Digital new market creation by incumbent firms: A political lens on the effect of formalization on agility

Abstract

Digital new market creation has several advantages for incumbent firms (hereafter referred to as ‘incumbents’) that they seek to exploit by using formalization and implementing agility in their new product development (NPD). We introduce the construct of NPD decision agility encompassing the dimensions of sensemaking, speed, and iteration. However, research reveals heterogeneous insights into formalization’s suitability for digital new market creation and NPD decision agility. In response to this research gap, we test our hypotheses by applying a behavioral lens to a sample of 129 incumbents. We reconcile these heterogeneous insights on innovation by showing that formalization increases digital new market creation, but has more fine-grained effects on NPD decision agility. Although improving sensemaking and reducing iteration, formalization has no effect on speed. Furthermore, political behavior increases formalization’s negative effect on iteration. We contribute to research digitalization and agility at the intersection of information systems and innovation management by reconciling these heterogeneous insights.