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This paper adopts an institutionalist perspective to develop a better understanding of why incumbent organizations struggle to respond to discontinuous innovations. Based on a case study of the hotel industry’s early response to the emergence of “sharing economy” businesses, it identifies three patterns of “institution‐infused interpretation” in incumbent managers’ sensemaking—i.e., interpretations that are triggered by decision makers’ perceptions of the ways in which discontinuous innovations challenge established rules, norms, and taken‐for‐granted assumptions. First, as incumbent managers perceive new entrants that introduce the innovation as violating regulative and normative rules, they develop a sense of unfairness regarding the new competition enabled by the discontinuous innovation. Second, as new entrants deviate from normative and cognitive institutions, they cause collective confusion among incumbents. Third, perceiving discontinuous innovations as challenging regulatory and cognitive institutions, incumbent managers cognitively marginalize new entrants and their offerings as illegitimate and substandard niche phenomena. Interestingly, these institution‐infused interpretive patterns not only contribute to early incumbent inertia, but also motivate incumbents to question established rules and engage in institutional work. Overall, this paper adds to the emergent conversation on the role of institutions in organizational adaptation to discontinuous innovations by revealing the importance of institutional violations for managerial sensemaking and responses in this context.
Digital ventures are entrepreneurial young firms that introduce new digital artifacts that are “ever-incomplete” and “perpetually-in-the-making” onto the market. The study examines how six digital ventures continued to develop their digital market offerings post launch. Three key designing mechanisms are identified that explain continuous post-launch product development in digital ventures: deploying complementary digital objects, architectural amplification, and porting. The study discusses how these mechanisms advance our understanding of how digital technologies change entrepreneurial processes and outcomes.
Digital ventures must navigate a key tension as they design new digital market offerings—that is, products or services that are embodied in digital technologies or enabled by them. On the one hand, digital ventures pursue a vision that builds on what might be possible through the generative potential that digital technology offers; on the other hand, they face an environment in the here and now, with existing customer preferences, extant regulations, and legacy technology. Taking a designing view, we trace how six independent digital ventures in the German financial services industry dealt with this tension as they created their digital market offerings. Our findings suggest that digital ventures enact three designing mechanisms to resolve the tension: bounding the technology scope, transposing through digital objects, and probing the solution space. Through these mechanisms, digital ventures construct a buffer—one that has functional, material, and temporal dimensions—between the vision they gradually realize through their market offering and the here-and-now conditions of the environment that digital ventures enter.
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