Innovating while integrating: Implications of modular and interdependent organizational forms for adopting discontinuous technological change

The difficulties of incumbent adaptation highlight an important theoretical dilemma. Attempting to adopt a discontinuous innovation within the boundaries of an existing firm can lead to debilitating inertia. On the other hand, isolating the innovators can prevent them from utilizing valuable skills and routines in the rest of the firm. If incumbents grow by leveraging resources, can an innovating organization that is highly separate from those resources be successful?;The first study, a qualitative examination of incumbent drug retailers adopting online pharmacies, finds that even the most differentiated innovating organizations could make use of existing resources, provided they did so in a modular way. It also finds suggestive evidence that, while a modular approach to innovating provides speed and focus early in the innovation's life cycle, a more integrated approach that mixes new and existing competencies in a non-modular way can provide tremendous long-term advantage.;The second study, a quantitative hypothesis test, builds a theoretical model of the innovating organization that includes creating new subunits and leveraging existing ones. Two characteristics of each of the innovation's subsystems map to two characteristics of structure for each subunit of the innovating organization. The model is tested on a cross-sectional sample of 36 incumbent retailers' approaches to adopting electronic commerce.;Together, these studies extend the fields of technology strategy and organization theory. They define a set of generalizable, actionable practices for organizing to adopt discontinuous innovations. From these insights, managers can learn how to build dynamic capabilities that enable their firms to survive and prosper in the long term.;Through theory and empirical studies, this thesis helps resolve the dilemma. I argue that, in most cases, the modular approach---using a highly differentiated innovating organization with few connections to the existing organization---is at best a short-term solution. Although modular approaches can help incumbents achieve short-term speed and focus, they are inherently inefficient. Long-term advantage comes from a more integrated approach that uniquely exploits interdependencies between the innovation and the firm's existing resources. The effective exploitation of these interdependencies is the heart of dynamic capabilities.