In October 2025, a new study published in Technology Analysis and Strategic Management delivered a sobering message for business leaders, policymakers and innovation researchers. The article, titled “Disruptive innovation: incumbent’s response to innovation threat”, was led by Stefano Pagliarani from the Educational Research Institute in Warsaw together with Marcin Penconek at the University of Warsaw. The research challenges one of the most comforting assumptions in corporate strategy: that profit maximization naturally leads to long-term survival.
Instead, the authors show that even under ideal conditions, where established companies have perfect information about market dynamics and no organisational constraints, profit-driven decision-making can delay innovation adoption and eventually push firms in downward trend sometimes resulting in bankruptcy. The findings offer a new explanation for the collapse of once-dominant brands and provide valuable insight into modern debates over artificial intelligence adoption, digital transformation, and technological disruption.
The paradox of rational failure
For decades, disruptive innovation theory has attempted to explain why industry leaders often fail when new technologies enter the market. Clayton Christensen’s influential concept of the “innovator’s dilemma” argued that incumbents ignore low-end innovations because these products are initially inferior and hardly competitive in eyes of mainstream customers. While this explanation remains powerful, Penconek and Pagliarani propose an alternative perspective.
Their study demonstrates that when faced with low-profit opportunities companies postpone innovation adoption in favor of exploitation of the existing service. This delay can create a strategic trap. Firms continue extracting value from their established products while the new technology quietly gains traction and compromises their market share. By the time the shift becomes unavoidable, competitors have already captured leadership positions and customer loyalty.
From Kodak to Netflix: Familiar stories with deeper causes
The paper reinforces its theoretical model with real-world examples that remain highly relevant to modern readers. Kodak is perhaps the most famous case. Despite inventing one of the first digital camera prototypes in the 1970s, the company remained heavily invested in photographic film. Digital imaging initially appeared less profitable and served niche users. Over time, however, smartphones and digital cameras transformed photography entirely. Kodak filed for bankruptcy in 2012 after failing to adapt at scale.
Blockbuster offers another striking example. The company dominated physical video rentals throughout the 1990s. When Netflix introduced mail-order DVDs and later streaming services, Blockbuster prioritised existing revenue streams, such as late fees and its physical store network. Consumer behaviour shifted rapidly. By 2010, Blockbuster had collapsed, while Netflix had become a global digital entertainment leader.
Similar patterns can be observed in Nokia’s response to smartphones, Yahoo’s struggle against Google’s search technology, and Toys “R” Us losing ground to online retail platforms. In each case, incumbents possessed resources, brand recognition and market access. Yet they underestimated the long-term impact of emerging technologies and delayed strategic responses.
How innovation spreads through markets
At the core of the study lies a mathematical model that simulates the diffusion of new technologies through markets. Innovation adoption is not instantaneous. It follows a gradual process in which early adopters experiment with new products before mainstream customers eventually adopt them.
The authors model this diffusion as a stochastic process that gradually approaches an equilibrium market share. Two parameters play a critical role. The first is innovation potential, which represents the eventual market share a new technology may capture. The second is the diffusion rate, which reflects how quickly customers adopt the innovation. Together, these variables determine how threatening a new technology becomes over time.
The profit-maximization strategy can delay the adoption of innovation and undermine your long-term chances of success.
—Marcin Penconek
Three strategic responses and their consequences
The study identifies three simplified strategies available to incumbent firms when facing disruptive innovation. The first is to ignore the innovation and continue focusing on existing products. The second is to react by entering the new market while maintaining the old business model. The third is to fully embrace innovation and shift the strategic focus toward the emerging technology.
Surprisingly, the research finds that the popular “react” strategy, which involves running both old and new businesses simultaneously, rarely produces optimal long term outcomes. While it appears safe and balanced, this approach often dilutes investment, delays leadership in the innovation market and weakens competitive positioning.
When innovation potential is low, ignoring new technologies may indeed be economically rational. However, when market potential is moderate to high and adoption rates accelerate, embracing innovation early becomes the most profitable strategy in the long run. Delayed commitment often results in missed opportunities to establish technological leadership and brand dominance.
Timing matters more than comfort
One of the most important findings of the study concerns timing. Even when incumbents eventually recognise the importance of innovation, the delay itself can be costly. The model shows that firms may feel pressure to act only after a new technology captures a noticeable market share. By then, competitors have already gained scale advantages.
In simulated scenarios, the optimal moment to shift strategy varied widely depending on market conditions. In some cases, the incentive to adopt innovation appeared after nearly two years of gradual diffusion. During this period, incumbents continued generating profits from legacy products while losing strategic ground.
This phenomenon explains why companies often appear to react “too late”. It is not always ignorance that causes delay. It is frequently a profit-maximizing strategy that prioritises gaining profits from the existing service. Unfortunately, these calculations fail to account for the compounding advantages that early innovation leaders accumulate.
The danger of wrong expectations
The authors emphasize that real-world companies rarely possess perfect information about innovation dynamics. Instead, they rely on expectations about future performance, market size, and adoption speed. When these expectations are incorrect, strategic errors multiply.
If a company underestimates innovation potential, it may ignore a technology that eventually reshapes the entire industry. If it misjudges adoption speed, it may adopt too late or invest insufficient resources. Both scenarios increase the risk of long-term decline.
This insight has important implications for strategic forecasting and corporate intelligence. Monitoring early adoption patterns, customer behaviour, and technology performance metrics is essential to avoid blind spots. It also highlights the importance of flexible decision frameworks that allow rapid reassessment as markets evolve.
Why this research matters in the age of AI and digital transformation
The relevance of this study extends far beyond historical case studies. Today, companies across healthcare, finance, education, and manufacturing face disruptive innovation driven by artificial intelligence, automation, and platform technologies.
Hospitals debate whether to invest in AI diagnostics. Universities consider online education platforms. Media organisations struggle with algorithm-driven content distribution. Energy companies adapt to renewable technologies. In each case, decision makers confront the same strategic dilemma described in the study.
Profitability often favours maintaining the existing service against early adoption of innovation. Ignoring the innovation compromizes competitiveness and leadership in emerging technologies in the long-run. The research provides a quantitative foundation for understanding this trade off and reinforces the urgency of strategic adaptation.
Reference
Penconek, M., & Pagliarani, S. (2025). Disruptive innovation: incumbent’s response to innovation threat. Technology Analysis and Strategic Management. https://doi.org/10.1080/09537325.2025.2571961
Coauthor
Stefano Pagliarani is a key research and analysis expert at the Educational Research Institute (Poland) and a PhD candidate at the University of Warsaw (Poland). His research interests are focused on attitudinal aspects of education, including creativity and innovation.
