Management Innovation and Adoption of Emerging Technologies: The Case of Cloud Computing

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  • Management Innovation and Adoption ofEmerging Technologies: The Case of

    Cloud ComputingSaeed Khanagha1, Henk Volberda1, Jatinder Sidhu1 and Ilan Oshri2

    1Strategy and Entrepreneurship, Erasmus University, PO Box 1738, Rotterdam, the Netherlands2Loughborough School of Business and Economics, Technology and Globalisation, Loughborough, United Kingdom

    This paper examines the effect of management innovation on a firms ability to effectively adopt an emergingcore technology. Organizing for technological change is often associated with structural dilemmas for incumbents:while structural contingent solutions such as spatially separated units and parallel organizations have beenfrequently discussed as enablers of handling contradictory requirements of existing and emerging technologies,there is empirical evidence that such solutions are likely to be either unfeasible or unsustainable in the cases ofcore technologies. Our analysis on the adoption process of a new core technology by a large telecommunicationfirm reveals the role of management innovation in fulfilling seemingly paradoxical structural requirements ofknowledge accumulation in a dynamic knowledge environment. We discuss how a novel structural approachenabled the organization to overcome rigidities in the existing routines and foster a favorable environment foradoption of cloud technology and to overcome organizational challenges, with which the firms conventionalpractices failed to commensurate.

    Keywords: management innovation; technology adoption; organizational routines; organizational structure

    Introduction

    As unrelenting technological change and globalizationspawn new threats and opportunities, there is growingscholarly and managerial interest in the notion of man-agement innovation, that is, the conception and imple-mentation of novel management ideas which couldpotentially contribute to the strengthening of a firmscompetitive position (Birkinshaw et al., 2008; Vaccaroet al., 2012). Birkinshaw et al. (2008) define manage-ment innovation in their seminal paper as a concept thatrelates to the introduction of new management practices,processes, or structures intended to further organiza-tional goals. This paper contributes to this emergingscholarly discourse by exploring the role of managementinnovation in aligning a firm with the contradictoryrequirements of a changing technological environmentin which predictable and routinized managerialresponses become less effective. In particular, we lookinto the effect of management innovation on the rela-tively under-researched adoption process of emerging

    core technologies where, despite their severe conse-quences on the incumbents survival, associated organi-zational challenges (see Taylor and Helfat, 2009) are notfully explored and understood.

    When an alternative core technology emerges, it maytake several years until the time that it completelyreplaces the old one and becomes the industry standard(Anderson and Tushman, 1990). The concurrency of thetwo technologies has important organizational implica-tions in established firms. In particular, in the absence ofprofitability expectations in the short term, experimen-tation and knowledge accumulation becomes central tothe exploratory activities on the emerging technology(Christensen et al., 1998). The co-existence of emergingand existing core technologies obliges alignment withboth stable (existing) and turbulent (emerging) knowl-edge environments. Considering the contradictory struc-tural implications of stability and turbulence (Van denBosch et al., 1999), structural differentiation of the twotechnologies seems to be effective in coping with thisrequirement (Tushman and OReilly, 1996; Gilbert,2005). However, resource constraints and the need forthe preservation of existing complementary assets oftenmandate close structural integration or close linksbetween existing and emerging core technologies

    Correspondence: Saeed Khanagha, Rotterdam School of Management-Strategy and Entrepreneurship, Erasmus University, PO Box 1738,Rotterdam, the Netherlands. E-mail: skhanagha@rsm.nl

    European Management Review, Vol. 10, 5167 (2013)DOI: 10.1111/emre.12004

    2013 European Academy of Management Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UKand 350 Main Street, Malden, MA 02148, USA

  • (OReilly and Tushman, 2008; Taylor and Helfat, 2009)and makes for a paradoxical situation for the selection ofthe appropriate structural form. This study examines therole of management innovation in handling such ten-sions between emerging and established technologiesand in ensuring sufficient amount of learning in theemerging field while maintaining the ongoing busi-nesses of the organization intact.

    Although a lot of studies, anchored in evolutionary(Nelson and Winter, 1982), behavioral (Levinthal andMarch, 1993), and technology-based (Tushman andAnderson, 1986) arguments, have inquired into factorsthat affect incumbents abilities to respond effectivelyto new technologies, the link between managementinnovation and the incumbents success in the adoptionof an emerging technology has been the subject of lessfrequent inquiry. Even so, past studies do suggest thatorganizational and administrative routines and, hencean innovative change in them, might have a bearing forthe adoption of emerging technologies and vice versa.For example, Benner and Tushmans (2003) analysis ofroutinization associated with total quality managementpractices indicates that these might hamper a firmsengagement with novel technologies (see also Bennerand Tushman, 2002). Schroeder et al. (2002) have dis-cussed the positive impact of organizational adapta-tions, such as the introduction of new organizationalresponsibilities, teams, and control systems, on thefirms ability to adopt a new technology. Fleming(2002) relates HPs success with inkjet technology to anumber of novel managerial initiatives that helped theorganization to deal with the increased risk of failureduring the exploration of the new technology. Overall,prior work hence points to a possible relationshipbetween changes in the organization and the potentialto successfully embrace new technologies. Importantlythough, because factors such as managerial attentionand identification, internal competition and groupdynamics might impede alteration in routines (cf.Tripsas, 2009; Taylor, 2010), the re-orientation of afirm towards a new technology through the introduc-tion of management innovations is unlikely to bestraightforward process.

    This paper examines the link between managementinnovation and technology adoption within the specificcontext of an emerging core technology, cloud comput-ing. With reference to the information technology (IT)sector, cloud computing circumscribes a variety ofevolving interconnected technologies that center ondelivering computing services (i.e., data storage, com-putation and networking) to users in the quantitiesneeded at a particular time and location (Kushida et al.,2011). The potential implications of cloud computingfor both customers and providers of information tech-nology hardware and software are enormous (Marstonet al., 2011). Virtually all sets of actors in the IT sector

    including providers of access devices, providers of infra-structure, application and content services and providersof network connectivity are affected by the unfoldingcloud computing paradigm. As different IT-sectorincumbents re-orient themselves to take advantage ofopportunities afforded by cloud computing, telecominfrastructure vendors must also re-orient themselves toalign with the changing ecosystem and be prepared toadopt the cloud-based delivery model and its underlyingtechnologies. Against this general backdrop, the presentpaper reports an inductive case study of a leading Euro-pean telecom firm, Telco (pseudonym), to develop aricher understanding of the micro-dynamics of learningand absorptive capacity that link management innova-tions to the technology adoption and integration withthe firms existing knowledge base and technologyrepertoire.

    The paper is structured as follows. In the next sectionwe present a review of the literature to which the exist-ing study relates. After discussions on the researchcontext and methodology, we present the findingsobtained from the empirical analysis of Telcos adoptionprocess during the period of 20082012. We concludethe paper by presenting discussion, conclusion, and pos-sibilities for further research.

    Management innovation andtechnology adoption

    Management innovation (MI) is a relatively newterm in the management literature, but the concept hasbeen discussed for decades through somewhat inter-changeable terms such as organizational, managerialor administrative innovation (see Damanpour andAravind (2012) for a discussion on the distinctions andthe ideas behind each of these terms). Following thedefinition provided by Birkinshaw et al. (2008) and inline with Vaccaro and his colleagues (2012) clarifica-tion, we broadly define management innovation as theintroduction of new to the firm structures, processes,and practices. The factor of novelty sets a distinctionbetween change and management innovation. Forexample, as Vaccaro et al. (2012) have exemplified,downsizing is a type of organizational change thatcannot be considered management innovation, becauseit is a predictable managerial response in certain circum-stances. In other words, a change is a management inno-vation only if it modifies the regular and predictablebehavior patterns of the firm or organizational rou-tines (Nelson and Winter, 1982: 14) that give gestalt tothe prevalent organizational structures, processes, andpractices (see Edquist et al., 2001).

    In their seminal work, Damanpour and Evan (1984)have discussed the relationship between administrativeinnovations and technological innovations and have

    52 S. Khanagha et al.

    2013 European Academy of Management

  • elaborated the ways through which technological changemandates organizations to adapt their structures andpractices in order to maintain the balance between socialand technical systems. Arguing that technical systemsare generated and controlled by social system[s](Damanpour and Evan, 1984: 397), the authors providedempirical evidence for the effects of administrative inno-vations on triggering the adoption of technological inno-vations. In the same line of thought, Birkinshaw and hiscolleagues (2008) have exemplified introduction ofnovel structures as a specific type of management inno-vation that large companies utilize in order to deal withcomplex situations (Chandler, 1962; Damanpour andAravind, 2012), and in particular, to increase their abilityfor technological innovation (Fleming, 2002; Hargadon,2003; Sanidas, 2004). Despite the unique insights thatthese studies offer on the relationship between manage-ment innovation and technology adoption, the scholarlyresearch is yet to inquire why management innovationsenable technology adoption and how (Lam, 2005).Given the prevalence of incumbents failure in the tran-sition to new core technologies (Gilbert, 2005; Taylorand Helfat, 2009), it is valuable to further explore therole of management innovation as a potential enabler forovercoming associated managerial challenges in estab-lished organizations.

    Management innovations, according to the definition,are sought to provide novel solutions for unprecedentedmanagerial problems (Birkinshaw et al., 2008). Theadoption process of an emerging core technology isreplete with such problems, in part due to the tensionsbetween stable and familiar and dynamic and uncer-tain knowledge environments. A tendency to supportongoing businesses may result in persisting alignmentonly with the existing technologies and consequentlydeprive the organization of a favorable environment forexperimentation and knowledge accumulation in thenew field. The consequences can be serious because, asprior research indicates, experimentation is the primaryway through which organizations engage with an emerg-ing technology in the earlier phases of the technology

    lifecycle in the absence of short-term financial incen-tives (Thomke, 1998, 2003; Day and Schoemaker, 2000;Edmondson et al., 2001; Fleming, 2002; Lavie, 2006;Crossan and Apaydin, 2010; Taylor, 2010). Before dis-cussing the incumbents possible responses to this chal-lenge, it is worthwhile taking a closer look at why andhow focus on the existing technologies negatively influ-ences experimentation and knowledge accumulation inthe emerging context.

    Table 1 presents some organizational antecedents thatcast difficulties on the embrace of technological change.These factors are linked to the prior research on tech-nology adoption as an organizational learning processwhich emphasizes the need for having sufficientamounts of resources, motivation, and capability for anysuccessful technology adoption to happen (SeeWoiceshyn, 2000 for a detailed discussion). Some of theother research works that have looked into the effects ofthese factors on the adopting organization are listedin Table 1 and will be reviewed in the followingparagraphs.

    First, existing learning routines tend to be efficiencyoriented and focused on the key strengths of the organi-zation which are not necessarily valid in the emergingcontext. The issue of inertia in the existing organiza-tional routines is a common theme in many studiesaround technological change (Hannan and Freeman,1977; Henderson and Clark, 1990; Tushman andOReilly, 1996; Tripsas and Gavetti, 2000; Gilbert,2005). Excessive attachment to the existing core com-petencies makes the learning and development of funda-mentally new capabilities extremely difficult forestablished organizations. Because of the codification oftechnological knowledge into the organizational rou-tines, a firms behavior becomes constrained and guidedby the learning around the local processes of search.Despite their helpfulness for evolutionary change andincremental innovations, such learning processes are,however, not effective for the development of radicallynew technological capabilities that a new core technol-ogy mandates (Tripsas and Gavetti, 2000; Taylor, 2010).

    Table 1 Incumbents organizational challenges in the face of emerging core technologies

    Organizational challenge Characteristic Impact Representing Sources

    Learning routines Local processes of learning Inability to develop newcapabilities and routines

    Tripsas and Gavetti(2000); Taylor (2010)

    Resource allocationmechanisms

    Resource dependence on existingtechnologies

    Threat of cannibalization ofexisting technology

    Organizational dispersion andintensity of resource requirements

    Unwillingness to assign resources Difficulties in coordination and

    communication

    Gilbert (2005); Taylorand Helfat (2009); Christensenand Bower (1996)

    Incentive systems Reward financial pay-back andshareholder value creation

    Limited motivation forexperimentation and learning

    Woiceshyn (2000); Kaplan andHenderson (2005);Day and Sc...

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