Customer Power, Strategic Investment, and the Failure of Leading Firms

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Date Submitted: 05/17/2012 08:25 PM

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Customer Power, Strategic Investment, and the Failure of Leading Firms P.330

Study that charts the process through which the demands of a firm’s customers shape the allocation of resources I technological innovation.

Their research suggests that the inability of some successful firms to allocate sufficient resources to technologies that initially cannot find application in mainstream markets, but later invade them, lies at the root of the failure of many once-successful firms.

Earlier views of Factors influencing patterns of resource allocation in the innovation process

There are two stream of research have contributed to our understanding of innovation. The first stream is called resource dependence: an approach, which essentially looks outside the firm for explanations of patterns through which firms allocate resources to innovative activities. Scholars in this tradition contend that firm’s strategic options are constrained because managerial discretion is largely a myth. In order to ensure survival of their organizations, managers lack the power to do anything other than allocate resources to innovative programs that are required of the firm by external customers and investors: the entities that provide the resources the firm needs to survive.

The second stream of ideas describes the resource allocation process internal to the firm. These scholars suggest that most strategic proposals-to add capacity or develop new products or processes-take their fundamental shape at lower levels of hierarchical organizations.

They also observed that risk management and career management were closely linked in the resource allocation process. Because the career costs to aspiring managers of having backed an ultimately unsuccessful project can be severe, their tendency was to back those projects where the demand for the product was assured.

A primary conclusion of this paper is that when significant customers demand it, sufficient impetus may develop so that...