Entrepreneurial strategies and radical innovation: A punctuated disequilibrium approach

ENTREPRENEURIAL STRATEGIES AND RADICAL INNOVATION: A PUNCTUATED DISEQUILIBRIUM APPROACH ROBERT A. PAGE, JR. MARGARETHE F. WIERSEMA University of California, Irvine

Current models of organizational development, particularly the punctuated equilibrium model, explore how industry conditions and trends shape the evolution of firms or business units within that industry over time. From this perspective, firms evolve from entrepreneurial strategies, informal structure and radical innovation towards increasingly competitive strategies stressing a focus on efficiency through formalized structures, tight managerial control systems and incremental innovation (Abernathy & Clark, 1985; Moore & Tushman, 1982; Tushman & Romanelli, 1985) as the industry matures. As a result, periods of radical product innovation are perceived as a short-lived phenomenon or as a temporary aberration from more normative patterns of stability during periods of industrial discontinuity and chaos. However, this description of an environmental-strategy fit is functional primarily for large organizations in relatively stable industries. Research on strategic fit in environments characterized by high degrees of demand uncertainty and technological instability reveals that some organizations consistently choose alternative strategies based on a focus on creativity and innovation. This paper examines how the punctuated equilibrium model can be adapted to describe these environments characterized by high uncertainty, and to explain how certain firms proactively pursue strategies, structures, and managerial styles consistent with ongoing radical innovation across developmental stages as a viable source of competitive advantage. The paper concludes by exploring how strategy theory can be integrated with the punctuated disequilibrium model to account for this unexpected range of strategic variation.

The Journal of High Technology Management Research, Volume 3, Number 1, pages 65-81. Copyright @ 1992 by JAI Press, Inc. All rights of reproduction in any form reserved. ISSN: 1047-8310.

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EQUILIBRIUM

This developmental model is descriptive, analyzing how industries, and organizations specializing in a specific technologic product class, tend to evolve cyclically through a process of “punctuated equilibrium” (Abernathy & Clark, 1985; Meyer et al., 1988; Strebel, 1987; Tushman & Anderson, 1986; Tushman & Romanelli, 1985). The process is quite simple, suggesting that typically industries and single-industry firms remain in a state of relative stability and equilibrium, until this state is interrupted or “punctuated” by unpredictable events such as new radically innovative technologies. Out of this period of chaos and rapid change eventually emerges a new dominant technology, establishing a new period of stability and equilibrium which continues until it is likewise interrupted, with such interruptions being more frequent in some industries than in others. While the authors cited tend to use different terminology in their models to describe punctuated equilibrium, there is considerable consensus around the process and patterns involved in technologic development and organizational evolution, as summarized in Table 1. The model begins with a period of discontinuity, where a new product class typically becomes established through the emergence of an innovative technology, termed “revolutionary” or “architectural” (Abernathy & Clark, 1985); “radical” (Moore & Tushman, 1982; Strebel, 1987; Tushman & Romanelli, 1985); “fundamental” (Strebel, 1987); “discontinuous” (Strebel, 1987; Tushman & Romanelli, 1985) and “major” (Moore & Tushman, 1982) or occasionally by unexpected legal, social and/or political events (Tushman & Romanelli, 1985). At first there is increasing competition not only between the old and new technologies, but between various alternative forms of the new technology, each with distinctive limitations and capabilities. The emergence of a dominant technologic design begins the next stage-a period of “convergence” (Tushman & Romanelli, 1985), “evolutionary” or “regular” innovation (Abernathy & Clark, 1985; Abernathy & Utterback, 1977) or “industry development” (Strebel, 1987), where firms develop this technology into a marketable product line by focusing on process innovation in manufacturing (Abernathy & Utterback, 1977; Moore & Tushman, 1982; Strebel, 1987). Firms begin to be differentiated by factors such as quality, service, and cost in addition to technologic capability. When both the technology and its manufacturing processes become wellestablished the organization enters a maturity stage where the process of convergence is extremely focused. At this point, strategy concentrates on cost, and innovation becomes little more than incremental process and product enhancements (Abernathy & Clark, 1985; Moore & Tushman, 1982; Strebel, 1987; Tushman & Romanelli, 1985). This convergence inevitably results in “organizational inertia” or “momentum,” a progressively stronger resistance to fundamental change (Katz & Allen, 1985; Tushman & Romanelli, 1985).

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TABLE 1 The Punctuated Equilibrium

Model

Necessary Types of Innovation

Competitive Advantage

radical product innovation

technology

Develop marketable product line

radical process innovation; incremental product innovation

quality,

Maturity

Defend or expand market share

market innovation; incremental process & product innovation

cost or focus (market niche)

Reorientation

Identify technologic, environmental trends/ changes

radical product innovation

technology

Tushman & Romanelli (1985)

Moore & Tushman

Product Class, Lifecycle Stage

Critical Task

Discontinuity

Identify dominant design

Dominant

Design

(1982)

service or cost

Porter (1980, 1985)

The last stage of the model is a period of discontinuity which ends one product class lifecycle and begins another as new innovations supplant the old dominant technologic design. Organizations will either go into decline, or adapt by pursuing these new technologies through radical innovation (Abernathy & Clark, 1985; Clark, 1985; Strebel, 1987; Tushman & Romanelli, 1985). In consequence, researchers have hypothesized that effective organizations properly align their culture, strategy, structure and controls to the changing environmental demands imposed at different stages of the product class life cycle (Abernathy & Clark, 1985; Moore & Tushman, 1982; Strebel, 1987; Tushman & Romanelli, 1985). THE ROLE OF INNOVATION

In the punctuated equilibrium model, various product class lifecycle stages are associated with different types of innovation. Advances occur in the design of the technology (product innovation); in the manufacturing process (process innovation); and in the packaging, distribution and promotion of the product (marketing innovation). Further, product or process innovations vary by degree, being either enhancements of established technologies and designs (incremental), or dramatic breakthroughs in design (radical) (Abernathy & Clark, 1985; Tushman & Anderson, 1986). In punctuated equilibrium, radical forms of innovation are characteristic of early stages, while incremental and market innovations predominate in later stages (Abernathy & Clark, 1985; Moore & Tushman, 1982; Strebel, 1987; Tushman & Anderson, 1986).

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The patterns of innovation within the punctuated equilibrium model are (1) innovation is externally driven; (2) different types of innovation are not compatible and are pursued sequentially; and (3) organizations prefer incremental innovation in periods of equilibrium to radical innovation in periods of disequilibrium and discontinuity. Externally

Driven

Innovation

The assumption of externally driven innovation is based on the principle that organizational change occurs in reaction to hostile external forces (Schumpeter, 1975). From this perspective, innovative activity responds to external pressures and market forces. When the business environment is rapidly changing during periods of discontinuity, radical product innovation is typically used to narrow the gap between organizational technologies and evolving market demands (Abernathy & Clark, 1985; Moore & Tushman, 1982) In contrast, in times of technological stability when the industry converges around a dominant technologic design, competitive market pressures build, driving the organization towards process and incremental innovation to remain competitive (Moore & Tushman, 1982; Strebel, 1987; Tushman & Romanelli, 1985). Sequential

Innovation

There is a substantial body of research which suggests that the types of structures, strategies and managerial systems that foster one type of innovation, such as radical product innovation, tend to interfere with other types, such as incremental product, process or market innovation (Clark, 1985; Moore & Tushman, 1982; Tushman & Romanelli, 1985). In short, different types of innovation are fundamentally incompatible. Consequently the punctuated equilibrium model suggests that as organizations mature they sequentially turn from radical to process to incremental innovation. These shifts in orientation are accompanied by corresponding realignments of organizational structures and managerial systems (Moore & Tushman, 1982; Strebel, 1987; Tushman & Romanelli, 1985). Thus different forms of innovation are treated as separate components of a mutually exclusive, sequential lifecycle process. Equilibrium

According to the punctuated equilibrium model, organizations prefer periods of equilibrium and convergence around a dominant technologic design to periods of disequilibrium and discontinuity where technologies change rapidly. Periods of equilibrium and convergence are preferable because they are predictable and profits are fairly reliable, although profit margins tend to shrink continually as the market matures and competition intensifies (Tushman & Romanelli, 1985). In contrast, the chaos of disequilibrium and discontinuity goes beyond threatening profit

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margins to challenge organizational survival itself. In short, disequilibrium is simply too disruptive to organizational strategy, structure and operations to be continually pursued through activities such as radical product innovation (Clark, 1985; Strebel, 1987; Tushman & Romanelli, 1985). Further, organizations tend to develop commitments and alliances which make them progressively more resistant to radical change as they grow and mature (Tushman & Romanelli, 1985). Different functional and interdependent units develop close, comfortable relationships among themselves and with important customers, suppliers, financial backers, government agencies, etc. These relationships become familiar and valued, and represent a considerable investment of time and resources (Katz & Allen, 1985; Schein, 1985). The longer these relationships persist without major change, “the more complex these social and normative outcomes become, and the more multilevel commitment processes are a source of resistance to change and inertia” (Tushman & Romanelli, 1985: 192). Summary

The punctuated equilibrium model matches different forms of innovation with the demands of different stages of the product class lifecycle. It describes how firms focus on incremental innovation around an established dominant technologic design, and consider radical product innovation only during periods of crisis and discontinuity. Radical product innovation is rarely appropriate in this model for several reasons. First, since innovative activities and organizational strategies are aligned with environmental conditions and competitive market forces, the need for radical product innovation arises primarily in response to relatively infrequent environmental challenges. Firms which pursue radical product innovation outside of these periods of discontinuity are characterized as “deviant” (Meyer et al., 1988) and “low performing” (Tushman & Romanelli, 1985). Further, managerial strategies designed to foster continual radical innovation are disruptive and dysfunctional. They maintain inappropriate organizational structures and systems and divert resources from the critical tasks and more incremental forms of innovation needed during convergent periods (Moore & Tushman, 1982; Strebel, 1987; Tushman & Romanelli, 1985). Finally, the viability of strategies fostering radical innovation will be increasingly undermined and stifled by “organizational inertia”-natural, inevitable pressures which favor stability and resist change, as embodied in external relationships, cultural norms, managerial strategies, organizational structures, and internal political activities (Katz & Allen, 1985; Schein, 1985; Tushman & Romanelli, 1985). ENVIRONMENTAL/STRATEGIC

FIT

Firms following the pattern described by the punctuated equilibrium model have adapted to external, competitive demands linking competitive advantage with

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efficiency (Tushman & Romanelli, 1985; Strebel, 1987). These firms focus on developing greater formalization and control, and innovative processes become incremental to adjust to the demands of the external environment, which are relatively stable and consistent during convergent periods (Strebel, 1987). The inherent implication of the model is that firms are differentiated primarily by their ability to compete effectively in periods of convergence and equilibrium, and that periods of discontinuity are too unpredictable and infrequent to be the basis for organizational strategy (Tushman & Romanelli, 1985). As a result, it would not be expected that these organizations are well-aligned to handle periods of technologic discontinuity. Firms effective in periods of convergence, where firms are differentiated by their efficiency, encounter severe problems in periods of discontinuity, where firms are differentiated by their creativity and innovation (Strebel, 1987). In fact, during the relatively stable period of convergence, organizations tend to control costs by systematically ridding themselves of many of the key success factors necessary for creativity and radical innovation to occur. Consequently, in occasional periods of discontinuity the challenge is merely to survive and adapt successfully. Not surprisingly, such firms often choose to be “analyzers” (Miles & Snow, 1978), and adopt a strong secondto-market, risk-averse strategy (Boeker, 1989; Maidique & Patch, 1982). Environments characterized by high levels of uncertainty and rapid change create conditions where strategies based on economic efficiency are no longer the only viable alternative. Where product class lifecycles are short and dominant designs are quickly rendered obsolete, organizations can continue with more conventional strategies or pursue technologically driven strategies to foster ongoing radical product innovation as a viable competitive advantage-what Foster (1986) terms “the attacker’s advantage.” The instability of these environments actually encourages the existence of strategic postures that focus on flexibility, innovation, and offensive moves (Bahrami & Evans, 1989; Delbecq & Weiss, 1988; Jausch & Kraft, 1986; Nayak & Ketteringham, 1986; Peters, 1987). In such environments, the risks posed by making long term commitments to any one dominant technologic design can be greater than those posed by refusing to make such commitments, and pursuing discontinuous change. As a result, support for both strategic orientations should exist in “high-technology” industries, which are commonly characterized as being extremely uncertain, volatile, hostile and rapidly changing (Bahrami & Evans, 1989; Covin & Slevin, 1989; Eisenhardt & Bourgeois, 1988; Quinn, J.B., 1985). Predictably, the larger and well-established firms in high technology industries tend to choose more conventional, conservative and less risky “second mover” strategies (Boeker, 1989; Maidique & Patch, 1982; Miles & Snow, 1978; Porter, 1985) and developmental patterns congruent with the punctuated equilibrium model. However, a considerable body of research has consistently identified the existence of firms which prefer to be more innovative and “entrepreneurial” and pursue an alternate course (Ansoff & Stewart, 1967; Boeker, 1989; Collins & Moore, 1970; Covin & Slevin, 1989; Jausch & Kraft, 1986; Maidique & Patch, 1982; Miles

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& Snow, 1978; Miller & Friesen, 1982; Mintzberg, 1973; Porter, 1985). For these proactive, entrepreneurial firms innovation is a natural state of affairs that will be boldly engaged in unless there is clear evidence that resources are being squandered” (Miller & Friesen, 1982: 5, 16). This entrepreneurial perspective in radically innovative organizations is similar organizations. Prospectors define to Miles and Snow’s (1978) “prospector” organizational competence and strategic advantage in terms of finding and exploiting new technologies, and the markets they create. While most organizations converge on a dominant technologic design, prospectors specifically avoid developing “long-term commitments to a single type of technologic process”(Miles, Snow, Meyer, & Coleman, 1978: 66). Instead, prospectors prefer a leadership position in introducing discontinuous changes, often in the form of radical product innovation, into the industry (Boeker, 1989; Porter, 1985). Further, by pursuing discontinuous, radical innovations these proactive, entrepreneurial firms improve their chances for survival by enacting their environment. If they succeed in introducing radical innovations into the industry, their innovations will tend to prod other competitors into imitation and adoption of similar entrepreneurial strategies. This helps create the kind of turbulent, volatile environment where their competence is distinctive. Thus innovative firms are not only found in dynamic environments, they help create and maintain the chance, uncertainty and competitiveness characteristic of such environments (Jausch & Kraft, 1986; Miller & Friesen, 1982; Peterson & Burger, 1971; Porter, 1985; Weick, 1979). To account for the developmental patterns of these entrepreneurial firms, the punctuated equilibrium model can be modified to reflect a rapidly changing, uncertain environment. PUNCTUATED

DISEQUILIBRIUM

The proposed framework provides an alternative developmental model wherein the environmental context is characterized by high degrees of uncertainty, turbulence and velocity. In such environments, the assumptions of long, stable periods of convergence punctuated by occasional discontinuities may be dramatically reversed. Within such environments disequilibrium and discontinuity become the norm. Technologic upheaval and organizational reorientation are both expected and routinely accommodated. This rapid change is periodically punctuated by relatively brief periods when the industry will temporarily accept and begin to converge around a specific technologic design. However this acceptance is so tentative, and obsolescence of the technologic design is so rapid, that convergence carries no guarantee of stability or equilibrium, as it normally does in the punctuated equilibrium model. The process of punctuated disequilibrium, and its alternate strategic assumptions, are summarized in Table 2.

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TABLE 2 The Punctuated Disequilibrium Model Product Class, Lifecycle Stage

Critical Task

Necessary Types of Innovation

Competitive Advantage

Discontinuity

Identify design

radical product innovation

technology

Tentative

Develop marketable product line to fund research

radical process and product innovation

quality,

Anticipate and develop next generation technology

radical product innovation

technology

Design

Reorientation

promising

service or cost

THE ROLE OF INNOVATION The punctuated disequilibrium model embraces, but is not limited to the patterns of innovation described in the punctuated equilibrium model-that innovation is market driven, that different types of innovation are pursued sequentially, and that organizations tend to prefer states of environmental equilibrium. Consequently, firms which choose to pursue a conservative strategic orientation fit into the model. However, the high levels of uncertainty characteristic of punctuated disequilibrium also create the potential for different patterns of innovation based on three different underlying assumptions regarding innovative activity: (1) that innovation is technologically driven; (2) that different types of innovation can be pursued simultaneously; and (3) that disequilibrium is a normal and desirable state. These assumptions explain the strategic behavior and orientation of entrepreneurial firms. Technologically Driven Innovation While most high tech firms incorporate some technologically driven elements into their overall corporate strategy, entrepreneurial firms concentrate on them. These critical elements include a technologically driven business focus, a R&D focus in new product development, and consistent R&D funding support. Technologically Driven Business Focus. Maidique and Hayes (1987) note that most successful high technology firms restrict their business activities to a single product technology or to a single product class (a set of closely related technologies). Entrepreneurial firms tend to be more committed to a technology than to a market, and some are willing to sacrifice significant business opportunities presented by in-house innovations in technologies and markets considered peripheral in order to maintain that focus (Perry & Sandholtz, 1988). In such firms this strategic focus is determined by the technologic vision of key researchers, executives or founders,

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as much as by conventional business considerations (Kidder, 1981; Nayak & Ketteringham, 1986; Peters, 1987). Consequently, in new product development the strategies of entrepreneurial “prospectors” are not always market driven, for the pursuit of radical innovation often involves technologies with applications so radical markets and customer demand do not yet exist (Abernathy & Clark, 1985; Burgelman & Sayles, 1986; Nayak & Ketteringham, 1986; Quinn, J.B., 1985). Abernathy and Clark (1985) term such innovation “architectural’‘-new technologies which address “unarticulated user needs” which entrepreneurs expect will develop. Even more conservative firms in unstable, high tech industries have recognized the necessity of such innovation. John Sculley, President of Apple Computer comments: The essential stake for the firm in Silicon Valley is being at the cutting edge of technology. This is entirely different from the focus on market share in established industries. In this industry (high tech) no one has any idea what share of the market is. There is no accurate way of measuring the market. Much of the time we are creating the market, not sharing the market. We can’t even forecast correctly several months out because there is no way you can use history to give you a trend line (quoted in Delbecq & Weiss, 1988: 131).

These radical product innovators have faith that if the technologic breakthrough is impressive enough-if they “do the job better”-customers will follow (Dyer & Page, 1988; Quinn, J.B., 1985). R&D Focus. Entrepreneurial firms define their distinctive competence and competitive advantage in terms of their ability to exploit this technologic vision and consequently push the leading edge of innovation in that technology (Dyer & Page, 1988; Perry & Sandholtz, 1988). This vision of the ultimate productwhich may continue to be technologically infeasible for some time to come-tends to transcend the discrete product class lifecycles in the punctuated equilibrium model. The technologic vision which drives their strategies towards technologic development calls for not one, but an extended series of discontinuous, radical product innovations (Dyer & Page, 1988; Perry & Sandholtz, 1988). New technological designs, quite predictably, never measure up to the executives’ ultimate criteria. While most firms are quite content to settle for one radical product innovation and exploit the possibilities created by the new dominant technologic design it produces (Moore & Tushman, 1982; Tushman & Romanelli, 1985), entrepreneurial firms are seldom satisfied. This demanding vision tends to keep technical designs “open” and continually pushes out the frontier of creative endeavor (Ansoff & Stewart, 1967) despite external pressures for convergence. From this perspective, most technologic developments, even emergent dominant designs, are mere stepping stones-necessary but not sufficient, and quickly rendered obsolete (Perry & Page, 1986).

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Consistent R&D Funding and Support. Many researchers have noted that successful high technology companies provide consistent support and funding for relatively high levels of ongoing research and development (Foster, 1986; Maidique & Hayes, 1987; Nayak & Ketteringham, 1986, Quinn, J.B., 1985; Peters, 1987). This consistency is particularly important during periods of temporary economic difficulty when conventional wisdom would conserve corporate resources by cutting back on research (Maidique & Hayes, 1987). Entrepreneurial firms are dedicated to funding R&D, not only because of strategic considerations, but as a matter of values and principles (Jausch & Kraft, 1986; Miller & Friesen, 1982; Weick, 1979). Beyond strategy, the founders and leaders of these firms are often scientists and/or former academics who enjoy playing with these technologies and who value the pursuit of knowledge as an end in itself (Kenney, 1986; Segal, Quince & Partners, 1985). In some cases, these desires were key motivators for founding the firm in the first place (Dyer & Page, 1988). Consequently these leaders often view their companies in instrumental terms, valuing the opportunity to explore these technologies as much or more than maximizing financial return, or exploiting the full market potential of a technologic innovation (Perry & Page, 1986). For a Prospector, maintaining a reputation as an innovator in product and market development may be as important as, perhaps even more important, than high profitability. In fact, because of the inevitable “failure ratel’associated with sustained product and market innovation, Prospectors may find it difficult consistently to attain the profit levels of [more conventional firms] (Miles et al., 1978: 64).

In summary, a technologically driven perspective on the role of innovation provides a different value base for strategy, decision making and resource allocation in entrepreneurial firms. The differences between values and ideologies driven by technological vision versus external market forces are summarized in Table 3. This value base allows these firms to maintain the funding and focus on long-term R&D efforts in specific technologies factors critical for ongoing radical product innovation. Simultaneous Innovation While maintaining a basic focus on R&D, entrepreneurial firms are simultaneously attempting to commercialize successful past innovation-an activity critical to generate the revenues needed to sustain extensive, long term R&D efforts. Entrepreneurial firms cope with the competing and conflicting demands of both activities through organizational structures and managerial procedures described as “organic” (Burns & Stalker, 1961; Covin & Slevin, 1989) “informal” (Kanter, 1988; Moore & Tushman, 1982), “paradoxical” (Maidique & Hayes, 1987) and “chaotic” (Perry & Sandholtz, 1988; Quinn, J.B., 1985). These informal organizational systems and structures allow radical and incremental forms of innovation to be pursued simultaneously.

Entrepreneurial Strategies and Radical Innovation

TABLE 3 A Comparison of Technologic Ideologies Entrepreneurial

Conservative

Perspective:

Perspective:

Technologically-Driven

Economic

Strategic Advantage

Creating technologic discontinuity and environmental uncertainty

Strategy follows from the nature of the product class lifecycle stage

Desired Innovation

Continuous radical product innovation; incremental enhancements are “detail work”

Sequential innovation; progressiveiy incremental; Radical innovation in response external threats.

Primary Goal

Explore

Provide

Standard Success

of

Coordination and Control

leading edge technology

Project contributes to a valuable of knowledge/expe~ise Informal/formal; Use of arational, decision criteria

base

Considerable “slack”; intuitive/experiential

Rationality

acceptable

more

return on investment

Project results in profitable

product

Formal; Efficiency orientation; Reliance on rational, quanitative analysis and business plans

Formal managerial control systems for business planning, resource allocation and market forecasting tend to manage incremental forms of innovation well while stifling radical innovation (Burgelman & Sayles, 1986; Mansfield, Rapoport, Schnee, Wagner, & Hamburger, 1971; Perry & Page, 1986; Quinn, J.B., 1985; Schon, 198 1). Consequently they are supplemented by informal communication networks and open decision-making processes (Delbecq & Weiss, 1988; Eisenhardt & Bourgeois, 1988), multiple funding sources for new product development (Kanter, 1988; Maidique & Hayes, 1987; Quinn, J.B., 1985), and traditional authority systems (Pearce & Page, forthcoming) designed to foster radical innovation. Central to the success of these efforts are a core group of seasoned technical professionals and executives who are expected to recognize promising radical innovations on the basis of their professional insight, intuition and experience more than any costbenefit analysis-an arational “faith” that they will know it when they see it (Delbecq & Weiss, 1988; Nayak & Ketteringham, 1986; Pearce & Page, forthcoming; Peters, 1987). This duality of authority and control does create confusion and introduces contradictory elements into structural arrangements and managerial control systems (Miles & Snow, 1978). However, research suggests that contradiction is characteristic of highly effective (Cameron, 1986; Quinn, R.E., 1988) and innovative organizations (Kanter, 1988; Maidique & Hayes, 1987). Their duality, while complicating effective coordination and control considerably (Miles & Snow, 1978), also provides a “flexibility” critical for fostering radical product innovation (Nayak & Ketteringham, 1986; Peters, 1987; Quinn, J.B., 1985). This ability to “manage ambivalently” between organizational patterns of “continuity and chaos,” “informality and formality,” and “disorder and integration”-to “embrace paradox”-constitutes the “art” of high technology management (Maidique &

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Hayes, 1987; Peters, 1987). Problems develop when that ambivalence is violated, and perspectives appropriate for one type of innovation are universalized across all types. Normann (1971: 221) cites this example of appropriate balance: Trucks and Machines [Inc.] had what might be termed a dualistic power structure. The managing director was rather conservative, cost-efficiency oriented, and opposed to risk taking. Another equally powerful manager had a strong interest in technological innovation, little interest in other activities of the company, and a radical attitude toward risk. By informal agreement the two directors acted autonomously in their respective areas of interest. The company was well known for daring and risky but successful innovations.

It is important to note that while such structures are characteristic of entrepreneurial firms, they are not peculiar to them. The premise that formal, mechanistic structures are well-suited to stable environments while more informal, flexible, organic structures are advantageous in uncertain environments is hardly novel, being one of the central tenants of structural contingency theory (Burns & Stalker, 1961; Khandwalla, 1977; Lawrence & Lorsch, 1967). This principle has long been recognized and adopted, to some degree, by effective, more conservative high technology firms (Maidique & Hayes, 1987; Quinn, J.B., 1985). Consequently informal structures are necessary for entrepreneurial strategies, but do not differentiate them. Disequilibrium

Disequilibrium refers to the state of an environment which experiences frequent discontinuities, being rapidly changing and highly turbulent. Baharami and Evans (1989: 107) comment on the many and varied sources of ambiguity and uncertainty characteristic of high technology industries: Their [high technology firms] environment is subjected to a frenzied pace of change due to the confluence of technological uncertainty (affecting both product designs and manufacturing processes), market uncertainty (in relation to end-user preferences and evolving distribution channels), competitive uncertainty (due to the formation of spinoffs and strategic alliances) and arena uncertainty (such as the emergence of new industry standards and converging industry boundaries).

Such high levels of uncertainty and ambiguity can be paralyzing, given the levels of risk associated with settling prematurely on any kind of strategic response. Formalized managerial systems are of little use here-the search, feedback and evaluation procedures normally used to track and understand emerging problems, challenges and market trends tend to be too slow and their results misleading (Foster, 1986), and they tend to stifle appropriate innovative responses because such projects are characteristically unpredictable, costly, long-term and novel-in short, not subject to rational calculation and control (Burgelman & Sayles, 1986;

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II

Mansfield et al., 1971; Perry & Page, 1986; Quinn, J.B., 1985; Schon, 1981). Conventional executive decision making processes, with their attendant political maneuvering and coalition building, also prove to be dysfunctionally slow in such “high velocity” environments (Eisenhardt & Bourgeois, 1988). This type of environment challenges a critical function of organizations-to reduce perceived external ambiguity and equivocality to manageable levels which permit an effective organizational response (McCaskey, 1982; Thompson, 1967; Weick, 1979). Without such a reduction, organizational strategies, actions and actors tend to remain in confused, fragmented and a crisis response or “reactor” mode-tentative, ineffective. Faced with chaos, the technological vision of entrepreneurial executives becomes invaluable, and allows them to assume a strong role in leadership. This vision replaces chaos with a cognitive map of what directions to pursue, what aspects of the environment to attend to, and how the company can develop a powerful strategic advantage (McCaskey, 1982; Nayak & Ketteringham, 1986; Perry & Sandholtz, 1988; Peters, 1987). In the absence of reliable financial and economic indicators, the experience, intuition and intelligence which underlie technologic vision provide valuable, reasonable cues for action in the face of such uncertainty. J.B. Quinn (1985: 83) quotes one such manager reflecting on the decision-making process he used in accepting and rejecting innovative projects: Anyone who thinks he can quantify this decision is either a liar or a fool.. . . There are too many unknowables, variables Ultimately, one must use intuition, a complex feeling, calibrated by experience. . . . We’d be foolish not to check everything, touch all the bases. That’s what the models are for. But, ultimately it’s a judgment about people, commitment, probabilities.. You don’t dare use milestones too rigidly.

Thus, entrepreneurial firms prefer conditions of disequilibrium because they have a distinctive competence in rapidly producing or adapting to fundamental change and uncertainty in such environments. Summary-Innovation

and Punctuated Disequilibrium

In environments characterized by high degrees of technologic discontinuity and uncertainty, entrepreneurial, technologically driven strategies featuring continuous radical product innovation become a viable strategic alternative for firms unable or unwilling to be more conservative. In fact, available empirical evidence tends to support the contention that an entrepreneurial, prospector strategic posture is more effective than a conservative orientation in hostile and turbulent environments, and the reverse is true in benign, stable environments, especially for smaller firms (Covin & Slevin, 1989; Khandwalla, 1977; Miller & Friesen, 1982).

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IMPLICATIONS

The punctuated equilibrium model, like other models of organizational development, is based on the premise that organizations must adapt themselves to meet the demands of a changing environment. The theory’s association of specific strategies, structures and organization systems with specific stages provides a useful description of critical tasks and problems which all organizations will have to face and overcome (Kanter, 1988). While strategy researchers often find organizations that follow these strategic and organizational developmental patterns, they also consistently find sets of organizations whose developmental patterns violated the assumptions of these models (e.g., Boeker, 1989; Miles & Snow, 1978; Miller & Friesen, 1982). It appears that certain environmental contexts permit organizations to behave quite differently from that predicted by conventional organizational developmental theory. Firms that pursue unconventional strategies such as maintaining a strategic focus on radical innovation are dismissed by existing theory as being both inefficient and ineffective (Tushman & Romanelli, 1985). One of the major contributions of this study is to provide a theoretical development model, the punctuated disequilibrium model, which can account for the existence of firms that pursue unconventional developmental patterns. The punctuated disequilibrium model is one attempt to extend and adapt existing punctuated equilibrium theory to account for innovative organizational strategies and structures that can be found across developmental stages. Perhaps the primary contribution of the punctuated disequilibrium approach lies in documenting how conditions of uncertainty fundamentally change the nature of competitive advantage within an industry to allow these alternate strategic orientations to remain viable. Through this framework we can begin to understand how firms can successfully pursue an ongoing strategy of innovation despite increasing competition from firms competing on the basis of product differentiation by low cost. While in conditions of relative environmental stability a strategic shift from innovation towards efficiency may be inevitable, this is not true in conditions of high uncertainty and rapid technologic change. The mechanics of how assumptions of competitive advantage shift as levels of environmental uncertainty and technologic change increase have yet to be studied in detail. Industrial organization economics offers some insight into this phenomenon by analyzing the effects of uncertainty on industry structure. In conditions of high uncertainty, traditional sources of competitive advantage for firms, such as learning or experience curves, proprietary technology, and product differentiation through brand loyalty, are significantly weakened by the abbreviated product life cycles and rapid obsolescence of technologies (Porter, 1980). Further, the nature of organizational risk also shifts, as factors such as economies of scale and capital investment may actually become disadvantageous, since the investments involve technologies which may become obsolete before an adequate return has

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been secured. (Porter, 1980). Like the punctuated disequilibrium model, Porter (1980) concludes that high levels of uncertainty become a source of strategic opportunity in such industries, offering an unusually wide range of strategic options across developmental stages. Despite the range of strategic options in the environment, large, well-established firms will continue to follow the dominant strategic logic embodied in the punctuated equilibrium model. However, in response to less conventional strategic opportunities many other firms prefer niche strategies, and pursue their niches across developmental stages as a viable source of competitive advantage. The punctuated disequilibrium model offers a framework by which these types of organizations respond and adapt to external and internal changes. This developmental model helps explain the appropriate stages and organizational responses for firms operating in environment characterized by high degrees of uncertainty: (1) by understanding the alternative developmental process in this environment, firms can benefit by carefully planning the appropriate strategies, structures and managerial systems positively associated with each developmental stage; (2) These benefits include, but are not limited to understanding how criteria for effectiveness change depending up the stage of development (e.g., Quinn & Cameron, 1983) understanding which strategic alternatives offer particular competitive advantages in certain stages (e.g., Porter, 1980), and understanding the internal and external pressures faced by the firm, and at which stages changes or shifts in organizational systems will most likely be required (Tushman & Romanelli, 1985). Given the presence and importance of highly innovative firms in uncertain industries, understanding how they differ strategically and structurally across a product class lifecycle from their more conventional competition may be critical for their continued success and survival. The punctuated disequilibrium developmental model provides greater insight into our understanding of the unconventional lifecycles of highly innovative firms.

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