The Incumbent's Curse? Incumbency, Size, and Radical Product Innovation

Abstract

A common perception in the field of innovation is that large, incumbent firms rarely introduce radical product innovations. Such firms tend to solidify their market positions with relatively incremental innovations. They may even turn away entrepreneurs who come up with radical innovations, though they themselves had such entrepreneurial roots. As a result, radical innovations tend to come from small firms, the outsiders. This thesis, which we term the “incumbent's curse,” is commonly accepted in academic and popular accounts of radical innovation. This topic is important, because radical product innovation is an engine of economic growth that has created entire industries and brought down giants while catapulting small firms to market leadership. Yet a review of the literature suggests that the evidence for the incumbent's curse is based on anecdotes and scattered case studies of highly specialized innovations. It is not clear if it applies widely across several product categories. The authors reexamine the incumbent's curse using a historical analysis of a relatively large number of radical innovations in the consumer durables and office products categories. In particular, the authors seek to answer the following questions: (1) How prevalent is this phenomenon? What percentage of radical innovations do incumbents versus nonincumbents introduce? What percentage of radical innovations do small firms versus large firms introduce? (2) Is the phenomenon a curse that invariably afflicts large incumbents in current industries? Is it driven by incumbency or size? and (3) How consistent is the phenomenon? Has the increasing size and complexity of firms over time accentuated it? Does it vary across national boundaries? Results from the study suggest that conventional wisdom about the incumbent's curse may not always be valid.