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Incumbent Responses to Disruptive Business Model Innovations: Rational and Behavioral Perspectives
How should incumbent firms respond to emerging disruptive business model innovations introduced in their industries by innovative startups, newcomers from adjacent industries, or entrepreneurial established players? Despite much discussion, the current literature provides no clear-cut answer. One view suggests establishing autonomous business units to explore disruptive business model innovations; the other approach implies ambidextrous integration of two business models in the same firm, or even ignoring the disruptive innovation to concentrate on the core business model. In this paper, we unite existing views in a deductively developed model of rational incumbent response to disruptive business model innovations in their industries. The proposed rational response model is based on an original typology of incumbent responses, supplemented by a set of testable propositions regarding the contingency factors determining optimal incumbent actions when facing a disruptive business model innovation. Then, we develop a behavioral model of incumbent firms’ responses to disruptive business model innovations gaining momentum in their industries; the model describes observed behavioral patterns in disrupted industries, explaining incumbent actions and reasons why these actions deviate from the rational path. Finally, we supplement the insights of rational and behavioral models with the real options lens to formulate a set of normative recommendations for managers of real-world established firms having to make decisions regarding nascent or gaining momentum disruptive business models in their industries.