Jasmine Huang

Innovation Creates Volatility: The Disadvantage of Innovation

Started Aug. 2, 2021

Abstract or project description

Previous research claims business firms should be innovative because innovative firms will be able to gain market advantage and become the market leader. Innovation is both a positioning and differentiation strategy that gives firms a unique position in the consumers’ minds, attracting their attention and separating them from the rest of the firms (Carpenter 1994). This increased attention has positive effects on perceptions of the company and on purchase intentions (Bae 2016). Earlier research has focused on how innovation impacts individual firms and how innovation impacts performances against market leaders. This research, however, focuses on how innovation impacts industries as a whole. Industries may naturally differ in how innovative they appear because of differentials in progress in the technologies or products that comprise each industry (Fuerst 2017). It was hypothesized that more innovative markets are likely to experience volatility than non-innovative markets. Greater sales from innovation can come from new consumers or from existing consumers from other companies. If the latter were true, a rise in market share from an innovative company would come at the expense of other companies, creating greater changes in market share. Data analyzing the frequency of change in market share among the top five companies in both innovative and non-innovative industries shows that there is a more frequent change in market share in innovative industries. Therefore, the findings indicate that innovativeness has a weak point because innovative industries are more volatile in terms of market share than non-innovative industries. Innovative markets are harder to dominate than non-innovative markets, meaning firms in more innovative industries need to innovate consistently and constantly to maintain a high position in consumers’ minds.