Do Market Leaders Lead in Business Process Innovation? The Case(s) of E-Business Adoption

Are market leaders more likely to be early adopters of business process innovations? Although they tend to enjoy economies of scale in adoption, leaders may find that adjustment costs also increase with scale. Prior work has focused on how misalignment of incumbents’ internal capabilities may affect their technology strategy. However, technology-capability misalignment may exist outside the firm boundary, as well. In this paper, I build on mainstream product innovation concepts to predict when market leaders will adopt certain business process innovations. I then test these predictions in a large data set on early e-business adoption, leveraging its novel insight into focal firms, their markets, and their customers. I find market leaders were significantly more likely to embrace new IT-enabled practices – except when customer adjustment costs were a significant concern. These findings highlight the strategic significance of external capabilities in the face of technological change.