Incumbent firms and Response to Disruptive Innovation through Value Network Management : Lessons from Eastman Kodak‟s failure in the digital era

Abstract: AbstractTitle: Incumbent firms and Response to Disruptive Innovation through Value Network Management - Lessons from Eastman Kodak‟s failure in the digital eraAuthors: Helen Gebremeskel Tesfaye & Thi Hong Nhung NguyenSupervisor: Marie BengtssonBackgroundThe question of why incumbent or established firms get into difficulties when they are faced with disruptive innovations has been extensively researched and discussed by many authors. Many explanations given for such failure seem to take “inside-out” approach by focusing on problems of organizational inertia, complacency, lack of insight and incompetence. On the other hand, Christensen‟s (1997; 2003) explanation takes an “outside-in” approach by focusing on the role of established firms‟ value network, particularly mainstream customers, as a determining factor to what incumbent firms can and cannot do.Purpose(i) Examine comprehensively the impacts of the value network on the incumbent firms when they are challenged by the arrival of disruptive innovations; (ii) Developing a model for the incumbent firms to recognize and manage effectively changes occurring in the value network in the face of disruptive innovations; and (iii) Gain a new insight into Kodak‟s failure in the reign of digital technology from the value network management perspective.DefinitionsDisruptive Innovation: Disruptive innovations in this study are considered as new products based on new technologies and which provide different attributes or product characteristics than what the company‟s mainstream or established customer segments historically value, while at the same time bringing new performance attributes to the market.iiValue Network: Value network is the context or environment within which a firm identifies and responds to customers‟ needs, solves problems, procures input, reacts to competitors and strives for profit.ResultsA Value Network Management model is developed for the incumbent firms to recognize and manage effectively changes occurring in the value network caused by the arrival of disruptive innovations. More specifically, the model aims at helping firms to overcome insight and action inertia and to choose the right partners among various new actors entering the value network. This model is iterative in essence and incorporates steps of searching/scanning, value network analysis and partner selection on the basis of appropriate role selection in the value network.