Managing Technological Change in the Electricity Industry. An Ambidextrous Approach

Abstract

This multi-method study examines whether and how technological change influences a firm's performance, specifically depending on the firm’s inertia or ability to adapt. The tension between exploiting an old business model and exploring new technology in an adapted business model, especially when there is a technological shock in the environment, is arduous for firms operating in capital intensive industries characterized by investments in fixed assets, because these assets may create inertia. Building on research on ambidexterity, I argue that technological change can improve a firm's performance, which is different from previous findings of declining performance of firms in the face of radical technological change. This assertion stems from the observation that current technological change frees productive factors. Particularly, the shift to renewable energy sources signifies a move from stock based to flow based energy models, contrasting with traditional fossil fuel technologies. However, this present a paradox; a firm may be unable to adapt to technological change even if it possesses all the core knowledge related to the innovation. Successful adaptation also requires the complementary assets and the capabilities to commercialize the technological change. The study focuses on electric firms worldwide between 2012 and 2019. This context is ideal to examine how technological change influences firm's performance. Firms in the electricity industry have a business model that has not significantly changed for a long time and are characterized by investments in fixed assets. However, several new energy management change drivers are emerging to uproot this status quo and to erode “traditional” electric firms’ legitimacy, among them the rising demand for electricity, the emergence of renewable energy sources, the appearance of electrified transportation and batteries, the deregulation of power markets, and innovations in the smart grid technology. I used data about electric firms worldwide from Orbis, merged with industry and technological change data from World Bank, Lazard and the International Renewable Energy Agency (IRENA). I performed a full statistical analysis using data from 504 electricity firms obtained from Orbis. To test the soundness of the hypotheses and conceptual model and the meaningfulness of the expected theoretical mechanism, I interviewed 26 executives from electric firms, and processed the interviews with topic modeling methodology as well as NVIVO. The results show an increase in firm’s performance due to technological change. However, contrary to what I expected, such impact is amplified when the effect is moderated by firm’s Inertia, which could be due to the fact that the advantages of firm size are greater than its costs in the electric industry, even under technological changes. I also found that this impact is amplified when the effect is moderated by firm’s Adaptability.