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Written by Freek Vermeulen
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It is often said that when change happens in an industry, it is initiated by outsiders (rather than incumbents). That is because the incumbents – as existing, central players to an industry – suffer from inertia, vested interests, if not plain arrogance. It is relative outsiders – allegedly – who do not have these limitations, and therefore should be able to do things differently. Or so they say.
However, causal observation of many industries suggests that outsiders often also fail to initiate change. Instead, they quickly conform to existing industry norms and behaviours.
This is because inertia is not only caused by a firm itself, but also by its context. Doing business, firms need to work with others, and even though the firm itself may be willing and inclined to things differently, it may be these partners that are holding them back – causing them to conform to existing norms and standards. We label this “contextual inertia”.
In this video, I give an example of Champagne houses, who purchase the necessary grapes from grape growers – a market I have been examining with my colleague, Amandine Ody, from Yale. We found out that grape suppliers “punish” houses for doing things differently, not according to the industry’s norms, by raking up the prices they charge them for their grapes.
But – strikingly – they punish some houses more than others; in fact, they charge even steeper price increases to relative outsiders who try to do things differently. This means that outsiders find it even more difficult to initiate change in this industry:
via Contextual Inertia: Why outsiders (also) find it difficult to initiate change « The Ghoshal Blog.
