, we found evidence for a beneficial impact of social integration (M32) on incumbent
inertia. At OS, a manager reported from the difficulties in personal relationship building because
of five different board configurations in just seven years. Further, personal tensions between
TMT members let some members avoid mutual discussions. At BA, the board met only for
meetings. A manager explained that this circumstance discouraged off-topic discussions of
controversial issues like the LCC segment.
Social integration, defined as "the attraction to the group, satisfaction with other members of the
group, and social interaction among the group members" (O'Reilly, Caldwell and Barnett, 1989),
has only been scholarly discussed in general contexts. Finkelstein/Hambrick/Cannella (2009)
suggest negative effects on team functioning and group performance. Wiersema/Bantel (1992)
find greater levels of social integration to reinforce the cohort phenomenon and lead to more
effective patterns of communication. These findings compare with other insights on a beneficial
role of increasing team tenure (as opposed to organizational tenure, described earlier by M12).
Beyond these considerations, our findings suggest a beneficial moderating role of social
integration also for disruptive circumstances.
Hypothesis 15: A higher degree of social integration of an incumbent's TMT members is
beneficial to agree earlier on a response to disruptive strategic innovations.
36
Chair of Strategic Management and Organization
Third, we found that insufficient risk management and scenario planning (M33) may increase the
effect of factors causing inertia. At OS, time constraints and higher competitive pressure reduced
the ability of managers to engage in scenario planning compared to earlier times. Reportedly, it
was no longer possible to conduct open-ended discussions on potential response measures, also
because authority in the organization contracted. Risk management was overly inflated and
unsuited to explore new potentially disruptive threats since managers' willingness to report real
risks decreased. This led to misjudgements when arguing for concerns of cannibalization
ultimately increasing inertia.
In literature, scenario planning has been extensively reviewed, but its role for disruptive
situations has not been addressed so far. Schoemaker (1995) proposed scenario planning to
discover basic trends and uncertainties, so that managers may compensate for overconfidence
and tunnel vision. Fink/Siebe/Kuhle (2004) proposed that companies suppressing uncertainty,
complexity and change often fail. Yet research on scenario planning in the wake of disruptions,
is rare. Since it aims to draw pictures of seemingly highly unrealistic futures, just like disruptive
innovations are ex ante, we consider it highly applicable in this context. The findings in our
research confirm that an absence can ultimately increase inertia.
Hypothesis 16: Incumbents whose TMT does not sufficiently engage in scenario planning
and fails to set-up an adequate risk management system, are more likely to respond late
to disruptive strategic innovations.
Finally, another new TMT moderator arose from our studies by identifying decisiveness,
determination and persistence (M34) to allow overcoming incumbent inertia at all case sites, two
of them strong. After hefty discussions at LH, a decision was reached to launch Germanwings
and with strong commitment and support from the entire TMT. The "Zukunft Kont" project
featured a meaningful concept, however, was reportedly lacking long-term persistence. At IB, an
37
Chair of Strategic Management and Organization
interviewee argued for a stronger "governance model" to enforce necessary decisions. Clear
KPIs, a consistent reporting format and empowered committees reduce an overly CEO
dependant culture and avoid tendencies to ignore increasing threats, for instance, by "simply
changing the reporting format once things start not going well". At OS, the TMT discussed LCC,
but meetings often "ran off into sand". Once measures were launched, they were often not
maintained with sufficient persistence (e.g., when OS deployed larger aircraft against Air Berlin
attempting to enter the market). BA experienced a lack of decisiveness stalling response
measures due to fears of appearing too harsh against LCC for the government and public.
We found only little debate of these issues in extant research. Finkelstein/Hambrick (1990)
discussed strategic persistence, yet understood it as maintaining a strategic course of action,
implying a focus on the old business model. In contrast, our findings rather relate to persistence
after launching response measures, beyond simply experimenting for a while. This is especially
relevant since established KPIs do not promote investments in the new business model during
resource allocation (Christensen and Bower, 1996). So a firm may later on even question
response measures it decided on before. Further, due to incentive conflicts in the short vs. longrun, TMT members may be unwilling to decide on response measures, but excluding the
disruption from formal discussion may also not be an option for liability reasons. Hence, more
formal standards need to enforce decisions after such discussions.
Hypothesis 17: Incumbent firms who formally encourage decisiveness, determination
and persistence to TMT decisions can respond quicker to disruptions than others.
38
Chair of Strategic Management and Organization
CONCLUSION
Overall, the theory developed in this thesis uniquely adds to the understanding of why
incumbents experience inertia in response to disruptive strategic innovations and how top
management teams may moderate this effect in order to overcome inertia. We were able to
develop an integrative model of twelve causal factors driving routine rigidity and eleven TMT
characteristics moderating the influence of those (see Figure 1). To identify those, we drew from
literature on strategy, psychology and organization theory. In addition, we could link upper
echelon research on executive impact and TMT with disruptive innovation theory. We find that
the complementary insights from all these bodies of literature do indeed tell a coherent story
about incumbent inertia and provide a more holistic perspective.
CAUSAL FACTORS
TMT MODERATORS
Insufficient knowledge
EFFECT
Members of TMT
[c11] Insufficient knowledge on customer preferences (+)
[m11] Risk propensity
(–)
[c12] Overestimation of entry barriers for entrants
[m12] Organizational tenure
(+)
(+)
[m13] Operations experience in industry (–)
Inadequate self concept
[c21] Status-oriented belief in own business model
(+)
[c22] Filtered perception of information
(+)
[m14] Disruption experience in same/
other industry
(–)
Internal/external inflexibility
[c31] Interdependencies with partners
(+)
[c32] Resistance by stakeholder groups
(+)
[c33] Complexity of organization
(+)
[c34] Inadequate employee incentives
(+)
Financial concerns
(+)
Routine rigidity
[c23] Insufficient use of external knowledge & support (+)
[c24] Fear of insufficient capabilities for new business (+)
Resource rigidity
Structure of TMT
[m21] Heterogeneity of backgrounds
(–)
[m22] CEO authority
(U)
[m22mod] Risk propensity of CEO (amp.)1
(+)
Incumbent
inertia
Process in TMT
[m31] Consensus-focused culture
(+)
[m32] Social integration of members
(–)
[m33] Risk mgmt. and scenario planning (–)
[c41] Fear of cannibalizing the existing business
(+)
[c42] Fear of switching cost to new business model
(+)
[m34] Decisiveness, determination and (–)
persistence
1 Amplifying impact
Figure 1:
Integrative framework explaining routine rigidity and TMT moderating characteristics
Our findings are highly relevant for the managerial practice to prepare organizations for future
disruptive change. We suggest that managers need to consider four areas (see Fehler! 39
Chair of Strategic Management and Organization
Verweisquelle konnte nicht gefunden werden.), namely TMT composition (selecting the right type
of CEO with medium authority and fair risk propensity, mix industry experts with outsiders and
disruption experienced managers, avoid high tenures, appoint a strategy manager and promote
social integration of the team), use the right set of tools (apply risk management and scenario
technique, consider external advice, use market research to understand non-customers, apply
appropriate incentive scheme), role-modeling by leadership (communicate framing of disruption
clearly in organization, face stakeholder resistance without distractions, signal employees that
firm has sufficient skills to compete, consider contributions of mid-level managers) and
corporate culture (promote entrepreneurial and risk-seeking environment, allow controversial
discussions, challenge seeming obstacles in alliances, avoid information filtering). Whereas the
former two constitute tangible, easier to influence elements, the latter two represent more
implicit and harder to change issues.
Composition of top
management team
▪ Selecting the right CEO
with medium authority and
fair risk propensity
▪ Mix industry experts,
outsiders and disruption
experienced managers
▪ Avoid high tenures
▪ Appoint strategy manager
▪ Promote social integration
of team
Tools
▪ Apply risk management
system and scenario
technique
▪ Consider outside advice and
support from externals
▪ Use market research to
understand non-customers
▪ Apply appropriate incentive
scheme
Tangible
elements –
Easier to
influence
Readiness for
disruptive change
Corporate culture
▪ Promote an entrepreneurial culture to
encourage risk taking
▪ Allow controversial
discussions – but
decide at point X
▪ Challenge seeming
obstacles due to
partners & alliances
▪ Don’t filter new
information
Role-modeling by leadership
▪ Frame disruptions as threat or
opportunity, but communicate
strongly in the organization
▪ Be prepared to face stakeholder
resistance without distractions
▪ Signal employees that firm has
sufficient skills to compete
▪ Consider contributions of second
level managers in decisions
Top management team
Implicit
elements –
Harder to
influence
Entire corporation
Figure 2: Recommendations for organizations to prepare for disruptive change
40
Chair of Strategic Management and Organization
The generalizability of our propositions is limited by the following constraints: First, the studied
incumbents all constituted former state-owned national carriers. This might have made them
more apt to routine rigidity, since their routines were not exposed to new competitors and
evolved over decades. However, the fact that Europe followed the U.S. example and hence,
deregulation did not come at a surprise, counterbalances this effect, since this granted even stateowned incumbents ample time to respond. Second, despite deregulation granted entrant airlines
full freedom to offer any services, not all airports were able (due to capacity constraints) or
willing (to protect the incumbent carrier) to assign LCC sufficient slots. Therefore, the role of
airports might impact generalization across countries and to other industries without such a
condition. Finally, managers across the four studied European airlines could have been biased by
cultural factors, such as individualism or a different attitude on consensus. Such issues can affect
the impact of single moderating factors like consensus or CEO authority and hence, corporate
response to disruptive change. Future studies could control for that by using an even larger crossnational sample.
Both theoretical implications as well as limitations of this research open avenues for further
research. These include quantitative testing of new propositions, detailing the pivotal role of the
CEO and investigating TMT power structures. In this article, we developed new theoretical
constructs, which would further benefit from large-scale empirical verification. Clearly, some of
those are not amenable to extensive quantitative testing. However, we believe that an integrated
approach including qualitative field work, quantitative data from surveys and secondary archival
information is suitable to verify the causal relationships advanced in this study. Moreover, since
the focus of our research deliberately centered on the TMT as a whole, we believe it is
worthwhile for future researchers to specifically investigate the role of further individual CEO
characteristics in disruptive contexts and, for instance, to determine the effect of narcissism, age,
previous professional experiences or formal education. Finally, findings of our work indicate to
41
Chair of Strategic Management and Organization
the relevance of both individual and group characteristics of the TMT for a firm's ability to
overcome inertia. Apart from the CEO position, we had no evidence of asymmetric power
distribution. Nevertheless, such situations may still exist, when for instance heads of business
units, functional heads or sub teams have different levels of influence on decision-making.
Therefore, future researchers could investigate the role of power structures in heterogeneous
TMT for disruptive situations.
Building on leader life cycle theory (Hambrick & Fukotomi, 1991), we examined the
relationship between CEO tenure and performance for German CEOs. For short-tenured and for
long-tenured CEOs respectively, we found an inverted curvilinear relationship between the
tenure of a CEO and company performance.
In general, our results are in line with earlier research on the leader life cycle (Hambrick &
Fukotomi, 1991; Miller & Shamsie, 2001; Giambatista, 2004; Henderson, Miller & Hambrick,
2006). Unlike past research in the field, however, we did not find a uniform leader life cycle.
Rather the results of our study draw a more differentiated picture of CEO life cycles.
Specifically, we found that CEOs with long and short tenures possess different leader life cycles.
This finding, however, does not completely contradict earlier research in this field. Other studies
indicate support for these findings as well. Henderson, Miller and Hambrick (2006), for example,
found two different life cycles for CEOs working in dynamic and stable industries respectively.
In Giambatista’s (2004) life cycle analysis of basketball coaches in the United States, the
development of sample means showed a clear performance dip at about medium tenure.
Nevertheless, our study is the first one that explicitly differentiated between long- and shorttenured CEOs and found distinct life cycles for both groups. Furthermore, this is the first study
that explicitly examined the role of power dynamics on the leader life cycle.
42
Chair of Strategic Management and Organization
The specific results concerning life cycles of long- and short-tenured CEOs reflect and confirm
our hypotheses. For long-tenured CEOs we found evidence that supports the view of institutional
theory. In the first years of a CEO’s tenure performance rose slowly. After CEOs had established
their power base, performance increased resulting from higher legitimacy. In accordance with
the assumption that long-tenured CEOs tend to stick to outdated routines, we found that after a
certain time performance decreased again.
Unlike prior research (Katz, 1982; Giambatista, 2004), we found no significant performance dip
in year four. In our case a minor performance decline is found in year three of the lifecycle of
long-tenured CEOs. From year two to year four, the sample means show a certain performance
stagnation. Hambrick and Fukutomi (1991) mention that in executive life cycle stages variations
are possible. Indeed, especially the second stage, experimentation of managers, might not
implicitly lead to increased performance. After his response to mandate, which is associated with
performance increases and growing power, the manager has the possibility of testing different
approaches and methods. Our results show that long-tenured CEOs make extensive use of this
experimentation stage. This pays off in form of increasing performance after year 6.
Like in the case of long-tenured CEOs, our hypothesis of an independent lifecycle could also be
confirmed for short-tenured CEOs. As we assumed, CEOs in highly demanding environments
delivered exceptional performance at the beginning of their tenure followed by a strong decline.
Nevertheless, in our case the decline, especially from year three to year four, is exceptionally
strong. None of the previous studies found such a negative tendency at the end of a CEO tenure
(e.g. Henderson, Miller & Hambrick, 2006; Giambatista, 2004; Miller & Shamsie, 2001). Thus, a
more differentiated analysis of short tenures seems necessary, particularly since in corporate
practice a tendency towards shorter CEO tenures can be observed (Karlsson, Neilson & Webster,
2008).
43
Chair of Strategic Management and Organization
Finally, we found that in general, a longer CEO tenure leads to higher firm performance.
Although in the first two years short-tenured CEOs outperform their longer tenured counterparts,
in the long run CEOs, who are given more time to develop their paradigms and gain legitimacy,
have a more positive influence on performance. With regard to the huge losses which we
observed at the end of a short-term tenure, companies should aim at keeping their CEOs for a
longer time period.
In spite of our innovative findings, our study has a few limitations. We acknowledge, for
example, that further organizational as well as CEO characteristics may influence the
relationship between CEO tenure and performance. Hence, future researchers should work to
imply other promising moderating variables in their model. Moreover, we have addressed the
importance of context by incorporating the role of pre-performance for leader life cycles. Beside
pre-performance especially industry dynamics determine organizational environment. While this
issue is of special interest, e.g. with regard to performance pressure, we regret that we could not
address it due to data limitations.
Finally, the core outcome of the investigation was the discovery of long- and short-tenured CEO
lifecycles based on arguments from institutional and circulation of power perspective. As both
theories address the question of power distribution in firms, the inclusion of more variables
which reflect power in companies would have been useful to support our assumptions about
power struggles and perpetuation of power.
44
Chair of Strategic Management and Organization
REFERENCES
Adner, R. (2002): "When are Technologies Disruptive? A Demand-based View of the
Emergence of Competition". In: Strategic Management Journal, 23, 667-688.
Anonymous. (2002): Lufthansa plant keine eigene Billig-Airline. Handelsblatt, 18/03/02.
Anonymous. (2009): The World's Top 25 Airlines. In: Air Transport World, 46, 33.
Argyres, N. S., and Porter Liebeskind, J. (1999): Contractual Commitments, Bargaining
Power, and Governance Inseparability: Incorporating History into Transaction Cost
Theory. In: Academy of Management Review, 24, 49-63.
Assink, M. (2006): Inhibitors of Disruptive Innovation Capability: a Conceptual Model. In:
Journal of European Innovation Management, 9, 215-233.
Bantel, K. A., and Jackson, S. E. (1989): Top Management and Innovations in Banking: Does
the Composition of the Top Team Make a Difference? In: Strategic Management Journal,
10, 107-124.
Benewick, R. J., Birch, A. H., Blumler, J. G., and Ewbank, A. (1969): The Floating Voter and
the Liberal View of Representation. In: Political Studies, 17, 177-195.
Brockhaus, R. H. (1980): Risk Taking Propensity of Entrepreneurs. In: Academy of
Management Journal, 23, 509-520.
Burns, T., and Stalker, G. M. (1961): The Management of Innovation. London: Tavistock.
Cannella, A. A., and Rowe, W. G. (1995): Leader Capabilities, Succession, and Competitive
Context: A Study of Professional Baseball Teams. In: Leadership Quarterly, 6, 69-88.
Chandy, R. K., and Tellis, G. J. (2000): The Incumbent's Curse? Incumbency, Size, and
Radical Product Innovation. In: Journal of Marketing, 64, 1.
45
Chair of Strategic Management and Organization
Charitou, C. D., and Markides. C. C. (2003): Responses to Disruptive Strategic Innovation. In:
MIT Sloan Management Review, 44, 55-63.
Chatman, J. A., and Flynn, F. J. (2001): The Influence of Demographic Heterogeneity on the
Emergence and Consequences of Cooperative Norms in Work Teams. In: Academy of
Management Journal, 44, 956-974.
Chesbrough, H. (2001): Assembling the elephant: A review of empirical studies on the impact
of technological change upon incumbent firms. In Burgelman, R. A. (Ed.): Comparative
Studies of Technological Evolution: 1-36. Amsterdam, New York and Tokyo: Elsevier
Science.
Christensen, C. M. (2000): The Innovator's Dilemma. Harper Business and Harvard Business
School Press.
Christensen, C. M., and Bower, J. L. (1996): Customer Power, Strategic Investment, and the
Failure of Leading Firms. In: Strategic Management Journal, 17, 197-218.
Christensen, C. M., Anthony, S. D., and Roth, E. A. (2004): Seeing what's next: Using the
Theories of Innovation to Predict Industry Change. Boston: Harvard Business School
Press.
Christensen, C. M., and Raynor, M. E. (2003): The Innovator's Solution. Boston: Harvard
Business School Press.
Cohen, W. M., and Levinthal, D. A. (1990): Absorptive Capacity: A New Perspective on
Learning and Innovation. In: Administrative Science Quarterly, 35, 128-152.
Cooper, A. C., and Schendel, D. (1976): Strategic Responses to Technological Threats. In:
Business Horizons, 19, 61-69.
46
Chair of Strategic Management and Organization
Czarnitsky, D., and Craft, K. (2004): An Empirical Test of the Asymmetric Models on
Innovative Activity: Who Invests More into R&D, the Incumbent or the Challenger? In:
Journal of Economic Behavior & Organization, 54, 153-173.
Dutton, J. E., and Duncan, R. B. (1987): The Creation of Momentum for Change Through the
Process of Strategic Issue Diagnosis. In: Strategic Management Journal, 8, 279-295.
Dutton, J. E., and Jackson, S. E. (1987): Categorizing Strategic Issues: Links to Organizational
Action. In: The Academy of Management Review, 12, 76-90.
Edmondson, A. C., and McManus, S. E. (2007): Methological Fit in Management Field
Research. In: Academy of Management Review, 32, 1155-1179.
Eisenhardt, K. M. (1989): Building Theories From Case Study Research. In: Academy of
Management Review, 14, 532-550.
Eisenhardt, K. M., and Graebner, M. E. (2007): Theory Building from Cases: Opportunities
and Challenges. In: Academy of Management Journal, 50, 25-32.
Enders, A., and König, A. (2009): Social Proof, Benchmarking & Incumbent Failure. IMD,
Tomorrow's
Challenges.
http://www.imd.ch/research/challenges/upload/
TC023_social_proof_benchmarking_and_incumbent_failure.pdf
(accessed
on
22
November 2009).
Fink, A., Siebe, A., and Kuhle, J.-P. (2004): How Scenarios Support Strategic Early Warning
Processes. In: Foresight, 6, 173-185.
Finkelstein, S. (1988): Managerial Orientations and Organizational Outcomes: The Moderating
Roles of Managerial Discretion and Power. Unpublished doctoral dissertation, Columbia
University, New York.
47
Chair of Strategic Management and Organization
Finkelstein, S., and Hambrick, D. C. (1990): Top-Management-Team Tenure and
Organizational Outcomes: The Moderating Role of Managerial Discretion. In:
Administrative Science Quarterly, 35, 484-503.
Finkelstein, S., Hambrick, D. C., and Cannella, A. A. (2009): Strategic Leadership: Theory
and Research on Executives, Top Management Teams, and Boards. New York: Oxford
University Press.
Foster, R. N. (1986): Innovation: The Attacker's Advantage. New York: Summit Books.
Gatignon, H., Tushman, M. L., Smith, W., and Anderson, P. (2002): A Structural Approach
to Assessing Innovation: Construct Development of Innovation Locus, Type, and
Characteristics. In: Management Science, 48, 1103-1122.
Ghemawat, P. (1991): Commitment: The Dynamic of Strategy. New York: Free Press.
Gilbert, C. G. (2002): Beyond Resource Allocation: Towards a Process Model of Response to
Disruptive Change. In: HBS Working Paper, 3 (accessed on 5 December 2008).
Gilbert, C. G. (2005): Unbundling the Structure of Inertia: Resource vs. Routine Rigidity. In:
Academy of Management Journal, 48, 741-763.
Gilbert, C. G. (2006): Change in the Presence of Residual Fit: Can Competing Frames Coexist?
In: Organization Science, 17, 150-167.
Govindarajan, V., and Kopalle, P. K. (2006): Disruptiveness of Innovations: Measurement and
an Assessment of Reliability and Validity. In: Strategic Management Journal, 27, 189-199.
Gupta, A. K., and Govindarajan, V. (1984): Business Unit Strategy, Managerial
Characteristics, and Business Unit Effectiveness at Strategy Implementation. In: Academy
of Management Journal, 27, 25-41.
48
Chair of Strategic Management and Organization
Hage, J., and Dewar, R. (1973): Elite Values Versus Organizational Structure in Predicting
Innovation. In: Administrative Science Quarterly, 18, 279-290.
Hambrick, D. C., and Finkelstein, S. (1987): Managerial Discretion: a Bridge Between Polar
Views of Organizational Outcomes. In Cummings, L. L., and Staw, B. M. (Eds.): Research
in Organizational Behavior. Greenwich, CT: JAI Press.
Hambrick, D. C., and Mason, P. A. (1984): Upper Echelons: The Organization as a Reflection
of Its Top Managers. In: Academy of Management Review, 9, 193-206.
Hannan, M. T., and Freeman, J. (1984): Structural Inertia and Organizational Change. In:
American Sociological Review, 49, 149-164.
Heffernan, G. M. (2003): Path Dependence, Behavioral Rules, and the Role of Entrepreneurship
in Economic Change: The Case of the Automobile Industry. In: The Review of Austrian
Economics, 16, 45.
Helmich, D. L., and Brown, W. B. (1972): Successor Type and Organizational Change in the
Corporate Enterprise. In: Administrative Science Quarterly, 17, 371-381.
Henderson, R. M., and Clark, K. B. (1990): Architectural Innovation: The Reconfiguration of
Existing Product Technologies and the Failure of Established Firms. In: Administrative
Science Quarterly, 35, 9-30.
Hill, C. W. L., and Rothaermel, F. T. (2003): The Performance of Incumbent Firms in the Face
of Radical Technological Innovation. In: Academy of Management Review, 28, 257-274.
Jones, N. (2003): Competing after Radical Technological Change: The Significance of Product
Line Management Strategy. In: Strategic Management Journal, 24, 1265-1287.
49
Chair of Strategic Management and Organization
König, A. (2009): Cognitive Framing and Incumbent Inertia – A Replication and Extension of
the Gilbert Model in the German Book Retailing Industry. Berlin: Schriftenreihe des
Instituts für Unternehmungsplanung.
König, A., et al., (2008): Moderators of the Influence of CEO-Framing on Resource
Commitment in Response to Technological Discontinuities. Paper presented at the 28th
Annual International Conference of the Strategic Management Society, Cologne.
Lant, T. K., Miliken, F. J., and Batra, B. (1992): The Role of Managerial Learning and
Interpretation in Strategic Persistence and Reorientation: An Empirical Exploration. In:
Strategic Management Journal, 13, 585-608.
Markides, C., and Charitou, C. D. (2004): Competing with Dual Business Models: A
Contingency Approach. In: Academy of Management Executive, 18, 22-36.
Mayring, P. (2003): Qualitative Inhaltsanalyse: Grundlagen und Techniken. Weinheim:
Deutscher Studien Verlag.
Mellahi, K., and Wilkinson, A. (2004): Organizational Failure: a Critique of Recent Research
and a Proposed Integrative Framework. In: International Journal of Management Reviews,
5, 21-41.
Miles, M. B., and Huberman, M. (1994): Qualitative Data Analysis: An Expanded Sourcebook.
Thousand Oaks, CA: Sage Publications.
Miller, D. (1991): Stale in the Saddle: CEO Tenure and the Match Between Organization and
Environment. In: Management Science, 37, 34-52.
50
Chair of Strategic Management and Organization
Milliken, F. J., and Lant, T. K. (1991): The Effect of an Organization's Recent Performance
History on Strategic Persistence and Change: The Role of Managerial Interpretations. In:
Advances in Strategic Management, 7, 129-156.
Nickerson, J. A., and Silverman, B. S. (2003): Why Firms Want to Organize Efficiently and
What Keeps Them from Doing so. In: Administrative Science Quarterly, 48, 433-465.
Noda, T., and Bower, J. L. (1996): Strategy Making as Iterated Processes of Resource
Allocation. In: Strategic Management Journal, 17, 159-192.
Nooteboom, B. (1992): Towards a Dynamic Theory of Transactions. In: Journal of Evolutionary
Economics, 2, 281-299.
O'Reilly, C. A., Caldwell, D. F., and Barnett, W. P. (1989): Work Group Demography, Social
Integration, and Turnover. In: Administrative Science Quarterly, 34, 21-37.
Palmer, T. B., and Wiseman, R. M. (1999): Decoupling Risk Taking from Income Stream
Uncertainty: A Holistic Model of Risk. In: Strategic Management Journal, 20, 1037-1062.
Pfeffer, J., and Davis-Blake, A. (1986): Administrative Succession and Organizational
Performance: How Adminstrator Experiece Mediates the Succession Effect. In: Academy
of Management Journal, 29, 72-83.
Prahalad, C. K., and Bettis, R. A. (1986): The Dominant Logic: A New Linkage between
Diversity and Performance. In: Strategic Management Journal, 7, 485-501.
Saunders, M., Thornhill, A., and Philip Lewis, P. (2003): Research Methods for Business
Students. Harlow: Prentice Hall.
Schnell, R., Hill, P., and Esser E. (2005): Methoden der empirischen Sozialforschung.
München: Oldenbourg.
51
Chair of Strategic Management and Organization
Schöberl, M. (2007): Responses of Incumbent Firms in the Face of Disruptive Strategic
Innovations. Unpublished doctoral dissertation, Friedrich-Alexander-Universität ErlangenNürnberg, Erlangen.
Schoemaker, P. J. H. (1995): Scenario Planning: A Tool for Strategic Thinking. In: Sloan
Management Review, 1995, 25-40.
Sitkin, S. B., and Pablo, A. L. (1992): Reconceptualizing the Determinants of Risk Behavior.
In: Academy of Management Journal, 17, 9-38.
Sitkin, S. B., and Weingart, L. R. (1995): Determinants of Risky Decision-Making Behavior:
A Test of the Mediating Role of Risk Perceptions and Propensity. In: Academy of
Management Journal, 38, 1573-1592.
Smith, J. E., Carson, K. P., and Alexander, R. A. (1984): Leadership: It Can Make a
Difference. In: Academy of Management Journal, 27, 765-776.
Strauss, A. L., and Corbin, J. M. (1990): Basics of Qualitative Research: Techniques and
Procedures for Developing Grounded Theory. Newbury Park, CA: Sage Publications.
Tripsas, M., and Gavetti, G. (2000): Capabilities, Cognition, and Inertia: Evidence from Digital
Imaging. In: Strategic Management Journal, 21, 1147-1161.
Tushman, M. L., and Anderson, P. (1986): Technological Discontinuities and Organizational
Environments. In: Administrative Science Quarterly, 31, 439-465.
Virany, B., and Tushman, M. L. (1986): Top Management Teams and Corporate Success in an
Emerging Industry. In: Journal of Business Venturing, 1, 261.
52
Chair of Strategic Management and Organization
Vlaar, P., de Vries, P., and Willenborg, M. (2005): Why Incumbents Struggle to Extract Value
from New Strategic Options: Case of the European Airline Industry. In: European
Management Journal, 23, 154-169.
Wiersema, M. F., and Bantel, K. A. (1992): Top Management Team Demography and
Corporate Strategic Change. In: Academy of Management Journal, 35, 91-121.
Yin, R. K. (2003): Case Study Research. Thousand Oaks, CA: Sage Publications.
53
Chair of Strategic Management and Organization
Contact:
HHL – Leipzig Graduate School of Management
Chair of Strategic Management and Organization
Address: Jahnallee 59, 04109 Leipzig, Germany
Phone: +49-341-9851675, Fax: +49-341-9851679
E-mail: [email protected]
Webpage: strategy.hhl.de
54