🤍 Week 1
, How Do Firms Adapt to Discontinuous Change? BRIDGING THE
DYNAMIC CAPABILITIES AND AMBIDEXTERITY PERSPECTIVES
Julian Birkinshaw, Alexander Zimmermann, Sebastian Raisch (2016)
This article explores how companies adapt to major, sudden changes in their
environment—what the authors call "discontinuous change." The article brings together two
important ideas from management research: dynamic capabilities (the ability of a firm to
sense, seize, and reconfigure resources in response to change) and organizational
ambidexterity (the ability to balance exploring new opportunities and exploiting existing
strengths).
Many established companies struggle to adapt when their environment changes dramatically.
Famous failures like Kodak and Blockbuster show how hard it is for big firms to survive
disruptive shifts. The article aims to understand why some firms adapt better than others,
especially when the change is not gradual but sudden and disruptive. The authors argue that
there is no single set of capabilities that works for every company. Instead, the right
capabilities depend on how the company chooses to adapt.
Dynamic Capabilities Ambidexterity
These are higher-level skills that allow a company to This is the ability to both explore new things (innovation,
change itself. They are usually divided into three types: new markets) and exploit what the company already
does well (efficiency, existing products). The article
identifies three ways companies can be ambidextrous:
1. Sensing: Identifying new opportunities and 1. Structural Separation: Keeping exploration and
threats. exploitation in separate units.
2. Seizing: Mobilizing resources to take advantage 2. Behavioral Integration: Encouraging both activities
of opportunities or defend against threats. within the same unit or team.
3. Reconfiguring: Changing the company's 3. Sequential Alternation: Switching focus between
structure, processes, or assets to stay relevant exploration and exploitation over time.
The authors use three in-depth case studies—Nestlé, GlaxoSmithKline (GSK), and BMW—to
show how different companies adapt to discontinuous change using different modes of
ambidexterity. They conducted interviews with managers at different levels and analyzed
company documents to understand each firm's approach.
1. Nestlé: Structural Separation
Nestlé faced big changes in the food industry, such as new health trends and global nutrition
challenges. To adapt, Nestlé created separate units for exploration (like Nestlé Nutrition and
Nestlé Health Science) and for exploitation (mainstream food businesses). Each unit had its
own goals, but a strong, unifying vision kept everyone aligned. Nestlé's decentralized culture
allowed local units to respond to local needs, while collaboration across units helped share
innovations. The company also developed two career tracks—one for traditional managers
and one for entrepreneurial leaders—to support both types of work. The key capability here
was resource-linking: top managers orchestrated the interplay between the sensing
capabilities of the exploratory units and the seizing capabilities of the mainstream units.
,2. GlaxoSmithKline (GSK): Behavioral Integration
GSK, a major pharmaceutical company, faced pressure from new regulations and the rise of
biotechnology. Instead of separating exploration and exploitation, GSK pushed
decision-making down to smaller, cross-functional teams called Centers of Excellence in
Drug Discovery (CEDDs) and later Drug Performance Units (DPUs). These teams were
responsible for both discovering new drugs (exploration) and bringing them to market
(exploitation). GSK's vision blended scientific innovation with entrepreneurship, and its
culture emphasized transparency, accountability, and learning. The company invested in
hiring and developing managers who could handle both scientific and commercial
challenges. The key capability here was context-shaping: top executives created an
environment where teams could balance exploration and exploitation themselves.
3. BMW: Sequential Alternation
BMW operates in the highly competitive automotive industry, which has seen shifts toward
electric vehicles and new mobility solutions. BMW adapted by alternating its focus over
time—sometimes emphasizing efficiency and profitability, other times pushing for radical
innovation (like electric cars and car-sharing services). The company's long-term vision and
stable ownership allowed it to make big shifts without losing direction. BMW's culture
encouraged self-reflection and questioning the status quo, and managers often rotated
through different roles to build strong internal networks. The key capability here was
focus-shifting: top executives managed the timing and transition between exploration and
exploitation phases.
Main Findings and Contributions
- There is no universal set of dynamic capabilities that works for all companies. The
right capabilities depend on the chosen mode of adaptation (structural separation,
behavioral integration, or sequential alternation).
- The heritage of a company—its vision, culture, and people development—shapes
which mode of adaptation is most suitable and which capabilities are needed.
- Reconfiguring capabilities (the ability to change the organization itself) are especially
important and are usually held by top executives, while sensing and seizing
capabilities are often found at the front-line or unit level.
- The process of building these capabilities takes many years, and companies often
stick with one mode of adaptation for a long time.
- The study suggests a contingency perspective: companies should choose the mode
of adaptation and develop the capabilities that best fit their context, rather than
following a one-size-fits-all approach.
Practical Implications
Managers facing disruptive change need to make conscious choices about how to adapt.
They should:
1. Decide which mode of adaptation fits their company's heritage and environment.
2. Develop the specific capabilities needed for that mode.
3. Align vision, culture, and people development to support the chosen approach.
4. Be aware that changing modes or building new capabilities takes time and effort.
, Major Innovation as a Dynamic Capability: A Systems Approach
Gina Colarelli O’Connor (2008)
This article explores how established companies can systematically build the ability to create
major innovations—those that are radical or “really new”—by treating innovation as a
dynamic capability within a system, rather than relying on isolated processes or individual
champions. The article is theoretical, not empirical, and draws on systems theory and
dynamic capabilities literature to propose a comprehensive framework for managing major
innovation (MI).
Major Innovation (MI)
Includes both radical and really new innovations. These are innovations that bring entirely
new benefits or significant improvements (e.g., 5–10 times better performance or 50% cost
reduction), often creating new markets or transforming existing ones. MI is marked by high
uncertainty in technology, market, resources, and organization.
Dynamic Capabilities
The ability of a firm to adapt, integrate, and reconfigure internal and external resources to
address rapidly changing environments. Traditional dynamic capabilities focus on routines
and repeatable processes, but the author argues that MI requires a more complex,
systems-based approach.
Systems Theory
Views organizations as interconnected systems where the whole is greater than the sum of
its parts. Changes in one element affect others, and systems are open to their
environment, seeking balance (homeostasis) through interaction.
Most large firms struggle to manage major innovation because their structures and routines
are designed for efficiency and incremental improvement, not for high uncertainty and
transformation. The article aims to show how companies can move beyond relying on
individual innovation champions and instead build a sustainable, organization-wide capability
for MI.
The Seven Elements of the MI Management System
1. Identifiable Organizational A dedicated team or unit responsible for MI, with clear boundaries and reporting
Structure relationships. This structure allows for discipline and creativity, and helps
accumulate experience and learning that can’t be codified into routines.
2. Interface Mechanisms Mechanisms for connecting the MI unit with both the mainstream organization and
(Internal and External) external partners. Some interfaces are tightly coupled (e.g., strategic alignment,
clear roles), while others are loosely coupled (e.g., resource sharing, networking).
This balance helps the MI unit leverage existing competencies while building new
ones.
3. Exploratory Processes Processes focused on learning, experimentation, and iteration. Instead of
following strict plans, MI teams use “probe and learn” approaches, generating
multiple options and adapting as they gain new knowledge. This is essential in
high-uncertainty environments.
,4. Requisite Skills and Talent MI requires people with broad, flexible skills and entrepreneurial characteristics,
Development not just cross-functional teams. Because knowledge can’t be proceduralized,
mentoring, coaching, and apprenticeship are key for developing talent. The right
people must be identified and nurtured, as mainstream managers often lack the
skills needed for MI.
5. Governance and Governance operates at three levels: the MI portfolio, individual projects, and the
Decision-Making Mechanisms MI system itself. Portfolio governance involves diversification and risk
management. Project governance uses real-options thinking (keeping options
open, learning at each stage). System governance requires ongoing reflection and
reconfiguration to adapt to changing needs.
6. Appropriate Performance MI activities need different metrics than mainstream operations. Success may be
Metrics measured by new market connections, technical capabilities, partnerships, or
strategic renewal, not just financial returns. Both activity-based and
performance-based measures are used, and slack is often provided due to the
experimental nature of MI.
7. Culture and Leadership The larger organization’s culture and leadership must value MI and support its
Context integration. Senior leaders should act as caretakers for the firm’s future, investing
in strategic thinking and being open to learning from MI activities. Without this
support, the MI system cannot flourish.
How do these “seven elements of the MI management system” work?
The seven elements are interdependent—if one is missing or misaligned, the system won’t
function effectively. For example, exploratory processes need supportive governance and
metrics, and the right skills must be nurtured within a culture that values innovation. The MI
system is open, interacting with the larger organization and environment to maintain balance
and relevance.
Implications and Conclusions
- For Theory: The article challenges the idea that dynamic capabilities can be built
through routines alone. Instead, it argues for a systems approach, where complex,
situation-specific learning and transformation are supported by an integrated
management system.
- For Practice: Leaders should not expect MI to succeed through isolated processes
or individual champions. Instead, they must build a system with all seven elements,
aligned internally and with the larger organization’s goals. Attempts to routinize MI
(e.g., using Six Sigma) are likely to fail unless the system is properly designed and
managed.
Limitations and Boundary Conditions
- The article is conceptual, not empirical, so its framework needs to be tested in
practice.
- The system may work differently in smaller organizations or those with less
complexity.
- Success depends on alignment among all elements and ongoing adaptation to
environmental changes.
,Capabilities, Cognition, and Inertia: Evidence from Digital Imaging
Mary Tripsas and Giovanni Gavetti (2000)
This article explores why established companies, like Polaroid, often struggle to adapt to
radical technological changes, focusing on the shift from analog to digital imaging. The
authors argue that both organizational capabilities (skills, resources, routines) and
managerial cognition (how managers think and interpret the world) play crucial roles in
shaping a firm's ability to change.
Polaroid was a leader in instant photography, known for its strong technical expertise,
manufacturing skills, and a successful business model that made most profits from selling
film (the "razor/blade" model). The company was driven by technology and believed that big,
ambitious inventions were the key to success. Market research was not valued; instead,
Polaroid thought its products would create their own demand.
The Challenge of Digital Imaging
When digital imaging emerged, it required new scientific knowledge (like electronics and
semiconductors) and different ways of reaching customers. Polaroid invested heavily in
digital technologies, building a microelectronics lab and hiring new experts. The company
developed advanced digital camera sensors and even had a working prototype before most
competitors. However, Polaroid's management still clung to old beliefs:
- Customers wanted instant physical prints, not just digital images.
- The razor/blade model (profit from consumables, not hardware) should apply to
digital products.
- Large-scale, long-term projects were preferred over quick, incremental changes.
How Capabilities and Cognition Shaped Actions
Polaroid's technical strengths allowed it to develop impressive digital imaging technologies.
But its managerial beliefs limited how these technologies were commercialized. For example,
the company focused on products that combined digital capture with instant film output,
rather than standalone digital cameras. It did not invest in low-cost electronics manufacturing
or rapid product development, which were needed to compete in the new market. Marketing
and sales for digital products were handled by the same teams as instant photography, even
though the markets were very different.
Internal Tensions and Organizational Inertia
As new hires with digital expertise joined Polaroid, they brought fresh ideas and challenged
the old business model. This led to cognitive dissonance—a clash between traditional
management and the new digital imaging division. Senior managers resisted changes that
did not fit their established beliefs, causing delays in product launches and missed
opportunities. For instance, Polaroid had a digital camera prototype in 1992 but did not
release it until 1996, by which time the market was crowded.
Shifts in Strategy and Leadership
In the late 1990s, Polaroid's performance declined, and a new CEO from outside the
company was hired. This led to a shift from technology-driven to market-driven strategies,
,with more focus on rapid, incremental product development and marketing. However, some
old beliefs persisted, such as the importance of consumables and photographic quality.
Key Insights and Conclusions
- Managerial cognition can be as important as technical capabilities in shaping how
organizations respond to change. Strong, shared beliefs can help build new skills but
also create inertia when the environment shifts.
- Organizational change is especially hard when new technologies require not just new
skills but also new ways of thinking and new business models.
- Top management turnover can help break old patterns, but ongoing "deframing"—the
ability to question and update strategic beliefs—is crucial for long-term adaptability.
- The Polaroid case shows that even with strong technical capabilities, firms can fail to
capitalize on new opportunities if their cognitive frameworks do not evolve.
,🧩 Week 2
,The Contingent Effects of Differentiation and Integration on Corporate
Entrepreneurship
J. Henri Burgers and Jeffrey G. Covin (2016)
An acknowledged way to facilitate corporate entrepreneurship (CE), defined as the sum of a
firm’s innovation, venturing, and strategic renewal activities, is to set up organizational
structures (dividing into separate units) that provide autonomy to CE activities.
However, splitting a company into separate units creates problems. These units often don’t
share information well, and they might start acting in their own interest instead of what’s best
for the whole company.
→ The central question is: when does the benefit of combining specialized units and
teamwork outweigh the costs of that teamwork for promoting innovation?
Research goal: We advance prior research by providing insights into how organizational
size and environmental dynamism influence the costs and benefits resulting from integration
devices regarding the structural differentiation → CE relationship.
Structural differentiation means splitting a company into separate teams. One team
focuses on improving current business (“exploitation”), while another team focuses on
innovation and new ideas (“exploration”). This allows each team to specialize and work more
efficiently. However, this separation has downsides:
- Communication problems: Teams in different units often don’t understand each
other’s goals and perspectives, which hurts collaboration.
- Fewer innovative ideas: Great ideas often come from mixing different viewpoints. A
lack of communication reduces these opportunities.
- Misaligned goals: Isolated teams might start working toward their own objectives
instead of the company’s overall strategy, making their work less valuable.
When teams work together (integration), it helps them share knowledge and stay on the
same page, which leads to better innovation. However, the big problem is that you need to
both separate your teams (to let them specialize) AND make them collaborate. These are
two opposite goals that are hard to balance.
Researchers have found three main ways for a company’s top management to balance the
need for both specialized teams (differentiation) and teamwork (integration):
● Shared Vision: Everyone in the company understands and believes in the same main
goals.
○ Gives everyone a common purpose, which makes people more likely to share
knowledge and work toward the company’s goals instead of their own
department’s interests.
● Senior team social integration: The top managers themselves work well together,
trust each other, and get along.
○ They are in the best position to connect different departments and resolve
conflicts between them because they have a broad overview of the entire
company.
● Cross-functional interfaces: Creating formal ways for different departments to talk and
share ideas, like joint projects or liaison roles.
, ○ Creates direct links between departments, helping them share knowledge and
combine different perspectives to create new ideas.
Key findings of this research
There is a positive interaction between Differentiation and Integration
The study finds that higher levels of integration mechanisms (shared vision, senior team
social integration, and cross-functional interfaces) enhance the positive relationship between
structural differentiation and corporate entrepreneurship, particularly in larger organizations.
The study looked at three types of integration mechanisms and found they have different
impacts:
1. Shared vision: This is the most flexible mechanism. Having a common goal provides
direction without adding much bureaucracy. It’s useful everywhere but has the fewest
downsides in small or dynamic companies.
2. Senior team social integration: Very important in large companies to resolve conflicts.
However, in small companies, it’s unnecessary, and in dynamic environments, a
too-tight-knit top team can become slow and resistant to risky new ideas.
3. Cross-functional interfaces: Excellent for sharing knowledge in large, stable
companies. But in small or dynamic companies, these teams are often seen as slow,
bureaucratic, and killers of innovation.
Large Company Small Company
Stable Market Go All In Focus On Vision
Use a shared vision, build a strong top A clear shared vision is helpful. Be cautious with
team, and create formal structures other formal mechanisms that might slow you
down.
Dynamic Market Choose Wisely Minimize Formal Glue
Prioritize a shared vision for alignment. Trust informal chats. Avoid bureaucracy. Give
Avoid forcing too many cross-team your innovation teams maximum autonomy to
meetings that reduce agility. Give teams rotate quickly.
freedom.
, How Do Firms Adapt to Discontinuous Change? BRIDGING THE
DYNAMIC CAPABILITIES AND AMBIDEXTERITY PERSPECTIVES
Julian Birkinshaw, Alexander Zimmermann, Sebastian Raisch (2016)
This article explores how companies adapt to major, sudden changes in their
environment—what the authors call "discontinuous change." The article brings together two
important ideas from management research: dynamic capabilities (the ability of a firm to
sense, seize, and reconfigure resources in response to change) and organizational
ambidexterity (the ability to balance exploring new opportunities and exploiting existing
strengths).
Many established companies struggle to adapt when their environment changes dramatically.
Famous failures like Kodak and Blockbuster show how hard it is for big firms to survive
disruptive shifts. The article aims to understand why some firms adapt better than others,
especially when the change is not gradual but sudden and disruptive. The authors argue that
there is no single set of capabilities that works for every company. Instead, the right
capabilities depend on how the company chooses to adapt.
Dynamic Capabilities Ambidexterity
These are higher-level skills that allow a company to This is the ability to both explore new things (innovation,
change itself. They are usually divided into three types: new markets) and exploit what the company already
does well (efficiency, existing products). The article
identifies three ways companies can be ambidextrous:
1. Sensing: Identifying new opportunities and 1. Structural Separation: Keeping exploration and
threats. exploitation in separate units.
2. Seizing: Mobilizing resources to take advantage 2. Behavioral Integration: Encouraging both activities
of opportunities or defend against threats. within the same unit or team.
3. Reconfiguring: Changing the company's 3. Sequential Alternation: Switching focus between
structure, processes, or assets to stay relevant exploration and exploitation over time.
The authors use three in-depth case studies—Nestlé, GlaxoSmithKline (GSK), and BMW—to
show how different companies adapt to discontinuous change using different modes of
ambidexterity. They conducted interviews with managers at different levels and analyzed
company documents to understand each firm's approach.
1. Nestlé: Structural Separation
Nestlé faced big changes in the food industry, such as new health trends and global nutrition
challenges. To adapt, Nestlé created separate units for exploration (like Nestlé Nutrition and
Nestlé Health Science) and for exploitation (mainstream food businesses). Each unit had its
own goals, but a strong, unifying vision kept everyone aligned. Nestlé's decentralized culture
allowed local units to respond to local needs, while collaboration across units helped share
innovations. The company also developed two career tracks—one for traditional managers
and one for entrepreneurial leaders—to support both types of work. The key capability here
was resource-linking: top managers orchestrated the interplay between the sensing
capabilities of the exploratory units and the seizing capabilities of the mainstream units.
,2. GlaxoSmithKline (GSK): Behavioral Integration
GSK, a major pharmaceutical company, faced pressure from new regulations and the rise of
biotechnology. Instead of separating exploration and exploitation, GSK pushed
decision-making down to smaller, cross-functional teams called Centers of Excellence in
Drug Discovery (CEDDs) and later Drug Performance Units (DPUs). These teams were
responsible for both discovering new drugs (exploration) and bringing them to market
(exploitation). GSK's vision blended scientific innovation with entrepreneurship, and its
culture emphasized transparency, accountability, and learning. The company invested in
hiring and developing managers who could handle both scientific and commercial
challenges. The key capability here was context-shaping: top executives created an
environment where teams could balance exploration and exploitation themselves.
3. BMW: Sequential Alternation
BMW operates in the highly competitive automotive industry, which has seen shifts toward
electric vehicles and new mobility solutions. BMW adapted by alternating its focus over
time—sometimes emphasizing efficiency and profitability, other times pushing for radical
innovation (like electric cars and car-sharing services). The company's long-term vision and
stable ownership allowed it to make big shifts without losing direction. BMW's culture
encouraged self-reflection and questioning the status quo, and managers often rotated
through different roles to build strong internal networks. The key capability here was
focus-shifting: top executives managed the timing and transition between exploration and
exploitation phases.
Main Findings and Contributions
- There is no universal set of dynamic capabilities that works for all companies. The
right capabilities depend on the chosen mode of adaptation (structural separation,
behavioral integration, or sequential alternation).
- The heritage of a company—its vision, culture, and people development—shapes
which mode of adaptation is most suitable and which capabilities are needed.
- Reconfiguring capabilities (the ability to change the organization itself) are especially
important and are usually held by top executives, while sensing and seizing
capabilities are often found at the front-line or unit level.
- The process of building these capabilities takes many years, and companies often
stick with one mode of adaptation for a long time.
- The study suggests a contingency perspective: companies should choose the mode
of adaptation and develop the capabilities that best fit their context, rather than
following a one-size-fits-all approach.
Practical Implications
Managers facing disruptive change need to make conscious choices about how to adapt.
They should:
1. Decide which mode of adaptation fits their company's heritage and environment.
2. Develop the specific capabilities needed for that mode.
3. Align vision, culture, and people development to support the chosen approach.
4. Be aware that changing modes or building new capabilities takes time and effort.
, Major Innovation as a Dynamic Capability: A Systems Approach
Gina Colarelli O’Connor (2008)
This article explores how established companies can systematically build the ability to create
major innovations—those that are radical or “really new”—by treating innovation as a
dynamic capability within a system, rather than relying on isolated processes or individual
champions. The article is theoretical, not empirical, and draws on systems theory and
dynamic capabilities literature to propose a comprehensive framework for managing major
innovation (MI).
Major Innovation (MI)
Includes both radical and really new innovations. These are innovations that bring entirely
new benefits or significant improvements (e.g., 5–10 times better performance or 50% cost
reduction), often creating new markets or transforming existing ones. MI is marked by high
uncertainty in technology, market, resources, and organization.
Dynamic Capabilities
The ability of a firm to adapt, integrate, and reconfigure internal and external resources to
address rapidly changing environments. Traditional dynamic capabilities focus on routines
and repeatable processes, but the author argues that MI requires a more complex,
systems-based approach.
Systems Theory
Views organizations as interconnected systems where the whole is greater than the sum of
its parts. Changes in one element affect others, and systems are open to their
environment, seeking balance (homeostasis) through interaction.
Most large firms struggle to manage major innovation because their structures and routines
are designed for efficiency and incremental improvement, not for high uncertainty and
transformation. The article aims to show how companies can move beyond relying on
individual innovation champions and instead build a sustainable, organization-wide capability
for MI.
The Seven Elements of the MI Management System
1. Identifiable Organizational A dedicated team or unit responsible for MI, with clear boundaries and reporting
Structure relationships. This structure allows for discipline and creativity, and helps
accumulate experience and learning that can’t be codified into routines.
2. Interface Mechanisms Mechanisms for connecting the MI unit with both the mainstream organization and
(Internal and External) external partners. Some interfaces are tightly coupled (e.g., strategic alignment,
clear roles), while others are loosely coupled (e.g., resource sharing, networking).
This balance helps the MI unit leverage existing competencies while building new
ones.
3. Exploratory Processes Processes focused on learning, experimentation, and iteration. Instead of
following strict plans, MI teams use “probe and learn” approaches, generating
multiple options and adapting as they gain new knowledge. This is essential in
high-uncertainty environments.
,4. Requisite Skills and Talent MI requires people with broad, flexible skills and entrepreneurial characteristics,
Development not just cross-functional teams. Because knowledge can’t be proceduralized,
mentoring, coaching, and apprenticeship are key for developing talent. The right
people must be identified and nurtured, as mainstream managers often lack the
skills needed for MI.
5. Governance and Governance operates at three levels: the MI portfolio, individual projects, and the
Decision-Making Mechanisms MI system itself. Portfolio governance involves diversification and risk
management. Project governance uses real-options thinking (keeping options
open, learning at each stage). System governance requires ongoing reflection and
reconfiguration to adapt to changing needs.
6. Appropriate Performance MI activities need different metrics than mainstream operations. Success may be
Metrics measured by new market connections, technical capabilities, partnerships, or
strategic renewal, not just financial returns. Both activity-based and
performance-based measures are used, and slack is often provided due to the
experimental nature of MI.
7. Culture and Leadership The larger organization’s culture and leadership must value MI and support its
Context integration. Senior leaders should act as caretakers for the firm’s future, investing
in strategic thinking and being open to learning from MI activities. Without this
support, the MI system cannot flourish.
How do these “seven elements of the MI management system” work?
The seven elements are interdependent—if one is missing or misaligned, the system won’t
function effectively. For example, exploratory processes need supportive governance and
metrics, and the right skills must be nurtured within a culture that values innovation. The MI
system is open, interacting with the larger organization and environment to maintain balance
and relevance.
Implications and Conclusions
- For Theory: The article challenges the idea that dynamic capabilities can be built
through routines alone. Instead, it argues for a systems approach, where complex,
situation-specific learning and transformation are supported by an integrated
management system.
- For Practice: Leaders should not expect MI to succeed through isolated processes
or individual champions. Instead, they must build a system with all seven elements,
aligned internally and with the larger organization’s goals. Attempts to routinize MI
(e.g., using Six Sigma) are likely to fail unless the system is properly designed and
managed.
Limitations and Boundary Conditions
- The article is conceptual, not empirical, so its framework needs to be tested in
practice.
- The system may work differently in smaller organizations or those with less
complexity.
- Success depends on alignment among all elements and ongoing adaptation to
environmental changes.
,Capabilities, Cognition, and Inertia: Evidence from Digital Imaging
Mary Tripsas and Giovanni Gavetti (2000)
This article explores why established companies, like Polaroid, often struggle to adapt to
radical technological changes, focusing on the shift from analog to digital imaging. The
authors argue that both organizational capabilities (skills, resources, routines) and
managerial cognition (how managers think and interpret the world) play crucial roles in
shaping a firm's ability to change.
Polaroid was a leader in instant photography, known for its strong technical expertise,
manufacturing skills, and a successful business model that made most profits from selling
film (the "razor/blade" model). The company was driven by technology and believed that big,
ambitious inventions were the key to success. Market research was not valued; instead,
Polaroid thought its products would create their own demand.
The Challenge of Digital Imaging
When digital imaging emerged, it required new scientific knowledge (like electronics and
semiconductors) and different ways of reaching customers. Polaroid invested heavily in
digital technologies, building a microelectronics lab and hiring new experts. The company
developed advanced digital camera sensors and even had a working prototype before most
competitors. However, Polaroid's management still clung to old beliefs:
- Customers wanted instant physical prints, not just digital images.
- The razor/blade model (profit from consumables, not hardware) should apply to
digital products.
- Large-scale, long-term projects were preferred over quick, incremental changes.
How Capabilities and Cognition Shaped Actions
Polaroid's technical strengths allowed it to develop impressive digital imaging technologies.
But its managerial beliefs limited how these technologies were commercialized. For example,
the company focused on products that combined digital capture with instant film output,
rather than standalone digital cameras. It did not invest in low-cost electronics manufacturing
or rapid product development, which were needed to compete in the new market. Marketing
and sales for digital products were handled by the same teams as instant photography, even
though the markets were very different.
Internal Tensions and Organizational Inertia
As new hires with digital expertise joined Polaroid, they brought fresh ideas and challenged
the old business model. This led to cognitive dissonance—a clash between traditional
management and the new digital imaging division. Senior managers resisted changes that
did not fit their established beliefs, causing delays in product launches and missed
opportunities. For instance, Polaroid had a digital camera prototype in 1992 but did not
release it until 1996, by which time the market was crowded.
Shifts in Strategy and Leadership
In the late 1990s, Polaroid's performance declined, and a new CEO from outside the
company was hired. This led to a shift from technology-driven to market-driven strategies,
,with more focus on rapid, incremental product development and marketing. However, some
old beliefs persisted, such as the importance of consumables and photographic quality.
Key Insights and Conclusions
- Managerial cognition can be as important as technical capabilities in shaping how
organizations respond to change. Strong, shared beliefs can help build new skills but
also create inertia when the environment shifts.
- Organizational change is especially hard when new technologies require not just new
skills but also new ways of thinking and new business models.
- Top management turnover can help break old patterns, but ongoing "deframing"—the
ability to question and update strategic beliefs—is crucial for long-term adaptability.
- The Polaroid case shows that even with strong technical capabilities, firms can fail to
capitalize on new opportunities if their cognitive frameworks do not evolve.
,🧩 Week 2
,The Contingent Effects of Differentiation and Integration on Corporate
Entrepreneurship
J. Henri Burgers and Jeffrey G. Covin (2016)
An acknowledged way to facilitate corporate entrepreneurship (CE), defined as the sum of a
firm’s innovation, venturing, and strategic renewal activities, is to set up organizational
structures (dividing into separate units) that provide autonomy to CE activities.
However, splitting a company into separate units creates problems. These units often don’t
share information well, and they might start acting in their own interest instead of what’s best
for the whole company.
→ The central question is: when does the benefit of combining specialized units and
teamwork outweigh the costs of that teamwork for promoting innovation?
Research goal: We advance prior research by providing insights into how organizational
size and environmental dynamism influence the costs and benefits resulting from integration
devices regarding the structural differentiation → CE relationship.
Structural differentiation means splitting a company into separate teams. One team
focuses on improving current business (“exploitation”), while another team focuses on
innovation and new ideas (“exploration”). This allows each team to specialize and work more
efficiently. However, this separation has downsides:
- Communication problems: Teams in different units often don’t understand each
other’s goals and perspectives, which hurts collaboration.
- Fewer innovative ideas: Great ideas often come from mixing different viewpoints. A
lack of communication reduces these opportunities.
- Misaligned goals: Isolated teams might start working toward their own objectives
instead of the company’s overall strategy, making their work less valuable.
When teams work together (integration), it helps them share knowledge and stay on the
same page, which leads to better innovation. However, the big problem is that you need to
both separate your teams (to let them specialize) AND make them collaborate. These are
two opposite goals that are hard to balance.
Researchers have found three main ways for a company’s top management to balance the
need for both specialized teams (differentiation) and teamwork (integration):
● Shared Vision: Everyone in the company understands and believes in the same main
goals.
○ Gives everyone a common purpose, which makes people more likely to share
knowledge and work toward the company’s goals instead of their own
department’s interests.
● Senior team social integration: The top managers themselves work well together,
trust each other, and get along.
○ They are in the best position to connect different departments and resolve
conflicts between them because they have a broad overview of the entire
company.
● Cross-functional interfaces: Creating formal ways for different departments to talk and
share ideas, like joint projects or liaison roles.
, ○ Creates direct links between departments, helping them share knowledge and
combine different perspectives to create new ideas.
Key findings of this research
There is a positive interaction between Differentiation and Integration
The study finds that higher levels of integration mechanisms (shared vision, senior team
social integration, and cross-functional interfaces) enhance the positive relationship between
structural differentiation and corporate entrepreneurship, particularly in larger organizations.
The study looked at three types of integration mechanisms and found they have different
impacts:
1. Shared vision: This is the most flexible mechanism. Having a common goal provides
direction without adding much bureaucracy. It’s useful everywhere but has the fewest
downsides in small or dynamic companies.
2. Senior team social integration: Very important in large companies to resolve conflicts.
However, in small companies, it’s unnecessary, and in dynamic environments, a
too-tight-knit top team can become slow and resistant to risky new ideas.
3. Cross-functional interfaces: Excellent for sharing knowledge in large, stable
companies. But in small or dynamic companies, these teams are often seen as slow,
bureaucratic, and killers of innovation.
Large Company Small Company
Stable Market Go All In Focus On Vision
Use a shared vision, build a strong top A clear shared vision is helpful. Be cautious with
team, and create formal structures other formal mechanisms that might slow you
down.
Dynamic Market Choose Wisely Minimize Formal Glue
Prioritize a shared vision for alignment. Trust informal chats. Avoid bureaucracy. Give
Avoid forcing too many cross-team your innovation teams maximum autonomy to
meetings that reduce agility. Give teams rotate quickly.
freedom.
