Incumbent Success in the Era of Ferment: Navigation of Intergenerational Transition of Technology

How can some incumbent firms proactively navigate technological change while others fail to do so? We explore this question by studying the dynamics of incumbents’ engagement in an era of ferment, in which new technological options challenge the dominance of the current technology generation. We take a real option theory and focus on a successful incumbent firm, ASML, in a period when varieties of new technological options were threatening the dominance of the optical-lithography regime. Our findings show that ASML managed this turbulent period in such a way that it gained the core position in both existing and new technological regimes. First, ASML organized an agile, highly authorized core research team to explore new technological options within and outside of ASML. Second, as the experimental development of technological options progressed, ASML persistently relied on the scientific rules of physics and economics in the assessment of the long-term feasibility and extendibility of technological options, rather than on their current performance. Finally, the timely management of commitment and abandonment of technological options in its portfolio enabled ASML to play an active role in the dynamics of transition to the next generation of lithography technology.