Technology Counteroffensive Strategies: Toward an Ex Ante View of Technology
Substitution by Nathan R. Furr and Daniel C. Snow
Introduction and Topic Overview
The article investigates how incumbent firms respond to threats posed by new,
potentially disruptive technologies. Traditional models of technology substitution
often depict this process as rapid and inevitable, where incumbent firms fail unless
they fully adopt the new technology. However, this view oversimplifies the complex
reality. Firms frequently employ a variety of strategies to defend their position,
including extending the life and performance of their existing technology, creating
hybrids that combine old and new technologies (bridging), or retreating into market
niches where the incumbent technology retains advantages.
The authors focus on these “technology counteroffensive” strategies, particularly
extension and bridging, to understand their impact on the timing of technology
substitution, product performance, and firm survival. They argue that these strategies
can delay substitution and influence firm outcomes in important ways, challenging
the common ex post (after the fact) view that such efforts are merely futile or inertial.
Research Questions and Theoretical Background
The study addresses several key questions:
● How do extension and bridging strategies affect the rate of product
performance improvement in incumbent technologies?
● Do these strategies delay the substitution of new technologies for incumbent
ones?
● What are the trade-offs for firms adopting these strategies in terms of product
performance and survival outcomes?
The authors build on a rich literature that recognizes uncertainty in technology
substitution. Before a new technology fully displaces an incumbent, there is
significant uncertainty about technical feasibility, performance limits, customer
acceptance, and ecosystem development. This uncertainty means that substitution is
not a foregone conclusion but an endogenous competition influenced by firm
strategies and market dynamics.
Definitions of Key Strategies
● Extension Strategy: Firms invest in improving the incumbent technology,
sometimes achieving unexpected performance gains known as “last gasps.”
, These improvements can temporarily raise the performance threshold that a
new technology must surpass to substitute the incumbent.
● Bridging Strategy: Firms create hybrid products that combine components or
features of both incumbent and new technologies. This can lead to
“spillbacks,” where knowledge or components from the new technology
improve the incumbent or hybrid products, and “spill forwards,” where hybrids
help firms adapt more smoothly to the new technology.
Empirical Setting: Carburetors vs. Electronic Fuel Injection (EFI)
The authors study the transition from carburetors to electronic fuel injection (EFI) in
passenger automobiles between 1978 and 1992. Carburetors were the dominant fuel
delivery technology for decades, but EFI emerged as a new technology promising
better fuel efficiency and emissions control. The transition period provides a rich
context to observe firm strategies, product performance, and substitution dynamics.
Data were collected on miles per gallon (MPG) performance for thousands of car
models, along with firm-level information on product portfolios and survival
outcomes. Firms were classified based on their revealed strategies: those focusing
on improving standard carburetors (extension) and those developing hybrid
carburetors combining mechanical and electronic controls (bridging).
Key Findings: Product Performance and Substitution Timing
● Firms pursuing an extension strategy significantly increased the rate of
performance improvement in standard carburetors after EFI emerged as a
threat. This suggests that incumbents were able to push their technology
beyond previously assumed limits, consistent with the “last gasp”
phenomenon.
● Firms pursuing a bridging strategy achieved even greater performance
improvements in hybrid carburetors, leveraging components and knowledge
from EFI technology. However, these firms showed less improvement in pure
incumbent carburetors, indicating a trade-off in resource allocation.
● Both strategies contributed to a delay in the substitution of EFI for carburetors
by about 25%. Using diffusion modeling, the authors estimate that EFI
adoption was delayed by roughly one year compared to what would have
been expected without these counteroffensive strategies. This delay
translated into significant additional revenue and time for incumbents to adapt.
Firm Outcomes and Strategic Trade-offs
● Firms that chose the extension strategy often faced higher adjustment costs
when substitution eventually occurred. These firms were more likely to retreat
into niche markets where carburetors remained viable (e.g., low-cost or
specialized vehicles) or to fail outright. Some firms persisted in these niches
for years or re-emerged later with new products.
, ● Firms that chose the bridging strategy were more likely to survive the
transition, successfully adopting EFI or being acquired while maintaining
relevance. Bridging lowered adjustment costs by building knowledge and
relationships in the new technology ecosystem.
● The study highlights a fundamental trade-off: extension strategies improve
incumbent product performance but risk niche isolation and higher transition
costs, while bridging strategies facilitate smoother adaptation but may limit
advances in the incumbent technology.
Broader Implications and Contributions
The article contributes to the literature by:
1. Challenging the “last gasp” and hybrid inertia narratives: It shows that
extension and bridging strategies are not simply doomed or inertial but can
meaningfully delay substitution and affect firm survival.
2. Providing empirical evidence of strategy effects: Using detailed data on
product performance and firm outcomes, the study quantifies how these
strategies influence substitution timing and survival.
3. Proposing a theory of technology hybrids: The authors suggest that hybrids
can be understood as distinct technology generations or as part of incumbent
or new generations, with varying advantages depending on context.
4. Advocating for an ex ante theory of technology substitution: They argue for a
forward-looking model that accounts for uncertainty, dynamic substitution
thresholds, and firm strategies, complementing traditional ex post views.
Limitations and Future Research
The authors acknowledge limitations, including the focus on a single industry,
reliance on revealed strategies rather than direct measures of firm intent or R&D,
and the study of a classical rather than disruptive technology substitution. They
encourage further research on hybrid technologies, strategy timing, and substitution
dynamics in other contexts.
Conclusion
The study provides a nuanced understanding of how incumbent firms respond to
technological threats. Extension and bridging strategies can delay substitution,
improve product performance, and influence firm survival in different ways.
Recognizing these dynamics helps explain why technology substitution is often a
complex, drawn-out process rather than a sudden, deterministic event. The findings
have broad relevance for firms navigating technological change across industries
Key Concepts and Their Explanations
Technology Substitution: The process by which a new technology replaces an
incumbent (existing) technology in the market. Traditional views see this as rapid
Substitution by Nathan R. Furr and Daniel C. Snow
Introduction and Topic Overview
The article investigates how incumbent firms respond to threats posed by new,
potentially disruptive technologies. Traditional models of technology substitution
often depict this process as rapid and inevitable, where incumbent firms fail unless
they fully adopt the new technology. However, this view oversimplifies the complex
reality. Firms frequently employ a variety of strategies to defend their position,
including extending the life and performance of their existing technology, creating
hybrids that combine old and new technologies (bridging), or retreating into market
niches where the incumbent technology retains advantages.
The authors focus on these “technology counteroffensive” strategies, particularly
extension and bridging, to understand their impact on the timing of technology
substitution, product performance, and firm survival. They argue that these strategies
can delay substitution and influence firm outcomes in important ways, challenging
the common ex post (after the fact) view that such efforts are merely futile or inertial.
Research Questions and Theoretical Background
The study addresses several key questions:
● How do extension and bridging strategies affect the rate of product
performance improvement in incumbent technologies?
● Do these strategies delay the substitution of new technologies for incumbent
ones?
● What are the trade-offs for firms adopting these strategies in terms of product
performance and survival outcomes?
The authors build on a rich literature that recognizes uncertainty in technology
substitution. Before a new technology fully displaces an incumbent, there is
significant uncertainty about technical feasibility, performance limits, customer
acceptance, and ecosystem development. This uncertainty means that substitution is
not a foregone conclusion but an endogenous competition influenced by firm
strategies and market dynamics.
Definitions of Key Strategies
● Extension Strategy: Firms invest in improving the incumbent technology,
sometimes achieving unexpected performance gains known as “last gasps.”
, These improvements can temporarily raise the performance threshold that a
new technology must surpass to substitute the incumbent.
● Bridging Strategy: Firms create hybrid products that combine components or
features of both incumbent and new technologies. This can lead to
“spillbacks,” where knowledge or components from the new technology
improve the incumbent or hybrid products, and “spill forwards,” where hybrids
help firms adapt more smoothly to the new technology.
Empirical Setting: Carburetors vs. Electronic Fuel Injection (EFI)
The authors study the transition from carburetors to electronic fuel injection (EFI) in
passenger automobiles between 1978 and 1992. Carburetors were the dominant fuel
delivery technology for decades, but EFI emerged as a new technology promising
better fuel efficiency and emissions control. The transition period provides a rich
context to observe firm strategies, product performance, and substitution dynamics.
Data were collected on miles per gallon (MPG) performance for thousands of car
models, along with firm-level information on product portfolios and survival
outcomes. Firms were classified based on their revealed strategies: those focusing
on improving standard carburetors (extension) and those developing hybrid
carburetors combining mechanical and electronic controls (bridging).
Key Findings: Product Performance and Substitution Timing
● Firms pursuing an extension strategy significantly increased the rate of
performance improvement in standard carburetors after EFI emerged as a
threat. This suggests that incumbents were able to push their technology
beyond previously assumed limits, consistent with the “last gasp”
phenomenon.
● Firms pursuing a bridging strategy achieved even greater performance
improvements in hybrid carburetors, leveraging components and knowledge
from EFI technology. However, these firms showed less improvement in pure
incumbent carburetors, indicating a trade-off in resource allocation.
● Both strategies contributed to a delay in the substitution of EFI for carburetors
by about 25%. Using diffusion modeling, the authors estimate that EFI
adoption was delayed by roughly one year compared to what would have
been expected without these counteroffensive strategies. This delay
translated into significant additional revenue and time for incumbents to adapt.
Firm Outcomes and Strategic Trade-offs
● Firms that chose the extension strategy often faced higher adjustment costs
when substitution eventually occurred. These firms were more likely to retreat
into niche markets where carburetors remained viable (e.g., low-cost or
specialized vehicles) or to fail outright. Some firms persisted in these niches
for years or re-emerged later with new products.
, ● Firms that chose the bridging strategy were more likely to survive the
transition, successfully adopting EFI or being acquired while maintaining
relevance. Bridging lowered adjustment costs by building knowledge and
relationships in the new technology ecosystem.
● The study highlights a fundamental trade-off: extension strategies improve
incumbent product performance but risk niche isolation and higher transition
costs, while bridging strategies facilitate smoother adaptation but may limit
advances in the incumbent technology.
Broader Implications and Contributions
The article contributes to the literature by:
1. Challenging the “last gasp” and hybrid inertia narratives: It shows that
extension and bridging strategies are not simply doomed or inertial but can
meaningfully delay substitution and affect firm survival.
2. Providing empirical evidence of strategy effects: Using detailed data on
product performance and firm outcomes, the study quantifies how these
strategies influence substitution timing and survival.
3. Proposing a theory of technology hybrids: The authors suggest that hybrids
can be understood as distinct technology generations or as part of incumbent
or new generations, with varying advantages depending on context.
4. Advocating for an ex ante theory of technology substitution: They argue for a
forward-looking model that accounts for uncertainty, dynamic substitution
thresholds, and firm strategies, complementing traditional ex post views.
Limitations and Future Research
The authors acknowledge limitations, including the focus on a single industry,
reliance on revealed strategies rather than direct measures of firm intent or R&D,
and the study of a classical rather than disruptive technology substitution. They
encourage further research on hybrid technologies, strategy timing, and substitution
dynamics in other contexts.
Conclusion
The study provides a nuanced understanding of how incumbent firms respond to
technological threats. Extension and bridging strategies can delay substitution,
improve product performance, and influence firm survival in different ways.
Recognizing these dynamics helps explain why technology substitution is often a
complex, drawn-out process rather than a sudden, deterministic event. The findings
have broad relevance for firms navigating technological change across industries
Key Concepts and Their Explanations
Technology Substitution: The process by which a new technology replaces an
incumbent (existing) technology in the market. Traditional views see this as rapid
