Incumbent inertia upon disruptive change in the airline industry ...

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Chair of Strategic Management and Organization INTRODUCTION This article addresses the response behavior of incumbent firms when facing discontinuous change by business model innovations. Almost always, this entails a problem of inertia, related to the sluggishness of incumbent response due to insecurity in deciding on an adequate response strategy. For instance, when low-cost carriers (LCC) introduced disruptive change in passenger air travel, most incumbents tended to ignore the new phenomenon: "Our pricing strategy is not for debate. Our high quality product justifies a substantial fare differential to LCC" (Anonymous, 2002), a Lufthansa board member stated in 2002. Only some years later, with LCC constantly winning market shares, most airlines finally realized the challenge. The responses of major European incumbents, however, were already late by two to five years. After Christensen and Bower investigated disruptive technologies for the first time (Christensen and Bower, 1996), the topic created broad interest, not only among academics. A Google search yields more than 400,000 hits for the term "disruptive innovation". Christensen/Bower pioneered the academic field by discovering the possibility that technologies with inferior performance may supersede established incumbents. Their group of scholars also explained typical maladaptive incumbent responses to disruptive technologies and provided several response recommendations (Christensen, 2000; Christensen and Raynor, 2003; Christensen, Anthony and Roth, 2004). More recently, scholars also investigated disruptive business models (i.e., disruptive strategic innovations). Scholars categorized typical incumbent response behaviors and developed normative response recommendations (Charitou and Markides, 2003; Markides and Charitou, 2004) or identified factors inhibiting incumbents to extract value from new strategic options (Vlaar, de Vries and Willenborg, 2005). In addition, there are studies focusing on the refinement of definitions, e.g., the development of a scale for the disruptiveness of innovations (Govindarajan and Kopalle, 2006) or on specific sub-elements, such as demand conditions enabling disruptive dynamics (Adner, 2002). 4
Chair of Strategic Management and Organization Gilbert opened a new field of research centering on the struggle and inertia of incumbent firms when facing disruptive strategic innovations. Research within this is still described to be somewhere between nascent and intermediate stage (Edmondson and McManus, 2007). So far, only one interpretive model by Gilbert exists for incumbent inertia that is sufficiently empirically tested (Gilbert, 2005). He identified the role of rigidities and cognitive frames by unbundling the sluggishness of response into denial of resource allocation (resource rigidity) and the change of management processes (routine rigidity). Moreover, he found cognitive framing as threat or opportunity as a key influence factor for incumbent inertia. Subsequently, more researchers focused on rigidities by replicating and extending Gilbert's model and unbundling cognitive framing into profit/loss perception and perceived control (König, 2009). A number of questions, however, still remain unclear. In general, only a few studies comprehensively explain incumbent response behavior and especially the role of top management teams in light of disruptive strategic innovations (Chesbrough, 2001). Rather, many studies investigate isolated aspects of incumbent response, without considering alternative explanation approaches or different research disciplines. Further, studies are often difficult to compare due to ambiguous terminologies and research designs (Gatignon et al., 2002). For example, some work is purely theoretical and lacking empirical grounding, and other studies facilitate either a single or multiple case study based approach. Since investigated discontinuities and industries are highly heterogenous, it remains open if findings using qualitative empirical data can be generalized without further research. More specific, considering Gilbert's (2005) unbundling of inertia into resource and routine rigidity, a detailed understanding of causal factors for routine rigidity linking various research disciplines including strategic management, organizational science and psychology is still missing. In particular, beyond financial concerns, it would be important to understand the role of 5
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