Incremental vs. Radical Innovation
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.
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[…] Innovation Management Theory - Part 2 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 […]Source: Innovation Management Theory - Part 2 - Innovation [Feed] […]
Two other examples of incumbnets winning over entrants in radical innovation include cell pones and possibly voip.
Although the cell phone industry’s early days saw dozens of small entrepreneurial startups, telecom behemoths soon took over, and quite easily too.
VOIP seems to be following a similar pattern with many early startups, but big cable is quickly and easily gobbling up market share. The recent net neutrality decision in the US should seal the deal with telephone and cable companies given the green light to decide which packets they want to allow on their networks. This could allow Comcast to simply put companies like Vonage out of business with a new config file.
Incumbnets are also often in a position to kill threatening radical innovation regardless of their position along your two dimensions. For instance fuel cells in transportation is a pretty radical innovation with the potential to spread dramatic change accross much of the world economy. But incumbent oil and auto manufacturers still feel that there is plenty more profit to be harvested from our current model. So they simply will not allow innovations like fuel cells to gain a foot hold.
Excellent article! It is a great evaluation of the two very different processes behind innovation.
I have a regional networking website that will be released in about 20 days. Do you think we can work something out to feature your innovation series? I will have a section devoted solely to helping entrepreneurs grow their businesses through white papers and tutorials regarding business building, innovation, presenting to investors, etc. Just email me and let me know what you think!
[…] What do daycare teachers and managers have in common? Both should learn storytelling. Stories represent a powerful tool to illustrate ideas, convince people and generate commitment. Below you will find the story of the cash register machine and NCR, the undiscussed leader in the manufacturing of mechanical cash registers during the 1960s. NCR was very good dealing with incremental innovations but as soon as a radical innovation appeared in the industry it was driven out of the market (click here to read the theory behind incremental and radical innovations). […]
[…] As we have seen in the part 2 the first widely recognized theory to appear was the Incremental - Radical innovation dichotomy (click here to read the second part). Although the model explained many innovation patterns and presented strong empirical evidence we have seen that over the last decades, with the advent of the Information and Communication technologies and with the acceleration of change in most industries the model lost some of its reliability. In this part we will cover the Henderson - Clark model, which complemented to a great extent the Incremental - Radical dichotomy. […]
[…] In the first three parts of the series we have covered three static models of the innovation management theory: Schumpeter, the Incremental – Radical dichotomy and the Henderson - Clark model (if you have not you can click here to read part 1, part 2 or part 3). […]
[…] So far we have already covered three models that analyse what companies will be in a better position to innovate and under what circumstances (Schumpeter, the Incremental – Radical dichotomy and the Henderson – Clark model) and one framework that outlines the introduction, growth and maturation of innovations and technological cycles (the S-Curve framework). In the fifth part of the series I will present the Teece model, which can be used to predict who will profit from an innovation and to understand what company will have higher incentives to invest in certain innovations. […]
[…] Incremental vs. Radical Innovation […]
I am curious with your Kodak example because it is also quite relevant to the Henderson model.
Is anyone aware who invented the digital camera?
It was an in house member of Kodak who stayed within the company and developed the product.
Now given that hederson says:
“Incumbents invested more in incremental innovation and gained a larger market share as a function of historical market power, and they were significantly less productive than entrants in their attempts to introduce innovations that were radical in the sense that they made their existing capabilities obsolete.” P.267-268
It flys in the face of Kodak developing and implementing one of the most radical inventions of our time: the digital camera.
I think this is where the dahlin-behrens method really should be recognized as the best method to identify radical innvention and radical innovation….
thoughts?