1.
INDUSTRY DYNAMICS:
RETHINKING THE EFFECTS OF
VELOCITY ON PRODUCT
INNOVATION
Ian P. McCarthy
Beedie School of Business
Ian_mccarthy@sfu.ca
Based on the following research:
McCarthy I. P., Lawrence T. B., Wixted B., & Gordon B. R. 2010. A
multidimensional conceptualization of environmental velocity.
Academy of Management Review, 35(4): 604-626
Access the full paper here.

2.
INTRODUCTION
Speed Demons
How smart companies are creating new
products -- and whole new businesses --
almost overnight

3.
INTRODUCTION
“speed kills innovation”
and "slow is the new fast“
Holman W. Jenkins JR 26th Jan 2011, WSJ
"Apple Goes Slow to Win Fast“
Paul Nunes & Tim Breene 2nd March 2011, HBR

4.
INDUSTRY DYNAMICS: VELOCITY
• Speed is central to industry change (dynamism) and performance.
• High velocity industries (environments):
– “those in which there is a rapid and discontinuous change in
demand, competitors, technology and/or regulation” (Bourgeois
and Eisenhardt 1988: 816)
– “market boundaries are blurred, successful business models are
unclear, and market players (i.e. buyers, suppliers, competitors,
complementers) are ambiguous and shifting”. (Eisenhardt and
Martin 2000: 1111)
• Velocity is the rate (speed) and direction of change

5.
SOME IMPLICATIONS OF HIGH VELOCITY
• You need to be fast.
• This is achieved by:
– rational and formal strategic decision-making (Bourgeois &
Eisenhardt 1988, Eisenhardt 1989, Judge & Miller 1991)
– rapid product development (Eisenhardt & Tabrizi, 1995)
– simple rules (Eisenhardt & Sull, 2001)
– heuristic reasoning (Oliver & Roos, 2005)
– team based decision-making (Nadkarni & Barr 2008)

6.
HOWEVER, STUDIES SUGGEST THAT BIOTECH IS
A HIGH VELOCITY INDUSTRY
6
Is this really the
case?

7.
EnvironmentalVelocityLowHigh
INDUSTRIES DESCRIBED USING VELOCITY
Computer
industry
Bourgeois & Eisenhardt
(1988)
Stepanovic &
Uhrig (1999)
Healthcare
Finance, utilities
& healthcare
Baum & Wally
(2003)
Judge & Miller
(1991)
Biotechnology
Healthcare
Textiles
“it is obvious that the industry is a
high-velocity environment”

8.
By Nadkarni & Narayanan 2007

9.
SOME OBSERVATIONS
• It seems that most industries have high-velocity environments
• Few industry specific definitions and substantiations
• An assumption that high technology = high-velocity
• An assumption that velocity = speed
• Simple, aggregated, erroneous and inconsistent conceptualizations.
• We argue that the above occurs because studies have:
– treated velocity as single, latent descriptor i.e., a unidimensional
concept
– Ignored that velocity is a vector i.e., it has a rate and a direction
of change

10.
ENVIRONMENTAL VELOCITY:
A MULTIDIMENSIONAL VECTOR
• Consider what is changing?
• Their rate of change (speed at which they move).
• Their direction of change?

11.
OUR FRAMEWORK
• We conceptualize velocity in terms of:
– Multiple dimensions (demand, competitors,
technology, regulatory, and products)
– Each dimension has a rate and direction of
change
– The degree to which different dimensions might
have different velocities (homology)
– The degree to which the velocities of different
dimensions might affect one another over time
(coupling)

12.
PRODUCT VELOCITY
12
2005
2010
Continuous and 6 new models
Discontinuous

13.
PRODUCT VELOCITY
13
2000 Xbox 2005 Xbox 360
Continuous and 1 new model
2006 Wii
Discontinuous

14.
VELOCITY DIMENSIONS AND HOMOLOGY
14
Direction of
Change
Discontinuous
Continuous
Rate of ChangeLow High
D = demand
P = products
C =competitive
T = technological
R = regulatory
P
R
T
D
C
High homology
T
P
D
C
R
Low homology
P
R
T
D
C
High homology

15.
VELOCITY COUPLING
15
Direction of
Change
Discontinuous
Continuous
Rate of ChangeLow High
D = demand
P = products
C =competitive
T = technological
R = regulatory
T
D
C
R
P
= tight coupling
= loose coupling

16.
Coupling
Homology
Tight
Loose
HighLow
Rate of change
Direction
of change
Integrated Regime
C
P
T
R D
Rate of change
Direction
of change
Conflicted Regime
C
P
T
R D
C
P
T
R D
Divergent Regime
Direction
of change
Rate of change
Simple Regime
C
P
T
R D
Rate of change
Direction
of change
VELOCITY REGIMES

17.
IMPLICATIONS OF VELOCITY HOMOLOGY
• Affects how we think about the relationship between an
organization and the temporal characteristics of its environment.
• Keeping in time with the environment (external entrainment) is still
important, but ….
• synchronizing organizational activities (internal entrainment)
to be uniformly fast/slow might not be.
• Effective management is more about rhythm and
synchronization, rather than being simply fast or slow.
17

18.
FUNDAMENTAL IMPLICATION OF VELOCITY
COUPLING
• Affects how we think about the stability of velocity conditions and the
impacts on how organizations coordinate changes in the pace and
direction of their internal activities
• Scanning, coordination mechanisms, and boundary spanning
• Modularity of products, processes and organizations
• Temporal orientations: monochronic versus polychronic
• Management frameworks: linear vs. recursive
18

19.
TEMPORAL ORIENTATIONS
• “A temporal orientation is a cognitive concept that describes how
individuals and teams conceive of time”

20.
TEMPORAL ORIENTATIONS
MONOCHRONIC TEAMS POLYCHRONIC TEAMS
Focus on one job at a time Focus on many jobs at once
View time as linear and fixed View time as tangible and malleable
Strictly adhere to plans and hate
missing deadlines
Frequently change plans and don’t worry
about deadlines
Guided by “clock time” Guided by “event time”
Time is money Time is information
Simple and divergent velocity regimes Conflicted and integrated velocity
regimes
(Ancona, Okhuysen & Perlow, 2001; Bluedorn & Denhardt, 1988; Hall, 1959).

21.
SYNCHRONY
• Research on environmental
velocity highlights "the
importance of organizations
operating “in time” with their
environments and in synchrony
across their subunits and
activities“ (McCarthy et al. 2010:
618)

22.
THE CASE FOR POLYCHRONICITY
• “The polychronic teams proved to be
superior information brokers, absorbing
and disseminating more-insightful
information than their average and
monochronic counterparts” (Soutiaris
and Maestro. 2012)
• “Under some circumstances, top
management teams perform better
when they accept—even relish—
interruptions.” (Soutiaris and Maestro.
2012)

23.
SO, IN SUM
• Most industries do not have classic high
velocity conditions
• Thus, being fast has it benefits, but it is rare
that all business functions need to be
uniformly fast
• Industry dynamics are complex
– Multiple velocity dimensions, each with a
rate and direction of change
– Homology and coupling – velocity regimes
• Performance is linked to appropriate rhythms,
synchronization, and temporal orientations