Abstracts Engineering

"Creative destruction" or "creative cooperation"?: an empirical investigation of technological discontinuities and their effect on the nature of competition and firm performance

by Frank T Rothaermel

Technological discontinuities often initiate a Schumpeterian process of 'creative destruction' in which incumbents are replaced by new entrants. In this dissertation, I revisit the Schumpeterian notion of competition driven by the perennial gale of creative destruction and augment it with the notion of 'creative cooperation', which describes the phenomenon of extensive cooperation between incumbents and new entrants initiated ('created') by a technological discontinuity that leads to a search for mutually complementary assets. Market-related capabilities are often those complementary assets that are critical to the successful commercialization of an innovation. Therefore, a discontinuity which leads to the process of creative cooperation destroys the existing industry structure, but instead of destroying the incumbent firms with it – as in the extreme case of the Schumpeterian model – it creates an industry structure characterized by extensive cooperation between incumbents and new entrants that allows for a symbiotic coexistence in a newly defined industry. Hence, in order to fully understand the impact of a technological discontinuity on the nature of competition and incumbent firm performance, a discontinuity's total effect on a firm's technological and non-technological value chain activities should be taken into account.The two models of the competitive process – creative destruction and creative cooperation – discussed in this dissertation enable us to better understand the nature of competition and its impact on firm performance following a technological discontinuity. The industry sample is comprised of the mainframe computer, steel, pharmaceutical, and telecommunications industries. For each industry, one technological discontinuity is identified and its impact on the nature of competition and firm performance is empirically tested. Hypotheses with respect to the nature of competition and firm performance in discontinuous environments are advanced. At the industry level, I am able to show that the processes of creative destruction leads to a decline in incumbent industry performance, while the process of creative cooperation leads to an improvement in incumbent industry performance. At the firm level, I advance a contingency notion of interfirm performance differentials in discontinuous environments depending on the ensuing nature of competition. In particular, a firm's absorptive capacity has a positive impact on firm performance in a creative cooperative environment, while its impact on firm performance is negative in a creative destructive environment. The opposite holds for a firm's strategic flexibility since it has a negative impact on firm performance in creative cooperative environment, while its impact on firm performance is positive in a creative destructive environment.