In the first part of the series we have covered the Austrian economist Schumpeter and his theory that associated a company’s ability to innovate with its size (click here to read the first part). Unfortunately, as we have seen, there was no strong evidence to support such theory. This led academics over the following decades to start exploring alternative variables that could explain what companies would be in a better position to innovate and under what circumstances. In this article we will cover one of the first theories that emerged during the late 1970s, the Incremental-Radical innovation dichotomy.
Incremental vs. Radical Innovation
It is difficult to assess who pioneered the Incremental-Radical dichotomy, partly because the concept was used by many authors, often with a different terminology but expressing the same meaning. Abernathy differentiated incremental from radical innovation already in 1978 while Porter in 1986 illustrated a similar concept called continuous and discontinuous technological changes. We also had authors defining Incremental vs. Breakthrough innovations (Tushman and Anderson) and Conservative vs. Radical innovations (Abernathy and Clark).
There are two dimensions that we can use to separate an incremental from a radical innovation:
- The first is an internal dimension, based on the knowledge and resources involved. An incremental innovation will build upon existing knowledge and resources within a certain company, meaning it will be competence-enhancing. A radical innovation, on the other hand, will require completely new knowledge and/or resources and will be, therefore, competence-destroying.
- The second dimension, the external one, differentiates the innovation based on the technological changes and on the impact upon the market competitiveness. An incremental innovation will involve modest technological changes and the existing products on the market will remain competitive. A radical innovation will instead involve large technological advancements, rendering the existing products non-competitive and obsolete.
Under this framework it is clear that incumbents will be in a better position if the innovation is incremental since they can use existing knowledge and resources to leverage the whole process. New entrants, on the contrary, will have a large advantage if the innovation is radical because they will not need to change their knowledge background.
Furthermore incumbents might have a hard time facing radical innovation both because they operate under a “managerial mindset” constraint and because strategically they have less of an incentive to invest in the innovation if it will cannibalize their existing products. Kodak illustrates this quite well. The company dominated the photography market over many years, and through out this extended period all the incremental innovations solidified its leadership. As soon as the market experienced a radical innovation, the entrance of the digital technology, Kodak struggled to defend its turf against the new entrants. The new technology required different knowledge, resources and mindsets.
Overall we can say that the Incremental-Radical dichotomy helped to explain some innovation patterns, and there was favorable evidence for the model within most mature industries. Over the last decades, however, the model lost some reliability as the pace of change accelerated in most sectors.
There were cases where new entrants managed to displace incumbents with incremental innovations and other cases where incumbents kept their leadership exploiting a radical innovation. Consider the computer industry for instance, IBM was able to maintain its dominant position when there was a shift from vacuum tubes to integrated circuits, a radical innovation.