Competing technologies and industry evolution: The benefits of making mistakes in the flat panel display industry

• Author: J. P. Eggers
• Published date: 01 February 2014
• DOI: http://doi.org/10.1002/smj.2129
• Date: 01 February 2014

Strategic Management Journal

Strat. Mgmt. J.,35: 159– 178 (2014)

Published online EarlyView 19 April 2013 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2129

Received 22 November 2011;Final revision received 26 July 2012

COMPETING TECHNOLOGIES AND INDUSTRY

EVOLUTION: THE BENEFITS OF MAKING MISTAKES

IN THE FLAT PANEL DISPLAY INDUSTRY

J. P. EGGERS*

Department of Management and Organizations, Stern School of Business, New York

University, New York, New York, U.S.A.

This article investigates the post-entry implications of pre-entry technological choices made

during the uncertain period before a dominant design. Building on work on technological

dynamics and organizational inertia, I argue that too early commitments to the winning

technology may impede the ability to bring the best product to market, but delaying investment

too long limits the ability to accumulate useful knowledge. Using data from the evolution of

the flat panel display industry from 1965 to 2005, the study shows empirical support for the

two theoretical mechanisms and offers the surprising result that firms starting in the losing

technology before switching outperform other firms in terms of product value. Switching, while

difficult behaviorally in recovering from failure, both delays difficult-to-reverse technological

commitments and develops market knowledge. Copyright 2013 John Wiley & Sons, Ltd.

INTRODUCTION

The early stages of a new industry are often uncer-

tain and convoluted, as firms explore potential

options. As a result, firms that commercialize the

same dominant design often follow different paths

to reach that point. Firms may transition not just

from the old technology to the new (Henderson

and Clark, 1990; Tushman and Anderson, 1986),

but also from one uncertain and speculative vari-

ant to another as they receive feedback about the

efficacy of their choices. We know relatively little

about the long-term implications of technological

choices made during the transition process, but

building blocks are available from prior work on

how inertia (e.g., Tripsas and Gavetti, 2000) and

Keywords: competing technologies; pre-entry experi-

ence; technological evolution; organizational inertia; flat

panel displays

*Correspondence to: J. P. Eggers, Department of Management

and Organizations, Stern School of Business, New York

University, 40 West Fourth St., Tisch715, New York, NY 10012,

U.S.A. E-mail: jeggers@stern.nyu.edu

Copyright 2013 John Wiley & Sons, Ltd.

complementary assets (e.g., Tripsas, 1997) impede

or facilitate the transition from the old to the new

technology.

For industries that begin with competing tech-

nological options, managers effectively have four

options— support one technology or the other

or both, or delay until uncertainty is resolved

(Kretschmer, 2008). These choices may have path

dependent implications for long-term performance.

On one hand, firms initially focusing on the tech-

nology that later loses the competition are likely

to face internal resistance to switching to the win-

ning technology (Eggers, 2012). On the other hand,

firms making early investments in the subsequent

winning technology may do so too early and find

themselves unable to commercialize the best gen-

eration of the technology (Bohlmann, Golder, and

Mitra, 2002). Firms placing early bets on both

technologies might suffer the challenges facing one

or both types of focused firms. Finally, firms that

wait until the technological competition has been

settled may avoid making inefficient investments

but will not build important knowledge until after

160 J. P. Eggers

earlier investors, putting them at a disadvantage

(Cohen and Levinthal, 1990). These four state-

ments suggest that precommercialization choices

have significant implications for firm performance.

These idiosyncratic paths to commercialization

are a form of pre-entry experience (Helfat and

Lieberman, 2002; Klepper and Simons, 2000;

Sosa, 2013), as experience is accumulated before

commercialization (entry) and affects firm-level

heterogeneity in assets, capabilities, and knowl-

edge. Unlike recently studied types of pre-entry

experience, experience derived from early techno-

logical choices is not translated from a different

industry or submarket (de Figueiredo and Silver-

man, 2007; Mitchell, 1989), but is directly related

to the focal market and strategic choices made by

managers after the decision to pursue a new oppor-

tunity. As a result, firms may look similar at the

moment of commercialization (in terms of entry

timing and previous industry experience), but may

actually possess fundamentally different underly-

ing competences and resources. The difficulty in

navigating the uncertainty of an emerging new

technological space before the establishment of

the dominant design is an important subject, but

the effect of precommercialization choices is an

understudied aspect of competitive heterogeneity.

This study investigates the impact of precom-

mercialization technological choices on subse-

quent firm performance, focusing on the extent

to which these choices affect the ability to trans-

late technical knowledge into highly valued prod-

ucts. Using data from the inception of the global

flat panel display industry and tracking the evolu-

tion of two competing technologies— liquid crys-

tal (LCD) and plasma— from the 1960s through

the 2000s, this study investigates the product per-

formance implications of early knowledge creation

investments in the losing technology (plasma)

before commercializing the winning technology

(LCD). The results offer two interesting find-

ings. First, firms with greater precommercializa-

tion investment in plasma perform better in LCD

than firms that supported LCD from the begin-

ning. Early LCD supporters were able to develop

knowledge about the underlying technology, but

made a series of inefficient and difficult-to-reverse

investments in early LCD generations that did not

become the dominant design, and their reluctance

to abandon these investments hindered their abil-

ity to move effectively to the dominant design.

Second, firms that made significant early plasma

investments perform better in LCD than firms

that began investing in LCDs after the resolu-

tion of uncertainty, most likely due to knowledge

about market demands and expectations accumu-

lated from their early activities. Thus, in flat panel

displays, the data suggest that making a mistake

(e.g., the precommercialization choice to invest in

plasma) was a beneficial path.

This study makes three primary contributions.

First, the stylized fact of the superior performance

of firms switching from plasma to LCD in this

instance serves as an ‘existence proof’ that firms

making the wrong technological choice initially

can actually succeed in an emerging industry. This

perspective extends existing work on the impor-

tance of technological choices and organizational

flexibility in the face of technological uncertainty

(Bayus and Agarwal, 2007; Tegarden, Hatfield,

and Echols, 1999) and emphasizes that organiza-

tional adaptation is not just about switching from

the old technology to the new, but also about how

firms navigate uncertain technological transitions.

In doing so, this study adds an important facet

to our understanding of competing technologies in

new industries, where existing research has largely

focused on which technology wins (Arthur, 1989;

Schilling, 1998) and not on the firm-level implica-

tions of technological choices.

Second, I offer two theoretical mechanisms

that jointly explain the observed empirical out-

come. These mechanisms, rooted in the ‘win-

dow of opportunity’ model (Christensen, Su´

arez,

and Utterback, 1998), have broader implications

beyond the context of this study. One involves the

accumulation of knowledge applicable across tech-

nological platforms based on experience with any

technology in the industry. As the knowledge is

not tied to one specific technology, it is likely to

be market knowledge about consumer preferences

(Helfat and Raubitschek, 2000) that is related

to Sosa’s (2009) application-specific knowledge.

The other mechanism involves inertia resulting

from too early commitments to the eventual win-

ning technological option. Significant technolog-

ical investments typically result in routines and

processes that can be the source of inertia if the

commitments turn out to be suboptimal (Gilbert,

2005; Leonard-Barton, 1992).

Third, this study complements and extends ear-

lier work on technological competition (Eggers,

2012). Jointly, these works offer a more com-

plete view of the fate of firms making the wrong

Copyright 2013 John Wiley & Sons, Ltd. Strat. Mgmt. J.,35: 159– 178 (2014)

DOI: 10.1002/smj