Storm Clouds and Silver Linings: Responding to Disruptive Innovations through Cognitive Resilience

Article excerpt

Incumbent firms facing disruptive business model innovations must decide whether to respond through inaction, resistance, adoption, or resilience. We focus on resilient responses to simultaneous perceived threat and opportunity by managers of small incumbent firms. Using cognitive framing arguments, we argue that risk experience moderates perceptions of opportunity, whereas perceived urgency moderates situation threat. We test our framework in the real estate brokerage context, where small incumbents face considerable challenges from disruptive business model innovations, such as discount brokers. Analysis of data from 126 real estate brokers broadly confirms our framework. We conclude with implications of our research for small business incumbents.

Introduction

When digital photography was initially developed, it represented an exciting and innovative opportunity for aspiring entrepreneurs. At the same time, digital photography was a disruptive technology that posed tremendous challenges for the incumbent film icon, Kodak. Digital photography struck at the very heart of the Kodak business model of producing, selling, and processing film--a model that could become redundant through digital substitution. For over a decade, Kodak has struggled to find ways to respond to this significant disruption, with little or no success. Kodak's experience suggests that new business model adoption is confronted with multiple barriers, none more significant than managers' cognitive barriers to change (Kim & Mauborgne, 2005; Voelpel, Leibold, Tekie, & Von Krogh, 2005).

Recently, the cognitive perspective has been emphasized as an important explanation for entrepreneurial opportunity generation (Baron & Ward, 2004; Mitchell et al., 2007). We turn this research on its head and present a cognitive perspective of managers' responses to disruptive business model innovation. From the manager' s point of view, the key question is how to respond to new entrepreneurial business models: whether through inaction (Charitou & Markides, 2003), proactive resistance (Markides, 2006), adoption (Christensen & Raynor, 2003), or resilience (Sutcliffe & Vogus, 2003). This body of literature focuses on the responses of large incumbents, such as hub-and-spoke airlines' difficulty in effectively responding to the low-cost carrier model, or traditional steel manufacturers' loss of market dominance to mini-mills. We extend this to consider how managers of small incumbent firms choose to respond to new business models.

The Kodak story is representative of an increasingly common situation where the introduction of disruptive business model innovations contributes to rapidly changing business environments for incumbents (Charitou & Markides, 2003; Christensen & Raynor, 2003; Markides, 2006). The challenge for managers is to find ways to adopt disruptive business model innovations in order to prosper within, or even survive, the pending environmental change. This is referred to as developing organizational resilience (Sutcliffe & Vogus, 2003). This challenge is particularly difficult for small incumbent firms, which are more resource constrained, and so less able to absorb environmental shocks than larger firms (Dewald, Hall, Chrisman, & Kellermanns, 2007; Jarillo, 1989; Klaas, McClendon, & Gainey, 2000). On the other hand, while resource limitations constrain managers of small incumbent firms, they may be able to develop organizational resilience more easily than corporate decision makers as they are less bound by corporate roles and contexts that reward caution and asset protection (Corbett & Hmieleski, 2007; Markides & Geroski, 2004). Hence, small business incumbents are generally more responsive to opportunity identification (Shepherd & DeTienne, 2005) and the cognitive linkages associated with exploiting opportunities, such as business model innovations (Baron, 2006).

Whether small or large, it is difficult for any organization invested in "old ways" to abandon those known ways in favor of unproven new technologies or business models. …