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Organizing for radical product innovation: the overlooked role of willingness to cannibalize (Chandy and Tellis, 1998)

Organizing for radical product innovation: the overlooked role of willingness to cannibalize (Chandy and Tellis, 1998)

Radical innovation is defined as:

“the propensity of a firm to introduce new products that (1) incorporate substantially different technology from existing products and (2) can fulfill key customer needs better than existing products.” (p475)

The value of radical innovation lies in its:

  1. Capacity to destroy firms and,
  2. Become a source of competitive advantage.

This topic is important to marketing research and practice because radical innovation is linked to a firm’s product-market strategy and also because marketers in high-tech firms are often directly and indirectly involved with decision making in the area.

Firm Size and Intensity of Innovation:

In a review of the literature on the Schumpeterian hypothesis that firm size is positively related to intensity of innovation the authors note that the results of empirical research on this have been mixed. The authors conclude that size may not play as large a role as other “attitudinal and organizational” factors in influencing the propensity to engage in radical product innovation.

Key Schumpeterian hypothesis – “large firms innovate more intensively than small firms”
Previous Research is Mixed:

  1. Large firms = Good: economies of scale in R&D, risk spreading capability, access to greater financial resources (e.g. Galbraith, 1952; Ali, 1994).
  2. Large firms = Bad: slow reactions, bureaucratic, risk averse (e.g. Mitchell and Singh, 1993).
  3. The relationship between size and innovativeness may be bell-shaped: Medium-sized firms are best positioned to innovate – they have enough resources, but are not bogged down by bureaucracy (Ettlie and Rubenstein, 1987).
  4. The relationship between size and innovativeness may be U-shaped: Medium sized firms have the liabilities of small and large firms, but none of the strengths (Pavitt, 1990).

This previous body of literature ignores attitudinal and organizational factors which may strongly influence the fortunes of firms.

Innovation: Four Types (2×2 Matrix)

  1. Incremental Innovation (minor tech change, relatively low incremental customer benefits per dollar)
  2. Market breakthrough (minor tech change, relatively high incremental customer benefits per dollar)
  3. Technological breakthrough (major tech change, relatively low incremental customer benefits per dollar)
  4. Radical innovation (major tech change, relatively high incremental customer benefits per dollar)

(See Table 1 and Figure 2 in the text)
Willingness to Cannibalize: Managers have more control over this than a firm’s size

“Willingness to cannibalize refers to the extent to which a firm is prepared to reduce the actual or potential value of its investments” (p475).

Cannibalism is often viewed as a bad thing (i.e. eating into one’s own sales), but here the meaning is a little different. Cannibalizable investments can be assets or organizational routines

Hypotheses/Results:

  1. Firms that exhibit high willingness to cannibalize are more likely to be radical product innovators than other firms. Positive and strongly significant (p<0.001) – a better predictor than firm size (which is small and non-significant).
  2. The more specialized investments a firm has in a current technology, the lower its willingness to cannibalize those investments will be. Negative, small and weakly significant (p<0.10). When distinguishing between incumbents and non-incumbents, the effect becomes large and significant (p<0.01).
  3. Firms with active internal markets exhibit greater willingness to cannibalize than do other firms. Positive and significant (p<0.01).
  4. The greater the influence of product champions in a firm, the greater its willingness to cannibalize is. Positive and significant (p<0.01).
  5. The greater the future-market focus of a firm, the higher its willingness to cannibalize is. Positive and significant (p<0.01).
  6. The combined effect of the drivers of willingness to cannibalize (H3-5) is stronger than the negative effect of specialized investments (H2).
  7. Willingness to cannibalize fully mediates the effects of specialized investments and internal markets, and partially mediates product champion influence and future-market focus.

The results suggest the power of the model to explain a firm’s propensity to engage in radical product innovation by examining its willingness to cannibalize.

Implications:

  1. Firms of all sizes can radically innovate if they are organized properly.C
  2. Cannibalism is not always an error – thinking that it is may be harmful.
  3. Radically innovative firms tend to focus on future customers and markets.
  4. Active internal markets promote willingness to cannibalize because business units only consider their own specialized assets when making decisions.
  5. Specialized investments encourage the tendency to incrementally innovate.

See original text for Methodology and Limitations and Future Research.

Original Text:

Chandy, R.K. and Tellis, G.J. (1998). Organizing for radical product innovation: the overlooked role of willingness to cannibalize. Journal of Marketing Research, 35(4) (Nov., 1998), 474-487.

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