Embracing Bewilderment: Responding to Technological Disruption in Heterogeneous Market Environments

• Author: Henk W. Volberda,Mohammad Taghi Ramezan Zadeh,Saeed Khanagha,Oli R. Mihalache
• DOI: http://doi.org/10.1111/joms.12348
• Published date: 01 November 2018
• Date: 01 November 2018

This is an open a ccess article under the t erms of the Creative Com mons Attribution Licens e, which

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© 2018 The Authors

Journal of Ma nagement Studies published by John W iley & Sons Ltd and

Society for the A dvancement of Management Studie s

Embracing Bewilderment: Responding to Technological

Disruption in Heterogeneous Market Environments

Saeed Khanagha, Mohammad Taghi Ramezan Zadeh,

Oli R. Mihalache and Henk W. Volberda

Vrije Universiteit Amsterdam; Erasmus University; Vrije Universiteit Amsterdam; Erasmus

University

ABST RACT In an age of rapid advances in technology, understanding how f irms can

respond to emergence of disruptive technologies is pa ramount for surv ival. Wh ile prior

research on incumbents’ responses to di sruptive technologies as sumes demand homo-

geneity, many firms, including mult inational enterprises (MNEs), need to respond to

technological disr upt ion i n heterogeneous ma rket s. To address this lacuna in ou r

understanding, we study how Er icsson tried to respond to t he emergence of Cloud

computing, a digital plat for m technology, across its operations in more than 170

countries. We reveal how incumbents need to match diverg ing customer demands with

a complex innovation process, involving di fferent approaches to experiments and tri als,

deployment strategy, and ecosystem development. We also find t hat the success of

incumbents’ responses depends on their capability for misalig nment , which allows

them to manage the inconsistencies in st rategic direction, structure, and resou rce

configur ation associated with a complex innovation process.

Keywo rds: heterogeneous markets , misalig nment capabilit y, multinational enterpr ises,

strateg ic contradictions, tec hnological disr uption

INTRODUCTION

‘Sell your cleverness and buy bewilderment’. – Jalaluddin Rumi (1207–1273)

In an age of rapid technological advances, the survival of firms often rests on

their ability to deal with disruption in the environment. As new technologies chal-

lenge existing industry logics, firms need to adopt new ways of doing business

Address for reprints: Saeed K hanagha, S chool of Business and Economic s, Vrije Universiteit

Amsterdam , De Boelelaan 1105, 1081 HV Amsterdam, The Netherla nds (s .khanagha@vu.nl).

Journal of Man agement Studi es 55:7 November 2018

doi:10. 1111/j om s .12 34 8

1080 S. Khanagha et al.

© 2018 The Authors

Journal of Ma nagement Studies published by John W iley & Sons Ltd and

Society for the A dvancement of Management Studie s

to remain relevant. Mirroring this trend, there has also been a growth in recent

years of management research on the challenges firms face during times of dis-

ruption (Cohen and Levinthal, 1990; Hannan and Freeman, 1984; Nelson and

Winter, 1982) and on how firms can respond to disruption (Ansari and Krop,

2012; Ansari et al., 2016; Tripsas and Gavetti, 2000; Volberda et al., 2018).

The conventional line of thought holds that as major technological change has

a fundamental effect on many aspects of organizations (Taylor and Helfat, 2009)

and their business models (Markides, 2006; Markides and Oyon, 2010), a coordi-

nated adaptation that maintains strategic alignment between organizational assets

and elements is recommended in order to achieve a sustainable competitive ad-

vantage (Birkinshaw et al., 2016; Helfat and Peteraf, 2015; Zajac et al., 2000). That

is, drawing on contingency theory, existing research argues for the importance of

internal fit, i.e., the alignment between internal aspects of the organization such

as strategy, structure, and organizational activities (Peteraf and Reed, 2007).

However, despite the pervasiveness of this recommendation, many firms are

unsuccessful in responding to disruption (Christensen et al., 2015; Fuentelsaz

et al., 2015; King and Baatartogtokh, 2015; Uzunca, 2017) raising the question

of the validity, feasibility, or boundaries of such an internal fit perspective. The

universality of the strategic alignment perspective has recently been challenged

by the idea that consistency can become less viable when firms face diverse contin-

gencies and conflicting requirements (Le Breton-Miller and Miller, 2015; Poulis

and Poulis, 2016; Smith, 2014). In this opposing perspective, it is argued that or-

ganizations are able to thrive by embracing misalignment between internal com-

ponents (Gulati and Puranam, 2009) and promoting inconsistent mentalities and

structures (Smith et al., 2016).

In an effort to understand how firms can cope with disruption in their indus-

tries, we study how Ericsson, a leading global provider of telecommunications

infrastructure with operations in more than 170 countries, is attempting to re-

spond to technological disruption in its industry. The emergence of Cloud com-

puting and its underlying technologies is challenging Ericsson’s existing value

logic by shifting value in the industry from the sale of hardware to the provision

of Cloud-enabled services. This threatens Ericsson’s standing in the industry as

its key capabilities are designing and selling telecommunication equipment. We

study Ericsson’s adoption of a disruptive technology using an inductive approach

involving analysis of chiefly qualitative data from multiple sources (i.e., internal

documents and communications, 33 interviews with managers at different hierar-

chical levels, written comments from 170 relationship managers worldwide, and

insights and observations from a five-year field study between 2010 and 2014).

We contribute to the discussion on how incumbents respond to technological

disruption in several ways. First, our study contributes to disruption research by

uncovering strategic tensions that arise from market heterogeneity when firms

attempt to respond to industry disruption. We complement prior research that

has generally considered incumbents’ responses to disruption in homogenous

markets for the new technology (e.g., Gilbert, 2005; Taylor and Helfat, 2009).

Embracing Bewilderment: Responding to Disruption 1081

© 2018 The Authors

Journal of Ma nagement Studies published by John W iley & Sons Ltd and

Society for the A dvancement of Management Studie s

The incorporation of demand-side heterogeneity in our study allows us to study

the subsequent strains on an incumbent’s attempts to form a shared interpreta-

tion of the future. This is in line with the growing attention being given to multi-

sided markets and platform ecosystems by strategy and organization scholars who

consider heterogeneity an important, yet less examined, factor that influences

the strategic behaviour of suppliers (e.g., McIntyre and Srinivasan, 2017; Rietveld

and Eggers, 2018). Our findings highlight how firms facing high levels of market

heterogeneity need to understand and accommodate the presence of tensions

between different interpretations of the future in terms of the magnitude and

speed of changes in the market.

Second, we add to the recent debates over whether internal alignment has a

universal value as a lever for effective strategic change (Le Breton-Miller and

Miller, 2015; Poulis and Poulis, 2016; Smith et al., 2016). In particular, we propose

market heterogeneity as a potential a boundary condition for whether focusing

on internal fit may constitute an effective response to disruption. We therefore

prepare the ground for discussing the organizational capabilities that allow an

incumbent to appreciate, nurture, and deal with the tensions of misalignment –

capabilities that could be argued to be crucial for the firm’s survival.

Third, we contribute to research on international business by providing

grounded theory on how MNEs respond to disruption. We advance previous re-

search which acknowledges that MNEs often have to deal with a far greater num-

ber of contingencies and a higher degree of market heterogeneity compared to

other organizations (Teece, 2014) in that we show how this type of complexity af-

fects MNEs’ responses to disruption. We also complement research on how MNEs

can deal effectively with demand heterogeneity in relatively stable conditions by

considering their need for responsiveness and efficiency (Ghoshal and Nohria,

1989, 1993, Nohria and Ghoshal, 1994, 1997).

THEORETICAL MOTIVATIONS

Organ izational A lign ment, Misalignment, and Str ategic Change

The strategic management literature lays considerable stress on the importance

of alignment and realignment between strategy, structure, people, and culture

for the long-term survival and competitiveness of firms (Tushman and O’Reilly,

1996). Fit bet ween organizational elements is said to enhance performance be-

cause it provides employees with clear direction about appropriate actions and

behaviour, it aligns different organizational elements so that they reinforce one

another, and it helps to ma intain a coherent image of the organization both in-

ternally and externally (Miller, 1992; Nadler et al., 1997; Porter, 1996; Soda and

Zaheer, 2012). When there is major change, the success of an organization is

dependent on ensuring that plans and decisions are in alignment and that the

actions undertaken are consistent (Stettner and Lavie, 2014; Taylor and Helfat,

2009); the effectiveness of specific organizat ional change efforts and strategies