When and how to shift gears: Dynamic trade‐offs among adjustment, opportunity, and transaction costs in response to an innovation shock

Lyda Bigelow, Jackson A. Nickerson and Woo‐Yong Park

Strategic Management Journal, 2019, vol. 40, issue 3, 377-407

Abstract: Research Summary This study explores incumbent responses to the architectural innovation shock of index shifting in the bicycle component industry. Incumbents differed by when they imitated and by organization of production—some integrated while others outsourced components—and many of these decisions changed over time, which are not explained by extant theory. This paper develops a theory that predicts timing of imitation and organizational choice for component manufacturing that highlights a dynamic trade‐off among adjustment, opportunity, and transaction costs that explains timing of imitation, organizational structure of component manufacturing, and changes in organizational structure. Empirical analysis finds support for a fundamental trade‐off among these costs in response to an innovation shock. Managerial Summary An innovation shock presents managers both an opportunity to reposition and gain advantage against competitors and creates competitive pressure to do so. When and how should firms respond to such shocks? This paper develops a comparative approach to help managers decide when and how to imitate an innovation shock. The paper recommends comparatively assessing adjustment costs, opportunity costs of moving late, and initially outsourcing to imitate quickly even though doing so may be costly and problematic over the long‐run. The paper also predicts when firms should integrate to produce more efficiently. These findings are illustrated through the introduction and adoption of index shifting in the sport bicycling market from 1980 through 1995.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://doi.org/10.1002/smj.2996

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:stratm:v:40:y:2019:i:3:p:377-407

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0143-2095

Access Statistics for this article

More articles in Strategic Management Journal from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().