Taking a Value-Chain Perspective on Innovation

Market leaders have many advantages when it comes to adopting new technologies. They have the benefit of size, which can generate economies of scale. They have experience. They sometimes have dedicated technical staff to help them through implementations better and faster than others. Nonetheless, we do not always see them leading the charge to embrace new technologies. Why is that? Why do some companies adapt and flourish more quickly than others in the face of technological change?

In the 1990s, many observers thought the Internet was going to cause a great deal of disruption for leading companies. Literature around the idea of disruptive innovation, as pioneered by Clayton M. Christensen and usefully extended by Rebecca Henderson, Joshua Gans, and others, is a particularly good example of this thinking. E-commerce startups mushroomed faster than a shady backyard. Yet, today, many market leaders from the start of the dot-com boom are still standing tall. In fact, many of them were able to keep up with some big technological leaps forward.

As a researcher who studies technology use by companies, I wanted to understand what happened. Who kept up? Who fell behind? And why? I considered the fact that while leaders do enjoy economies of scale in the adoption of new technologies, they may also find that adjustment costs — tasks like tweaking processes to match the flow of new software (or vice versa), hiring employees with new skill sets, or coordinating new points of contact across the organization — may increase with scale.

Exploring the Capability Gap

A number of previous studies have fleshed out this line of thinking. Having to make costly changes to internal business processes can significantly slow down technology adoption. Basically, when technology leaps forward, the internal “capability gap” between new technology requirements and what incumbent companies can implement is often difficult to close.

But that isn’t the whole story when it comes to e-business. We need to take a wider view.

Misalignment between tech requirements and an organization’s ability to meet them can also exist outside a company’s boundaries — that is, among its partners and customers. And it turns out that these external adjustment costs matter a great deal, too.