Big, established companies are often viewed as dinosaurs, vulnerable to start-ups with the nimbleness and tech savvy to overthrow them.
That’s not a realistic picture, says J.P. Eggers, associate professor of management and organizations at New York University’s Leonard N. Stern School of Business. In fact, his research shows, incumbent firms are more likely than their smaller peers to go after technological opportunities — and more likely to succeed.
In a working paper co-authored by Eggers with Aseem Kaul of the University of Minnesota’s Carlson School of Management, the authors investigate what managers at large firms need to do to foster innovation, and what makes the difference between failure and success. Eggers and Kaul write that the challenge is that when capable and established firms are thriving, the incentives to change what they’re doing are few, even though they have a high chance of getting things right. The authors also find that, paradoxically, firms that have failed before are the very ones to pursue radical innovations — but often futilely.
MIT Sloan Management Review spoke with Eggers to find out how established companies can avoid creative inertia and instead build on their capabilities to engineer the radical new technologies and ideas that change an industry.
You’ve been looking at the practice of innovation at established companies. Why are we so wrong about the roles and impact of older companies compared with their younger competitors?
The typical assumption, from 20th century economist Joseph Schumpeter’s theory of creative destruction onwards, is that incumbents only do boring, incremental things, while new entrants are the ones that dare to invest radically in new technological areas. Some people believe that that is true from a tautological perspective, that this defines an incumbent — being someone who only invests in incremental stuff.
But what we see in the data is that a large number of incumbent firms are very willing to invest in potentially radical ideas that bring in new information and new knowledge in trying to solve technological problems. And they do this to such an extent that established firms tend actually to be the ones that produce most of the radical new innovations and ideas in any given space. Simply put, established companies are effective and frequent originators of radical invention.