My research interests are in the areas of Strategy, Innovation and Technology.  My work is focused on the way in which the demand environment affects firms’ incentives and interactions.  Through my work I am attempting to develop a ‘demand-based’ lens with which to explore some important issues regarding the evolution of firm capabilities and competition. 
  

You can download the most recent version of my work where you see a hyper link (pdf format, you will need the Acrobat Reader). You can also request a printed copy of any paper by sending me an email. 
 

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Publications

Adner, Ron and Levinthal, Daniel. 2008. “Doing versus seeing: Acts of exploitation and perceptions of exploration.” Strategic Entrepreneurship Journal. 1(2):43-52.

Absract: The challenge of organizational adaptation is often presented in terms of the tension between the exploration of new possibilities and the exploitation of existing accomplishments. Whether framed in the language of invention versus refinement or local search versus long jumps, the spirit of the argument is of an explicit trade-off that resource-constrained organizations must make to secure their survival and success. While we do not dispute the fundamental truth that underlies this tension, we do believe this dominant characterization of the process of exploration may be masking key drivers of this tension and potential paths towards its resolution.
We argue that, from the perspective of an actor, all activities are inherently exploitative in their nature, in the sense that they are undertaken with the explicit expectation that they may achieve meaningful progress on some dimension of performance. The key distinction regards the extent to which the dimension of performance is recognized and legitimated from the perspective of the organizational context in which the actor is operating. Acts perceived as ‘exploratory’ are, thus, more accurately characterized as acts of exploitation directed along
new performance dimensions. We consider the organizational challenges that such exploratory action poses and the implications for entrepreneurial initiatives. From the perspective of the focal actor engaged in the exploratory initiative, the challenge is to identify ‘projections’ of the payoff of the initiative they are pursuing, either onto those dimensions of performance that are of interest to the organization, or onto more concrete measures of product-market acceptance and financial return. Low-dimensional representations of the business landscape
are an inevitable by-product of bounded rationality and the need for organizations and their strategies to coordinate and direct collective action. In this regard, the most powerful form of entrepreneurship may be the initiation of the cognitive shifts that offer a different topology of the competitive landscape

Adner, Ron. 2007. “Real options and the resource re-allocation process.”  Real options in strategic management: Advances in Strategic Management. J. Reuer and T. Tong eds. Vol. 24: 363-272. 

Abstract: Decision making using a real options lens can be an important guide for resource allocation in organizations.  This guide, however, makes some key assumptions about the nature of subsequent resource reallocation processes in the organization.  This article considers some potential drivers and consequences of mismatches between initial resource allocation logics and subsequent reallocation realities, highlighting a process of rational escalation in the presence of sunk costs.  It also presents a new perspective on the traditional stage gate process, and considers some recent empirical evidence on the efficiency of resource reallocation processes in organizations.

Adner, Ron and Zemsky, Peter. 2006."A Demand-Based Perspective on Sustainable Competitive Advantage." Strategic Management Journal. 2006. 27(3): 215-239.

Abstract: We develop an approach to analyzing the sustainability of competitive advantage that emphasizes demand-side factors. We extend the added-value approach to business strategy by introducing an explicit treatment of how firms create value for consumers. This allows us to characterize how consumer heterogeneity and marginal utility from performance improvements on the demand-side, interact with resource heterogeneity and improving technologies on the supply-side. Using this approach, we address a variety of questions including whether technology substitutions will be permanent or transitory; the sequence in which new technologies attack different market segments; how rents from different types of resources change over time; whether decreasing marginal utility and imitation give rise to similar rent profiles; the extent of synergies within a firm’s resource portfolio; the emergence of new generic strategies; and the conditions that support strategic diversity in a market. Our focus on consumer utility and value creation complements the traditional focus in the strategy literature on competition and value capture.

Adner, Ron. 2006. "Match Your Innovation Strategy to Your Innovation Ecosystem."  Harvard Business Review. 84(4): 98-107.

Abstract: Increasingly, firms are relying on broad collaborative strategies in their quest for growth.  Such innovation ecosystems hold the promise of allowing firms to create value collectively that no one firm could have created alone.   While innovation ecosystems offer new opportunities, they also present a new set of risks that can brutally derail a firm's best efforts.   This paper offers a systematic framework for evaluating innovation challenges.  The framework distinguishes among three fundamental types of ecosystem risk: initiative risks--the familiar uncertainties of managing a project; interdependence risks--the uncertainties of coordinating with complementary innovators; and integration risks--the uncertainties presented by the adoption process across the value chain. By assessing ecosystem risks more holistically and systematically, managers will be able to establish more realistic expectations, develop a more refined set of environmental contingencies, and arrive at a more robust innovation strategy.  Collectively, these actions will lead to more effective implementation, more successful innovation, and more profitable investment.

Adner, Ron and Zemsky, Peter. 2005. “Disruptive Technology and the Emergence of Competition.” Rand Journal of Economics. 36(2): 229-254.

Abstract: We formalize the phenomenon of disruptive technologies that initially serve isolated market niches and, as they mature, alter industry boundaries by displacing established technologies from mainstream segments. Using a model of horizontal and vertical differentiation, we show how the threat of disruption depends on rates of technological advance, how many firms use each technology, relative market segment sizes and firms’ ability to price discriminate. We characterize the effect of disruption on prices, market shares, social welfare and innovation incentives. We show that the possibility that mergers trigger disruption and thereby alter industry boundaries is important for assessing their impact on social welfare and profits.

Adner, Ron. 2004. "A Demand-Based Perspective on Technology Lifecycles" Advances in Strategic Management. 21:25-43  

Abstract: This article considers the relationship between consumers’ valuation of performance improvements and technology development over the technology life cycle. Presenting a demand-based perspective, it explores how the character of life cycle maturity, the nature of competitive threats, and firms’ innovation incentives all change when consumer demand for performance matures in advance of a technology’s performance trajectories. It characterizes demand maturity by introducing the idea of a demand S curve as a complement to the traditional technology S curve. In so doing, it offers a new lens for assessing firms’ prospects of achieving superior performance through the commercialization of new technologies.

Adner, Ron and Levinthal, Daniel. 2004. “What is not a Real Option: Considering boundaries for the application of real option to business strategy.”  Academy of Management Review.  29(1):74-85.

Abstract: We argue that the greater the extent to which choice sets evolve as a consequence of firms’ exploration activities, the less structured the firms’ abandonment decisions become and, in turn, the less distinguishable a real option is from more generic notions of path dependence—a sequential stream of investment in and of itself does not constitute a real option. While organizational adaptations can extend the applicability of real options, they impose tradeoffs that may lead to the underutilization of discoveries made in the course of exploration.

Adner, Ron and Levinthal, Daniel. 2004. "Real Options and Real Tradeoffs" Academy of Management Review.  29(1):120-126.

Abstract: The commentaries on our article fail to come to grips with the distinct challenges raised by a process of experimentation that leads to the discovery of new possible initiatives. These challenges differ from those posed by an investment that provides privileged access to a prespecified set of possible follow-on investments. By treating these challenges as simple problems of implementation, the commentaries ignore the strategic tradeoffs implied by efficient abandonment processes and, therefore, fail to clarify where the logic of real options is likely to be more (and less) helpful to strategy thinking.

Adner, Ron and Helfat, Constance. 2003. "Dynamic Managerial Capabilities and Corporate Effects."  Strategic Management Journal. 24(10): 1011-1027.

Abstract: Corporate effects in variance decomposition capture heterogeneity of business performance derived from factors internal to firms at the corporate level. Most estimates of corporate effects do not include effects associated with fluctuations in returns over time, except insofar as the fluctuations affect the average corporate return for the time period in question. Exclusion of the time-varying dimension of the corporate effect makes it difficult to fully understand the effect of corporate strategy and the actions of corporate managers, particularly in response to a changing environment. The evidence in this article shows that within a single industry, where managers face the same external environment, time-varying corporate effects associated with corporate level managerial decisions are statistically significant. We introduce the concept of dynamic managerial capabilities to underpin the finding of heterogeneity in managerial decisions and firm performance in the face of changing external conditions.

Adner, Ron and Levinthal, Daniel. 2002. “The Emergence of Emerging Technology.” California Management Review.  45(1):50-66.

Abstract: What is discontinuous about the moment of radical technological change?  We suggest that the discontinuity typically does not lie in a radical advancement in technology itself; rather, the discontinuity stems from a shift of an existing technical lineage to a new domain of application.  Seeming revolutions such as wireless communication and the internet did not stem from an isolated technical breakthrough.  Rather, the spectacular commercial impact was achieved when an existing technology was re-applied in a new application domain.  We use the biological notion of speciation events, which form the basis for the theory of punctuated equilibrium, to reconcile the process of incremental change within a given line of technical development with the radical change associated with the shift of an existing technology to a new application domain.  We then use this lens to explore how managers can cope with, and potentially exploit, such change processes.

Adner, Ron. 2002. “When are Technologies Disruptive: A demand-based view of the emergence of competition” Strategic Management Journal. 23: 667-688.

Abstract: By identifying the possibility that technologies with inferior performance can displace established incumbents, the notion of disruptive technologies, pioneered by Christensen (1997), has had a profound effect on the way in which scholars and managers approach technology competition. While the phenomenon of disruptive technologies has been well documented, the underlying theoretical drivers of technology disruption are less well understood. This article identifies the demand conditions that enable disruptive dynamics. By examining how consumers evaluate technology and how this evaluation changes as performance improves, it offers new theoretical insight into the impact of the structure of the demand environment on competitive dynamics. Two new constructs—preference overlap and preference symmetry—are introduced to characterize the relationships among the preferences of different market segments. The article presents a formal model that examines how these relationships lead to the emergence of different competitive regimes. The model is analyzed using computer simulation. The theory and model results hold implications for understanding the dynamics of disruptive technologies and suggest new indicators for assessing disruptive threats.

Adner, Ron and Levinthal, Daniel. 2001.  “Demand Heterogeneity and Technology Evolution: Implications for product and process innovation” Management Science.  47(5): 611-628.

Abstract: The evolution of technology has been a central issue in the strategy and organizations literature.  However, the focus of much of this work has been on what is essentially the "supply side" of technical change—the evolution of firm capabilities. We present a demand-based view of technology evolution that is focused on the interaction between technology development and the demand environment in which the technology is ultimately evaluated.  We develop a formal computer simulation model that explicitly considers the influence of heterogeneity in market demand—the presence of consumers with different needs and requirements—on firms’ innovation choices. The model is used to examine the dynamics of product and process innovation (Utterback and Abernathy 1975). The analysis reveals that demand heterogeneity offers an alternative to supply-side explanations of the technology life cycle. Further, by considering the implications of decreasing marginal utility from performance improvements, the model highlights the role of "technologically satisfied" consumers in shaping innovation incentives, and suggests a rationale for a new stage in the technology life cycle characterized by increasing performance at a stable price. The stage has not yet been treated formally in the literature, but is widely observed, most prominently in digital and information-based technologies.

Rangan, Subramanian  and Adner, Ron. 2001.  “Profits and the Internet: Seven misconceptions” Sloan Management Review.  42(4): 44-53.

Abstract: To be sure, the Internet is powerful. It is opening the way to new markets, customers, products and modes of conducting business.  But is also is prompting newcomers and veterans alike to unwittingly embrace some dangerous half-truths and to neglect serious tensions beneath seemingly sensible strategy choices.  The consequences are visible in the long list of failed dot-coms.  At established companies the effects might be muted, but if the past is any indicator, they too are susceptible to the penalties of inadequate strategy scrutiny.  In assessing Internet-related business opportunities, companies must not let what is technologically feasible overshadow what is strategically desirable.  To minimize any unintentional destruction of value, they must think through the full implications of the strategy choices they are making.  In particular, they must be alert to seven widely held misconceptions.

Reprinted in Strategies for E-Business Success, Erik Brynjolfsson and Glen Urban (eds.)  Wiley. 2001.
 

Other Publications

"The Bell-Western Union Patent Agreement of 1879." (with George David Smith).

           INSEAD teaching case. 2004.

“iMotors: New competition in used cars (A)" INSEAD teaching case. 2001.

 "iMotors: New competition in used cars (B)" INSEAD teaching case. 2001.
           (to order: Insead case no. 10/2001-4977).  Teaching note available.

Abstract: iMotors was the first online retailer to sell used cars directly to consumers, offering unprecedented flexibility, reliability and selection at below-industry prices. It does so with an innovative ‘customer-pull’ business model that contrasts sharply with the industry’s traditional ‘dealer-push’ model.  The A-case describes the key components iMotors’ business model and considers the competitive challenges and opportunities that it creates. The teaching objectives are (1) to understand key issues in the transformation of industry supply chains towards just-in-time model; (2) to understand how competitive priorities shift with industry maturity; (3) to understand the impact of the internet on strategy.  The B-case examines the challenges of pacing growth in a fast growing industry and shutting down promising ventures. 

“Technological speciation and the emergence of emerging technologies” (with Daniel Levinthal), in Day and Schoemaker, Wharton on Emerging Technologies, John Wiley Press. 2000.

“Innovation beyond ideas: Setting expectations for innovation”   Financial Times Mastering Strategy Series. October 1999. 

Reprinted as “Innovation beyond ideas: expectations in managing technology,” in  Mastering Strategy. Prentice Hall.  2000.  Translated and reprinted in: Chinese, Dutch, German, Polish, and Russian.

Work in Progress

Adner, Ron and Kapoor, Rahul. "Value Creation in Innovation Ecosystems: How the structure of technological interdependence affects firm performance in new technology generations."

Abstract: The success of an innovating firm often depends on the efforts of other innovators in its environment. How do the challenges faced by external innovators affect the focal firm’s outcomes? To address this question we first characterize the external environment according to the structure of interdependence. We follow the flow of inputs and outputs in the ecosystem to distinguish between upstream components that are to be bundled by the focal firm, and downstream complements that are to be bundled by the firm’s customers. We argue that the effect of external innovation challenges depends not only on their magnitude, but also on their location in the ecosystem relative to the focal firm – whereas greater innovation challenges in components enhances the benefits that accrue to technology leaders, greater innovation challenges in complements erodes these benefits. We further argue that the effectiveness of vertical integration as a strategy to manage ecosystem interdependence increases over the course of the technology life cycle. We explore these arguments in the context of the global semiconductor lithography industry from its emergence in 1962 to 2005 across nine distinct technology generations. We find strong support for our arguments.

Adner, Ron and Zemsky, Peter.  "Diversification and Performance: Linking relatedness, market structure, relatedness and the decision to diversify." 

Abstract: An extensive empirical literature in strategy and finance studies the performance implications of corporate diversification. Two core debates in the literature concern the existence of a diversification discount and the relative importance of industry relatedness and market structure for the performance of diversifiers. We address these debates by building a formal model in which the extent of diversification is endogenous and depends on the degree of industry relatedness. Firms’ diversification choices affect both their own competitiveness and market structure. We find a non-monotonic effect of relatedness on performance: while greater relatedness increases the competitiveness of diversified firms, it can also spur additional diversification, thereby eroding market structure and performance. In addition, our model elucidates the emergence of heterogeneity in firm scope strategies. We use the model to generate data and show how the negative effect of relatedness on market structure can give rise to spurious inference of a diversification discount in cross-sectional regressions.

Kapoor, Rahul and Adner, Ron. "What Firms Make vs. What They Know: How firms’ production and knowledge boundaries affect competitive advantage in the face of technological change."

Abstract: Product innovation often hinges on technological changes in underlying components.  We examine how firms’ success in managing such component-enabled innovation is impacted by their knowledge and production strategies with respect to key components.  We further consider how this relationship depends on whether the innovation is incremental or architectural.  Using data on all firms in the DRAM industry across 12 technology generations from 1974 to 2005, we find that vertical integration into component production improves firms’ success in managing technological change.  Although non-integrated firms have lower performance, their disadvantage is muted by the extent of their component knowledge.  We find that the relative advantage of extending production vs. knowledge boundaries is determined by two factors.  The first is the nature of the innovation: integrated firms have a greater advantage over non-integrated firms when the change is architectural than when it is incremental.  The second is the degree of integration: non-integrated firms derive greater benefit from their knowledge of external components than do integrated firms.  Our results clarify the conditions under which extending knowledge boundaries can be a substitute for extending production boundaries during in managing technological change.

 

“Competitive positions, technology evolution and the structure of demand” (with Peter Zemsky)