Publication

Abstract : Research on incumbent’s difficulty in innovation has evolved around frameworks for identifying disruptive, architectural or discontinuous innovation, although it is widely acknowledged that incumbent’s difficulty lies elsewhere, in financial evaluation and resource allocation. We propose an approach, based on transaction cost, to reduce incumbent’s difficulty. We view that incumbents see a differential transaction cost between sustaining and disruptive choices of innovation due to the depressed transaction cost associated with the former and high transaction cost associated with the latter. For a new entrant the differential cost is absent or minimal. We propose, with five postulates, that incumbents should level their transaction costs for different innovation options. These postulates provide useful insights not only regarding the differences between innovation options available to an incumbent, but also about possible vulnerability to disruption. A few methods are suggested to achieve transaction cost levelling. The paper also identifies several opportunities for further research