Legacy Effects in Radical Innovation: A Study of European Internet Banking

64 Pages Posted: 22 Jul 2008 Last revised: 29 Sep 2013

See all articles by Erik H. Schlie

Erik H. Schlie

ESMT European School of Management and Technology; IE Business School

Jaideep Prabhu

Imperial College Business School; University of Cambridge - Judge Business School

Rajesh K. Chandy

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: June 12, 2008

Abstract

How do firms cope with the challenges of disruptive change in their industry? Numerous studies have highlighted that success with any prior technology creates a negative legacy effect for the next radical technological shift. We question the overly pessimistic view of such legacy effects and ask how quickly firms embrace technological breakthroughs by radically innovating and who wins in the longer term? In this paper, we argue that legacy is a multi-faceted construct whose diverse aspects could simultaneously have different effects on innovation speed and market performance. We identify three main types of legacy related to technology, organizational, and country-level influences. Previous research tends to focus on technological or market effects in isolation, whereas we seek to study the effects of both firm and country legacy simultaneously on speed to radical innovation and market performance over time. Based on a conceptual framework we develop six hypotheses concerning the legacy effects on initial speed radical innovation and subsequent market performance. We chose the European retail banking industry and the focal innovation of transactional Internet banking as a suitable empirical context to employ quantitative hypothesis testing. Detailed and longitudinal (1996-2001) data were collected for a sample of 123 banks from six European countries: United Kingdom, Germany, France, Sweden, Finland, and Denmark. We specified a model and used threestage least squares (3SLS) as a method to estimate simultaneous regression equations due to endogeneity of a key variable. We show that the prevailing negative view of legacies is likely to be overstated.

Keywords: innovation, legacy, internet banking, europe

JEL Classification: M31

Suggested Citation

Schlie, Erik H. and Schlie, Erik H. and Prabhu, Jaideep and Prabhu, Jaideep and Chandy, Rajesh K., Legacy Effects in Radical Innovation: A Study of European Internet Banking (June 12, 2008). ESMT Working Paper No. 08-002, Available at SSRN: https://ssrn.com/abstract=1162701 or http://dx.doi.org/10.2139/ssrn.1162701

Erik H. Schlie (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

IE Business School ( email )

Maria de Molina 31
Madrid, Madrid 28006
Spain

HOME PAGE: http://www.ie.edu/business

Jaideep Prabhu

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 20 7594 9109 (Phone)
+44 20 7823 7685 (Fax)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Rajesh K. Chandy

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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