Dissertation Stuff...
1/2 of the rough draft of essay 1 of three... starts and stops. But here it is so far.
INTRODUCTION
“Sociological theory, if it is to advance significantly, must proceed on these interconnected planes: 1. by developing special theories from which to derive hypotheses that can be empirically investigated and 2. by evolving a progressively more general conceptual scheme that is adequate to consolidate groups of special theories.”
— Robert K. Merton, Social Theory and Social Structure (1968)
Scholars often refer to the ex ante role of foresight for strategic entrepreneurship of discontinuous innovations (Peteraf, 1991; Felin and Zenger, 2009; Tsoukas and Shepherd, 2009; Drucker, 2011). However, one is hard-pressed to find middle-range theories of how such foresight works. Most of what we know is still highly fragmented, and begs to be synthesized into a broader theoretical base. Furthermore, there has been disagreement over what a discontinuity is.
On the one hand, some scholars promote an extremely atomistic view of discontinuous innovation- a single technology or product, from singular entrepreneurs (cf. Michel, Brown, and Gallan, 2008, for criticisms of the old “exchange-based view” of a valuable, atomistic, and discontinuous innovation diffused through traditional channels). On the other hand, the emerging view is that discontinuities are a field-level phenomenon, based around a discourse that seeks separation from the incumbent field’s status quo entirely (Van de Ven and Hargrave, 2005); and, a discontinuous change in value proposition is a field-level change of how users interact, behave, believe, etc. Yet, the actual dynamics of this field level discontinuity are rarely studied or modeled. Instead, Several “socio-cognitive” studies of emerging industries and products provide evidence for a shared meaning-making process after the category has already launched successfully (Murtha, Lenway, and Hart, 2002; Rao 1991, 2001, 2004; Rosa, Porac, Runser-Spanjol, and Saxon, 1999; Navis and Glynn, 2010). The methodologies used focus on hindsight, ex post innovation management: that is, examining patterns of incremental discourse immediately after the emergence of a small set of leading products, evolving rapidly toward a dominant design. This lens of “super early continuous innovation” is extremely useful to incumbents, but leaves the pioneer’s pre-commercial activities out of view. So, the literature has established that a meaning-making process happens during commercialization- that is, the earliest years of continuous innovation.
But, foresight of discontinuities is, rather, based on pre-commercial dynamics. Entrepreneurs anticipate the threshold preventing a new industry – technology, demand, or organizational/institutional – and leap into the design contest as soon as the threshold is attained.
Foresight and Standards. For example, the automobile took almost a century to develop because entrepreneurs had to wait on technology to catch up. Most everyone knew that large scale industrial engines, already in use, would eventually be small and portable enough to support “road locomotives”. Indeed, road locomotives were banned in England several decades before automobiles were widely available. Why would an entire country ban a technology that wasn’t perceived as inevitable? London had already experimented with steam buses in the 1840s, and found that the technology was simply too noisy and dangerous to be made widely available. The radical entrepreneur thus had a target to shoot for: a machine that reversed the logic that banned the road locomotive. A prototype of a machine that made the road locomotive more safe than a horse, more reliable than a steam engine train, quieter than mass transportation, etc. And, indeed, the first models of the horseless carriage focused on these issues more than on speed, distance, etc. The first horseless carriages satisfied a producer-driven theory of the future: a theory of a product that producers can institutionalize under the current regime.
Now, by the time the actual automobile comes into view, the feature set adjusted towards the concerns of the innovators: continuous programs for improving automobile performance. As it turns out, these were not the quite the same features. There is, thus, a fundamental asymmetry between the features that impress the creator side, and the features which impress the user side. Creators wanted a road locomotive, whereas curators wanted a horseless carriage.
Of course, once the technical problems were solved, and viable prototypes revealed, entrepreneurs all over the globe rushed to enter the emerging automobile industry. The sudden availability of Wilhelm/Maybach “Phoenix” combustion engines foreshadowed the sudden availability of Intel/Motorolla micro-processors. Indeed, England immediately lifted the ban once sufficiently safe/quiet/functional French and German prototype automobiles were revealed. In essence, stakeholders found the new industry to be technologically viable, and swiftly set technical standards.
Business Model Proto-Designs. But, technological standards preparation was not enough. Scholars have pointed out that speed is of the essence in fast changing environments, such as discontinuities (Eisenhardt, 1989; Murta, Lenway, and Hart, 2002). Pioneering entrepreneurs were unlikely to succeed unless they socially prepared, by making key relationships within the emerging social field. Baron and Hannan (2002, p. 9) noted, based on a survey of 200 Silicon Valley startups: “founders embraced very different mental models of the ideal organizational form”. While luck (Barney 1986) is often cited as a big part of winning a discontinuous battle, what that means differs depending on the author. But, according to Peteraf (1991), some actors may have enough specific foresight to make highly educated guesses, whereas others are merely gambling with general business acumen. For example, consider Bresnahan, Gambardella, and Saxenian, 2001, p.844: “Those initiatives that embody a superior business model or technology are more likely to find the ‘luck’ they need”. Only some of the business models shall become successful because only some foresee the whole activity system for embodying the technology in a critical product.
Indeed, the literature generally agrees that pioneers must develop a product reputation to be given the chance to perform subsequent continuous innovation in the new industry. According to Giarratana, 2004:
“. From interviews with start-up executives we conducted, it emerged clearly the importance for start-ups to build up reputation on a specific product. A manager of a firm leader in ESI affirmed: ‘At the beginning, the great idea was to transform a complex technological invention in a user friendly product off-the-shelf. It should be easy to install and use. Our firm based its success creating the Firewall as now we know it’”.
Foresight to build relationships will result in superior business models. When engine technologies reached a point of miniaturization in the 1870s, some actors already had the right relationships to construct an industry friendly product – one that could subsequently create and capture value along a booming, yet stable, growth trajectory. For example, early leaders such as Peugeot and Daimler-Maybach had already made extensive relationships with potential suppliers, dealers, inventors, etc., mainly drawing from the broader engine and transportation community (including bicycles, which emerged simultaneously with the automobile). Each pioneering firm develops distinctive pre-commercial relationships to create distinctive business models. Thus, entrepreneurs must have ready-made relationships to support their attempts at a distinctive pioneering product. Without foresight to make such preparations, entrepreneurs have precious little time to socially react to other pioneers’ work. Indeed, we should not be misled by, say, Facebook’s rapid rise and defeat of Friendster and MySpace. Mark Zuckerberg’s technology launched Facebook, but his Harvard relationships did not. Sean Parker’s (Napster) and Peter Thiel’s (PayPal) relationships in Silicon Valley were essential, and “Ready made” for a social media discontinuity. Not only did these entrepreneurs participate in creating novel web business models: Thiel and Parker maintained relationships with people who knew about social media proto-designs. Proto-designs were earlier attempts at social media platforms. Thus, prior to commercialization, pioneers benefit from foresight derived from pre-commercial social networks of experts.
Distinctions. Furthermore, the first pioneering wave of social media entrepreneurship centered around a community called Cyborganic, in the early 1990s (Cool, 2008).
is there persistent confusion over what the actual “discontinuity” is: a product, or a jump-shift in the entire field of social activity surrounding such new objects? Clearly, there must be a two-level dynamic. What is it?
Our most important foresight principle for discontinuous innovation is the following: most discontinuities have a long pre-history, and thus a lot of learning happens prior to commercialization (Möller and Svahn, 2005). The bulk of discontinuous innovations arise in high tech/high velocity environments, which are, in turn, predominantly built on both knowledge ecosystems and business ecosystems (Clarysse, Wright, Bruneel, and Mahajan, 2014; Iansiti and Lavien, 2004). And, in cases where products are likely to catch on, early user populations stand ready to test pioneering products- that is, the biggest innovations have an avant garde pool of demand (Rogers, 1959).
But we have sizable gaps. Not much has been theorized about what happens during that pre-history; most especially, scholars have not addressed the relationships between early constructors of these ecosystems and the pioneers who launch variants of discontinuous innovations within them. For example, Kaplan and Tripsas (2008) theorize that new industries borrow cognitions from related predecessors to aid cognitive framing, because a new industry sources its human capital from next door. So, if formal or informal ecosystems exist pre-commercialization, some actors could navigate that “small world”(Watt, 1999), better than others, to know all the right stuff to pioneer products.
Thus, we need a theoretical construction of this pre-emergence foresight process. Are there common patterns behind pioneering moves? Do societies have a “foresight field of social action”, were important cognitions are formed prior to new industry hype? Is there a fundamental social process that distinguishes the pioneers from mere imitative followers – mere replicative entrepreneurs wading through noisy waves of unreliable social hype, scanning for sensible signals to enter an uncertain market (Fenn and Raskino, 2008; Baumol, 2015)? What is it that pioneers do within pre-commercial ecosystems to generate foresight advantages over other firms? And what is a pre-commercial ecosystem, really- is it perhaps a foresight ecosystem?
Foresight vs. Hype. Discontinuities can take up to 100 years to develop, with typical lead times of 28 years (Agarwal and Bayus, 2002). Yet, some firms frequently pioneer. Industries with high velocity environments experience much faster turnover of discontinuities – sometimes as quickly as a few years (Wirtz, Mathieu, and Shikle, 2007; Eisenhardt, 1989). Evidence suggests that quick acting firms in high velocity environments rely on proactive thinking, scenario analyses spanning a broad range of alternatives, and multiple expert opinions (Eisenhardt, 1989), much in line with the Lean Start-Up mode of opportunity search (Ries, 2001; Blank, 2013). In short, actors with foresight can quickly frame the essential strategic alternatives, and not be fooled by misleading signals of surface-level hype. Rather than pay attention to mass media’s lagging and messy learning process, early entering firms focus on the key abstractions driving value: the best of all possible firm-specific business models for the discontinuous innovation field (Zott and Amit, 2008; Voelpel, Leibold, and Tekie, 2004; Holloway and Sebastaio, 2010). Proactive firms must build diverse cooperative relationships and alliances with well-informed actors for fostering learning; rapidly hone unique product and corporate distinctions; deliberately seek discontinuities; and, prepare to rapidly, repeatedly reconfigure with emerging technology (Wirtz, Mathieu, and Shikle, 2007). Firms that are struggling to just justify one product at a time, chasing narrowly forecasted trajectories, and reacting after category construction cannot keep pace with discontinuities (Eisenhardt, 1989). Firms that claim, demarcate, and control can establish first mover advantages, but first must theorize how to do so, to beat the odds (Santos and Eisenhardt, 2009).
Entrepreneurs as Theorists of the Future. The key actors for an institutional theory of foresight is the actors who theorize the future- and, of course, this is exactly what discontinuous entrepreneurs do! Felin and Zenger (2009) stressed how entrepreneurial actors organize around shared theories. Each actor opts into a shared vision of the future to join a venture- early ventures are quite passionate, belief driven entities. At the same time, each actor also opts out of other’s circulated visions of that future innovation space. “The emerging entrepreneurial collective represents, in some significant part, a more homogeneous group of individuals who, in essence, have a belief or buy into a hypothesized theory about a future entrepreneurial possibility and jointly intend to pursue it” (Felin and Zenger, 2009, p.140).
The literature is, in general, moving towards this “theory-driven” perspective of collective entrepreneurship patterns, and away from the “individualized” perspective of entrepreneurial personality/behavior. Scholars have noted that firms intentionally construct theories of potential discontinuities to create first mover advantages (Wirtz, Mathieu, and Shikle, 2007). However, individualized motives are still pertinent. Foresight experts claim entrepreneurs still seek to beat their colleagues to the punch, by acting on “memories of the future” more decisively than their peers (Ingvar, 1985; Vecchiato, 2015). Thus, pre-commercial foresight must include two levels of analysis: individual orientation toward winning the innovation competitions, and the collective orientation of socially constructing the discontinuous future. At the individual level, we need to understand how entrepreneurs seek distinctive business models from their peers, while simultaneously promoting the prevailing community’s standards.
Referring to the firm-specific business model, Casson (1982, p. 14) argues: “the entrepreneur believes he is right, while everyone else is wrong. Thus, the essence of entrepreneurship is being different—being different because one has a different perception of the situation”. Otherwise said: the ability of the entrepreneur to compete in a discontinuity rests on the successful execution of distinctions of a sufficiently unique business model that also satisfies necessary standards of the discontinuity. For example, Steve Jobs knew that the Apple II had to include most of the basic features that Commodore and Tandy offered, but needed to establish itself as the most user-friendly computer. Jobs constructed certain distinctions for Apple’s TOTF: sound and graphics leadership; superior user interface (originally via the first mouse); the easiest to use graphical user interface (GUI); an attractive looking and feeling architecture; and, the best “killer apps”. These features were a sufficiently discontinuous set from mainframe computers, and could be incrementally extended for decades. Indeed, in the current decade, Apple PCs still are known to offer these same advantages over competitor’s models. However, Apple had to offer solutions incorporating industry standards, such as essential software (BASIC, CP/M, DOS, etc.) and essential hardware (microprocessors, memory chips, disk drives, etc.). Rival microcomputer firms which attempted to construct exotic software solutions, such as JOSS, or exotic hardware solutions (The Digital Group, Sphere) did not survive. In other words, some rivals picked the wrong distinctions. How does a pioneering firm pick the right distinctions –those which align with collective standards, but also create a long-term theory of firm-specific differentiation?
Theories of the Future. Thus, combining the force of these ideas, we arrive at the central concept for this essay: Theories of the Future (TOTFs). TOTFs are entrepreneur’s mental models constructed on two levels of path creation (Garud and Karnoe, 2001): the collective level and the firm level. Thus, a TOTF is a vision of both the necessary standards of the emerging field, and a vision for a focal actor’s sufficiently distinctive business model. Whereas all entering firms must co-opetitively develop necessary standards for the emerging field (Wijen and Ansari, 2007; Van de Ven, Sapienza, and Villanueva, 2007), each firm must theorize their sufficiently distinctive firm-specific advantage, derived from the fragmented mental models of stakeholders and top management team (Vecchiato, 2015; Foss, Klein, Kor, and Mahoney, 2008; Felin and Zenger, 2009). These entrepreneurial mental models must simultaneously explain three kinds new cognitions at both levels: meaningful cognitions (business model demand); institutions (technological regimes); and networks (business model relationships) (Beckert, 2010).
Research Question. Thus, our research question for this theoretical essay is: “how do successful pioneering entrepreneurs build timely TOTFs, on both levels at once, during pre-commercialization? What is the process by which they construct collective and firm-specific TOTFs?”
Diffusion of discontinuous innovations also necessitates well informed product users – it can take years to develop the informed user base necessary to drive a product’s sales take-off (Peres, Muller, and Mahajan, 2010). Indeed, the hype cycle has seen widespread interest among practitioners who seek clearer expectations (Van Lente, Spitters, and Peine, 2013; Fenn and Raskino, 2008). However, before we get too lost in the weeds examining speculative hype, it is important to theorize the creation and diffusion of meanings that drive institutionalization of discontinuous innovations. That is, we need a cognitive institutional theory of how foresight activity during pre-commercialization might generate ex ante competitive advantage (Peteraf, 1991) for individual actors, while also generating the shared knowledge basis to institutionalize the discontinuity. Surely, uninformed actors fall victim to hype; but, how do informed actors cooperate to establish the key meanings of the discontinuity? And, how do informed actors successfully compete to epitomize the discontinuity?
Let us be clear – some things we can generalize about discontinuous innovation, some things we cannot. Discontinuity comes in at least four generic forms: technologically radical innovation; a commercially disruptive new product category; an institutional innovation that transforms regimes; and “all of the above” happening during emerging industrial/institutional regimes (Govindarajan, Kopalle, and Danneels, 2011; Kaplan and Tripsas, 2008; Ansari and Krop, 2012; Hargrave and Van de Ven, 2006). Thus, depending on the kind of discontinuity, actors must have foresight in technological change, demand change, institutional change, and in the extreme case, industrial change. So, at the highest level of abstraction, a general foresight theory should be applicable to technical, demand, socio-organizational, and combined (industrial) changes. [See figure 1].
All kinds of discontinuous innovation involve several commonalities: separation from established trajectories (Dosi, 1982; Tuchman and Anderson, 1988); new operational principles at the architectural level (Murmann and Frenken, 2006); and a period of uncertainty favoring the few “first-moving” actors possessing foresight (Alchian, 1950; Lieberman and Montgomery, 1988). Discontinuous innovations typically involve both collective actions and individual actor’s competitive actions. On the collective level, many actors cooperate to bring forth technologies, product categories, institutional change, and emerging industries; however, individual actors strategically seek competitive advantage for their individual innovations. As such, foresight plays two strategic roles. Actors sharing foresight can cooperatively construct discontinuous innovations, while also competing to
We are seeing initial steps toward defining a discontinuous innovation process based on foresight. For example, see Thomond, Herzberg, and Lettice’s (2003) conference paper sketching a framework for entrepreneurial foresight. Still, we need a middle-range (Bourgeois, 1979) foresight theory in the mainstream of three fields, broadly defined: entrepreneurship, future studies, and innovation systems.
Foresight in Entrepreneurship. First, entrepreneurship theories ascribe a key, yet unpredictable, role to foresight in discontinuous innovation. For our purposes, the general entrepreneurship area includes strategic entrepreneurship/startup theories, the dynamic resource based view (DRVB), and to a lesser extent, empirically driven work in product innovation management (PIM). These research areas explain how entrepreneurs develop ex ante competitive advantages. For example, a recent study shows that radical innovators focus on the consumer mainstream, whereas disruptive innovators focus on emerging consumer populations. Furthermore, lead user populations (Von Hippel, 2006) and exaptation from adjacent industries (Andriani and Cattani, 2016; Adner and Levinthal, 2002) are important mechanisms for discontinuous innovations. Still, little work exists to explain how entrepreneurs strategically use foresight for identifying new lead user populations for discontinuous innovation; or, how they use foresight to choose the right exaptation.
Even in lean startup literature, it is assumed the entrepreneur already has used foresight to arrive at a good opportunity, or else a merely blind search process will struggle to produce a meaningful minimum viable product (MVP). Lean startup experts teach prospective entrepreneurs that a radical startup is, predominantly, a search firm. Designed to “Fail fast, fail cheap”, a lean startup can attempt a rapid series of MVPs until they find one that sticks. However, the lean method doesn’t have a theoretically grounded explanation of foresight – that is, how entrepreneurs can arrive at a viable discontinuous product concept. How can entrepreneurs select the price and features of a discontinuous MVP?
Foresight in Future Studies. Second, future studies scholars have long asserted that foresight exercises prepare actors for possible futures, and help them to identify opportunities for discontinuous innovation. The dominant method is to backcast a present opportunity for discontinuous innovation from a future scenario, rather than forecasting from continuous trajectories. However, the work on foresight is rather informal – most methods are athoretical, or based on scattered anecdotes. Discontinuous innovation is driven by ideas from “comprehensive designers”, “visioneers”, and other experts watching closely for emerging demand ideas/technologies with potentially large impact. The broad research area of future studies also includes classic “long range planning” in strategic management, as well as the history/sociology of science and technology.
Foresight in Innovation Systems. Third, innovation systems researchers argue that innovation systems are the key source of early foresight for long term research agendas, institutional relationships, and technical trajectories. This research area includes work across such audiences as research policy, industry studies, economic geography, institutional theory, and the strategic management of the external entrepreneurship environment/regime/ecosystem. Recently, we have seen many interesting studies of the historical role futurists played in bringing about discontinuous innovations and new industries. These recent historical studies provide raw material for yet-to-be-written theories. Despite so much attention to the role of foresight in discontinuous innovation in establishing Silicon Valley (Turner, 2014), Nanotechnology, Social Media (Cool, 2008), etc., no broadly circulated institutional theory of entrepreneurial foresight activities yet exists. The theorized role of the institutional entrepreneur (Geels, 2004) often starts after they already have a good idea of what they are trying to accomplish – a community effort to form a new niche in society’s innovation system, along with an individual effort to launch products in that niche. We need to systematize how entrepreneurs recognize niches that could quickly become viable.
Early Progress in Foresight Theory. Sadly, all three research areas still tend to “talk around” the foresight process for discontinuous innovations. The commonly discussed explanations for entrepreneurial foresight activities are still vague, and do not provide measures of foresight activities, or theoretical explanation of how certain entrepreneurs knowingly outperform others in discontinuous innovation.
Popular explanations of discontinuous entrepreneurship include: “connecting the dots” using cognitive pattern recognition in the strategic environment (Baron, 2006); using analogizing exercises to deliberately find related solutions from other domains (Gavetti, Levinthal, and Rivkin, 2005; Gassmann and Zeschky, 2008); the identification of “radical niches with uncertain rules” emerging within the social fabric of innovation systems (Geels, 2004); “path creation” (Garud and Karnoe, 2001) while “running in packs” in knowledge-intensive environments (Van de Ven, 2005); searching for cognitive “means-ends pairs” in uncertain environments (McMullen and Shepherd, 2006) or, sometimes, merely “luck” in entering nascent strategic factor markets (Barney, 1986). They are all correct explanations. This essay makes no claim they aren’t. But, they are not integrated. No one of these concepts is, alone, complete enough for explaining how foresight for discontinuous innovation usually works. Our goal here should be to provide a theoretically robust cognitive approach for strategic discontinuous innovation.
The Cognitive Institutional Theory of Entrepreneurial Foresight. The purpose of this essay is to offer a synthesized theory of entrepreneurial foresight, designed to help researchers and practitioners explain, teach, and predict the cognitive institutional regularities involved in the pursuit of discontinuous innovations. This theory lays out foresight as in two parts: Collective foresight and venture foresight. The historical evidence indicates that, in most cases, discontinuities are group efforts, with multiple firms and actors engaging the process; still, a few individual ventures outperform the rest, via better foresight of customer tolerance for cost-saving performance tradeoffs. Whereas building toward technological standards and proto-designs is a community process, individual firms must competitively offer distinctions to set their pioneering product variant apart from other ventures’ variants. The venture need not pursue a “perfect” product, as nobody knows what that is yet. Rather, the venture needs to pursue a product with no “dealbreaker” shortcomings- the minimum viable product. A
Collective Foresight. First, collective foresight explains how various entrepreneurs work together in personal networks to share and construct meanings in advance of discontinuous innovation. Discontinuous entrepreneurship cannot come from a lone actor. The foresight driving the discontinuity arises from a cluster of actors serving specialized roles in a network. To be socially revolutionary, collective action must congeal around a patchwork of ideas, forming a roughshod Theory of the Future(TOTF) that requires refinement into product form by individual ventures. These actors specialize in making, evangelizing, and ultimately applying new meanings.
Venture Foresight. Second, venture foresight explains how individual ventures plan to compete in the pioneering round of product competition. In the pioneering round, new product creators must find their initial customer base’s zone of product indifference (ZPI)- that is, the pioneering combination(s) of price and features that customers are willing to pay for.
Mitnick and Ryan’s (2015) identification of distinctive entrepreneurial roles in institutional theory was a breakthrough idea for collective action view of foresight. Continuous innovation builds on existing processes, and does not require collective action to make new meanings. Innovations can be diffused one at a time, and adopters only need to grasp incremental novelty (Rogers, 1959). But, discontinuous innovations are, at first, controversial and slow-diffusing (Krackhardt, 1996; Kaplan and Tripsas, 2008). To fight controversy, specialized actors must purposefully garner adoption via one social group at a time. So, certain kinds of entrepreneurs foster a critical mass of adoption within important social groups, to reach critical mass. But before investing in a costly diffusion process, entrepreneurs must know what sorts of future products are desired by which groups. Who is already looking for the next big thing, and who is willing to buy a roughshod version of it? Thus, entreprediscontinuous innovation depends on an orchestrated change of meanings in social reality, collective entrepreneurial action requires a rainbow of entrepreneurial roles. Thus, this theory focuses on the collective action (Hargrave and Van de Ven, 2006) view of entrepreneurship.
We must define the five key elements of a middle range theory of discontinuous entrepreneurship. These include: units of innovation; entrepreneurial roles; a foresight process for managing inbound and outbound information; minimum contents of an entrepreneur’s assembled Theory of the Future (TOTF); and the zone of product indifference (ZPI), within which multiple early ventures will launch some product “price/feature” set to the early adopters. Then, some propositions are provided. This essay relies on existing literature when possible, but offers some novel constructs. The foresight phase ends when products and enterprises are being produced. Thus, entrepreneurial methods, such as the lean startup method, picks up where foresight stops.