February 23, 2009

History is full of stories of highly successful companies that were overtaken by new players that entered the market with business models built around radically different technologies. Think of the computer industry, where Apple and IBM pushed the established mini computer manufacturers out of the market. Take a look at the furniture retailing industry, where IKEA captured large parts of the market with its self-assembly business model. Or consider the music industry, where new market entrant Apple revolutionized music retailing and left behind former industry giants such as Universal, EMI, Warner and Sony BMG.

Why do established players have such difficulties adapting to radical changes in their environment? New IMD Faculty member Albrecht Enders’ academic research and previous professional experience has focused to a great extent on this question.

“Radical innovations have the potential to destroy the competitive advantage of established players,” stated Professor Enders.

His research shows that managers of these organizations often have difficulties screening out relevant developments, that they don’t provide adequate resources once they identify them, and that they stick to old routines when trying to implement these innovations even when they provide enough funding. In short, they don’t react at all, too late or inappropriately to radical changes.

He notes that there are both economic and psychological phenomena that are responsible for this inability to react. Factors on the economic side include resource dependency, danger of cannibalization, short term incentive systems and threat of brand dilution, while psychological dynamics entail the lack of attention paid to new developments because of previous anchoring, herd behavior, threat rigidity and positional bias, among other reasons.

Professor Enders emphasized: “What makes research on incumbent failure so fascinating is its practical implications for managers in organizations of almost any size. It helps managers of established players to think of their own response patterns when they are confronted with change. Furthermore, it provides them with a starting point for introducing radical innovations into other industries by thinking through the weaknesses of established players currently dominating those markets.”

Professor Enders comes to IMD from the University of Nuremberg in Germany, where he worked as an Assistant Professor of Strategic Management. In the area of executive education, he has worked for clients such as Bertelsmann, Deutsche Bank, Siemens, Douglas Holding, and Roland Berger Strategy Consultants. He also spent three years with The Boston Consulting Group in the company’s Cologne office where he worked on projects in the areas of financial services, energy and industrial goods. His background as an academic and consultant make him an ideal fit for IMD’s “real world” environment.

“I enjoy problem-solving, so it is a real pleasure for me to join an institution like IMD that helps clients deal with their business challenges,” he concluded. “IMD enables me to combine my consulting and academic experience.”

Professor Enders will teach in the Orchestrating Winning Performance program as well as in IMD’s Partnership Programs.