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The Effect of Market Leadership in Business Process Innovation: The Case(s) of E-Business Adoption

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  • Kristina Steffenson McElheran

    () (Harvard Business School, Technology and Operations Management Unit)

Abstract

This paper empirically investigates how market leadership influences firm propensity to adopt new business process innovations. Using a unique data set spanning roughly 35,000 plants in 86 U.S. manufacturing industries, I study the adoption of frontier e-business practices during the early diffusion of the commercial internet. Theory predicts that firms with greater market share will be more likely to adopt innovations that build on their existing strengths, while they will resist more radical technological advances. While prior work primarily focuses on product innovation, I extend the logic into the business process setting to find that leaders were far more likely to adopt the incremental innovation of internet-based e-buying. However, they were commensurately less likely to adopt the more strategically sensitive and complex practice of e-selling. This pattern is remarkably robust, holding across a wide range of industries and controlling for factors such as productivity and related technological capabilities. The results are explicated by a framework I develop for understanding the drivers of this behavior and making it possible to classify business process innovations as radical or not. While greater market share promotes adoption of all types of business process innovations, this effect is outweighed by additional co-invention and coordination costs whenever a technological advance address strategically sensitive and complex business processes that must also span the firm boundary.

Suggested Citation

  • Kristina Steffenson McElheran, 2010. "The Effect of Market Leadership in Business Process Innovation: The Case(s) of E-Business Adoption," Harvard Business School Working Papers 10-104, Harvard Business School, revised Jun 2010.
  • Handle: RePEc:hbs:wpaper:10-104
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    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management

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