ABSTRACT
This chapter examines the challenges experienced by incumbent firms due to the uncertainty surrounding competence-destroying technological change and to prescribe ways through which they can overcome these challenges. It develops a model of the incumbent's adaptation process that explicitly incorporates the challenges that incumbent firms experience when making decisions under uncertainty. The incumbent's adaptation process is viewed as a nexus of uncertainty, learning and capability development, which can be managed using real options reasoning. The chapter shows how incumbent firms can successfully adapt and survive in the face of competence-destroying change. M. Tushman and P. Anderson suggests that competence-destroying change generally causes the displacement of incumbents by innovative new entrants as it creates knowledge and capability gaps. The chapter argues that organizational learning undertaken by the incumbent firm will lead towards a certain technology of platforms, which will then endow that particular firm with a unique set of options that it can pursue in the future.
