European Management Journal Vol. 22, No. 5, pp. 517531, 2004 2004 Elsevier Ltd. All rights reserved.

. Printed in Great Britain 0263-2373 $30.00 doi:10.1016/j.emj.2004.09.010

Persistent Superior Economic Performance, Sustainable Competitive Advantage, and Schumpeterian Innovation: Leading Established Computer Firms, 19542000
MARC BAAIJ, Rotterdam School of Management, Erasmus University MARK GREEVEN, Rotterdam School of Management, Erasmus University JAN VAN DALEN, Rotterdam School of Management, Erasmus University
Sustainable competitive advantage is a key concept in strategy practice and research, not least because of its intended result of persistent superior economic performance. Previous research revealed that persistent superior performance is very rare. Also, theory predicts that Schumpeterian innovation will erode sustainable competitive advantage and thus prevent leading established rms attain persistent superior economic performance. This study of Fortune Global 500 computer rms, active in a dynamic industry with widely acknowledged Schumpeterian innovations, found a relatively high ratio of rms achieving persistent superior economic performance. 2004 Elsevier Ltd. All rights reserved.
European Management Journal Vol. 22, No. 5, pp. 517531, October 2004

Keywords: Firm protability, Performance stratication, Sustainable competitive advantage, Schumpeterian innovation

Introduction
Sustainable competitive advantage is a key concept in strategy practice and research, not least because the intended result of sustainable competitive advantage is persistent superior economic performance.
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Attaining economic performance at levels that exceed the competition and maintaining this superior performance over a longer period of time is very rarely reached in practice as it is extremely difcult to achieve (Wiggins and Ruei, 2002). Economic performance is a primary dependent variable in strategic management and economics research. A huge amount of literature addresses the role of factors that supposedly inuence performance, but only a few studies analyze the topography of performance itself (e.g., Mueller, 1986). Wiggins and Ruei (2002) found in a large-scale study of 40 industries over 25 years (19741997) that only a very small ratio of rms (5.17 per cent) exhibited superior economic performance that persisted for long periods, i.e. minimal ten years. A key explanation of why persistent superior performance is very rare is that Schumpeterian innovation causes creative destruction of prevailing competitive positions, and thus frustrates the related persistent superior economic performance (e.g., Abernathy and Clark, 1985; Bower and Christensen, 1995). Therefore, the question arises whether superior economic performance persists over time within industries that are confronted with Schumpeterian innovation. If such persistence is found to exist, related questions can be investigated. When, how long and how often is persistent superior performance attained and by which rms? What was the relationship between persistent superior performance and Schumpeterian innovation? What path in terms of performance development did the rms take in reaching persistent superior performance and what was their path after the end of their period of superior performance? An often-cited example of an industry that is characterized by Schumpeterian innovations is the manufacturing of computers. Because of the appealing innovations, and the industry dynamics the computer industry is particularly attractive as an area in which to study the persistency of superior economic performance. We study the worlds largest computer rms as dened by the Fortune Global 500 Directory. We have selected the Fortune Global 500 not only because it has been subject to many previous studies but also because it consists of rms that are of primary interest to analyze the impact of Schumpeterian innovation. A Schumpeterian perspective suggests that, as a strategy, innovation is of greater signicance amongst larger rms (Hill and Snell, 1988). The leading established rms in particular will be the target of creative destruction according to the theory of Schumpeterian innovation. The data have been obtained from the Fortune Global 500 Directory, Thomson Analytics, and DataStream. Most previous research on the persistence of economic performance covers periods of at most 25 years (Wiggins and Ruei, 2002). Wiggins and Ruei (2002: 101) indicated
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that: replication over a longer time frame such as 40 or 50 years would be of great interest. The Fortune Directory allows us to cover a period of 49 years: 19542002. This period captures a relevant part of the history of the industry in terms of Schumpeterian innovation. The recent stratication technique which was developed by Ruei and Wiggins (2000) for analyzing persistent superior performance and which has been used in previous research (Wiggins and Ruei, 2002), the Iterative KolmogorovSmirnov (IKS) stratication technique, will be used in this study as well. We structure the article as follows. First, we review the relevant literature and introduce a conceptual framework for analyzing the relationship between superior performance, sustainable competitive advantage, and Schumpeterian innovation. Second, we discuss the data and the methodology. Third, we investigate the occurrence of Schumpeterian innovation in the computer industry during the research period. Fourth, we analyze the development of performance of the Fortune Global 500 computer rms to investigate the occurrence of persistent superior performance. Finally, we discuss the results of the research and draw conclusions.

Persistent Superior Performance, Sustainable Competitive Advantage and Schumpeterian Innovation

A Conceptual Framework of the Determinants of Persistent Superior Performance As it comes to superior performance, and persistent superior performance in particular, two opposite perspectives may be distinguished in the strategy and economics literature: (1) studies on sustainable competitive advantage which predict that the factors that sustain competitive advantage will generate persistent superior performance (e.g., Porter, 1985, 1996; Barney, 1991); and (2) studies following the Schumpeterian view on innovation (e.g., Abernathy and Clark, 1985; Bower and Christensen, 1995) which predict that Schumpeterian innovation will destroy almost all competitive advantage, and thus prevent superior performance from persisting. Based on these two perspectives, we propose a conceptual framework that relates the main concepts of our research: persistent superior economic performance, sustainable competitive advantage, and Schumpeterian innovations. Figure 1 displays this conceptual framework. The framework gives way to the idea that Schumpeterian innovation can affect sustainable competitive advantage and hence persistent superior performance in both a positive and a
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Sustainable Competitive Advantage Perspective Mobility barriers Core competencies

+
Sustainable competitive advantage
Proposition 1: +

+ +
Proposition 2: Proposition 3: +

Persistent superior economic performance

Creative accumulation

Creative destruction

Schumpeterian Innovation Perspective

Figure 1 The Conceptual Framework: The Relationship between Persistent Superior Economic Performance, Sustainable Competitive Advantage, and Schumpeterian Innovations

negative way. The various parts of the framework are discussed in the following sections. Sustainable Competitive Advantage The literature on sustainable competitive advantage is dominated by two perspectives (e.g., Caloghirou et al., 2004): industrial-organization economics (e.g., Porter, 1985); and the resource based view of the rm (e.g., Barney, 1991). According to the industrialorganization economics, sustainable competitive advantage is based on strategic positioning of rms within an industry. Mobility barriers within an industry are the rst major factor that sustains competitive advantage (Caves and Porter, 1977; Porter, 1985). According to the resource-based view sustainable competitive advantage is based on economizing the core competencies of the rm. These competencies, which are valuable, rare, and difcult to imitate, trade, and substitute, constitute the basis of sustainable competitive advantage (Barney, 1991).

Creative Accumulation versus Creative Destruction Schumpeterian innovations do not necessarily lead to the decay of persistent superior performance. The inuence of Schumpeterian innovations on the persistency of superior performance of leading established rms depends on which rms are the creators of the innovations: the leading established rms or other rms. Other rms are dened as: non-leading established rms or new entrants. In the rst situation, Schumpeterian innovations by leading established rms renew the sustainable competitive advantage and extend the period of persistent superior performance of these established rms. The process of rms replacing their own prevailing competitive advantages through Schumpeterian innovations is termed creative accumulation (Breschi et al., 2000). In the second situation, Schumpeterian innovations by other rms destroy the mobility barriers and the core competences of leading established rms and hence the sustainable competitive advantage and persistent superior performance of these leading rms. Destroying competitive advantage through Schumpeterian innovations is termed creative destruction. Creative destruction may enable other rms, instead of the previously leading established rms, to achieve persistent superior performance. Based on the framework (Figure 1) we formulate the following three propositions: Proposition 1. Creative accumulation by leading established rms will renew the sustainable competitive advantage and extend the period of persistent superior economic performance of these rms. Proposition 2. Creative destruction by other rms will destroy the sustainable competitive advantage of leading established rms and end the period of persistent superior economic performance of these leading established rms. Proposition 3. Creative destruction may enable other rms instead of the previously leading established rms to achieve persistent superior economic performance.
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Schumpeterian Innovation Schumpeter (1934) considered innovations to be the dynamic element underlying all economic categories. Schumpeterian innovation can be dened as changes in the methods of supplying commodities, such as introducing new goods or new methods of production; opening new markets, conquering new sources of supply of raw materials or semi manufactured goods; or carrying out a new organization of industry, such as creating a monopoly or breaking one up (Brue, 2000: 500). According to Schumpeter, the technological innovations appear at rare and irregular intervals in every industry and they command a decisive cost or quality advantage and strike not at the margin of the prots and outputs of the existing rm but at their foundations and their very lives (Schumpeter, 1942: 84).
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Table 1 Interpretations of Schumpeterian Innovation

Authors Abernathy and Clark (1985) Tushman and Anderson (1986)

Concepts Architectural innovation Technological discontinuity

Interpretations Disrupted market/customer linkage and a disrupted technology/production competence Innovations that appear at rare and irregular intervals in every industry and command a decisive cost or quality advantage and strike not at the margins of the prots and the outputs of the existing rms, but at their foundations and their very lives The threat of substitution; the emergence of a new industry based on a major product innovation often poses a threat of substitution to companies with a base in a more established industry Fundamental transformations are initiated by extrasystemic transformations like performance crisis, major environmental changes, and CEO succession Changed core concepts and changed linkages between core concepts and components A very different package of attributes from the one mainstream customers historically value, and they often perform far worse along one or two dimensions that are particularly important to those customers When a change is sudden, radical (quick and fundamental change) and causing a breach of performance which makes recent experience obsolete An evolutionary force that occurs when big advances are made within a technology regime Discontinuities driven by technology, competitors, regulatory events, or signicant changes in economic and political conditions Change is frequent, relentless and even endemic to a rm in high velocity industries. There are two fundamental organisational characteristics related to continuous change: semi-structures and links in time Change occurs when the fundamental levels of deep structure recongure, as do all more marginal levels nested within them Can be seen as obliterating the current State of Art in an industry. A fundamental groundshift occurs in the business environment, precipitated by a change in technology, competition, regulation, etc. A new product that incorporates a substantially different core technology and provides substantially higher customer benets relative to previous products in the industry

Cooper and Smith (1997)

Technological threat

Romanelli and Tushman (1994)

Fundamental transformation

Henderson and Clark (1990) Bower and Christensen (1995)

Radical innovation Disruptive technology

Strebel (1995)

Breakpoint

Lawless and Anderson (1996) Tushman and OReilly (1996)

Generational change Revolutionary change

Brown and Eisenhardt (1997)

Continuous change

Wollin (1999)

Revolutionary change

Shanklin (2000)

Creative destruction

Chandy and Tellis (2000)

Radical product innovation

Identifying Schumpeterian Innovation In the literature, various concepts are found that are related to Schumpeterian innovation. A summary is given by Table 1. The variety of different but closely related innovation concepts tends to blur the denition of Schumpeterian innovation. But the relevant literature tends to indicate three distinct features of Schumpeterian innovation. Based on the existing literature (e.g., Schumpeter, 1934, 1942; Tushman and Anderson, 1986; Bower and Christensen, 1995; Chandy and Tellis, 2000) we developed three main criteria for a Schumpeterian innovation. The innovation must: (1) be based on a substantially different core technology;
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(2) impose a threat of substitution to existing products, services or production processes; and (3) lead to the emergence of a new industry. These criteria will be used to investigate the innovations in the computer industry during the research period.

Data and Methodology

The Sample The rms had to be present in the Fortune Global 500 Directory for at least one year to be included in the data set. The resulting data set consists of the twenty rms listed in Table 2. We have enriched the data of
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Table 2 The Research Sample of Fortune Global 500 Computer Firms

rior performance, have employed this measure of accounting returns (see Wiggins and Ruei, 2002). Second, to investigate superior economic performance of the rms, we adopt the Iterated KolmogorovSmirnov (IKS) methodology (Wiggins, 1997; Ruei and Wiggins, 2000).1 Ruei and Wiggins dened superior economic performance as above average return on assets for at least ve consecutive years. Superior economic performance was operationalized as statistically signicant [a = 0.05] above average (relative to industry or reference set) performance over a ve year period, determined using the Iterative KolmogorovSmirnov stratication technique (Wiggins, 1997: 89). They used a rolling ve-year window to create distributions of returns for each rm for the performance measure. Firms that do not have all ve years of data in a period are excluded from the analysis for that particular period. The performance strata developed by the IKS-analysis form naturally ordered categories from high performance to poor performance that are statistically signicantly different from each other. Following Wiggins (1997), we compress the number of performance strata to three by creating two supersets of strata: those above the modal stratum and those below the modal stratum. The superior stratum contains all rms achieving superior performance. The modal stratum represents rms with modal performance, while the sub-modal stratum constitutes the rms achieving sub-modal performance. We perform all calculations with the IKS Program of Ruei.2 Third, Wiggins and Ruei (2002) operationalized persistent superior economic performance as superior economic performance that lasted six or more consecutive windows (i.e., ten years), since that period contained two non overlapping ve-year windows-

Apple Computer Bull Burroughs Casio Compaq Control Data Dell Digital Equipment Corporation (DEC) Fujitsu Hewlett-Packard Honeywell

IBM NCR Nixdorf Olivetti Sperry Sun Microsystems Toshiba Unisys Wang Zenith

Burroughs was renamed Unisys in 1986 after acquisition of Sperry

the Fortune Directory for rms that entered or left the Fortune Directory during the research period. In these instances we have added performance data for respectively the period before entry and the period after departure. Figure 2 shows the number of entries into the Fortune Global 500 Directory and the resulting development of the number of rms in our data set.

Operationalizing Persistent Superior Performance Persistent superior economic performance is operationalized after successively dening economic performance and superior economic performance. First, economic performance is operationalized by means of an accounting measure: return on assets (ROA), dened as net income divided by total assets. This indicator of performance is selected because many previous strategic management and economic studies, and in particular previous studies on persistent supe-

20 18 16 14 12 10 8 6 4 2 0
54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 19

# of firms # of entries

Year

Figure 2 The Number of Firms and the Number of Entry of Fortune Global 500 Computer Directory, 19542002

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thus eliminating any potential bias due to the effect of a single outstanding performance year (Wiggins and Ruei, 2002: p. 87). Finally, to investigate the path that rms took before achieving persistent superior performance, we restrict to the six windows preceding the period of persistency. Similarly, we investigate the six windows following the end of persistency.

that produced mainframe computers, were the rst to seize the potential of the mini-computer. The substitution effect of the mini-computer seems limited as substitution was restricted to those applications of the departments of large organizations that could be transferred from the mainframe to the mini-computer. Because of the limited substitution effect, the introduction of the mini-computer does not meet all three criteria of a Schumpeterian innovation. In 1971 a start-up rm named Intel introduced the microprocessor. The microprocessor enabled a significant improvement in both mainframe and mini computers. Yet, the most important impact of the microprocessor was the creation of a new type of computer: the micro or personal computer. As in the case of the mini- computer, new rms entered the industry, while the established computer rms were slow to act. The rst microcomputer (the Altair) had been introduced back in 1975. However, it was the introduction of the IBM PC in 1981 that constituted a breakthrough in the computer industry. In contrast to the earlier micro computers and computers in general, the IBM PC introduced an open architecture. Breaking with a tradition, IBM decided to use external suppliers for the main components of the PC: Microsoft for the operating system software and Intel for the microprocessor. In contrast to the mainframe and mini computer manufacturers, which were vertically integrated companies manufacturing all components in-house, owning the proprietary architecture, and distributing their products through their own or their agents sales forces, the PC manufacturers were primarily assemblers that purchased most of their components on the open market, used an open, non-proprietary architecture, and distributed their products through external wholesalers and retailers. The IBM PC has led to changes in the computer architecture (from proprietary, closed to non-proprietary, open) and in the structure of computer rms (from vertically integrated to assembly). The introduction of the IBM PC satises all three criteria of Schumpeterian innovations (see Table 3). As IBM rst introduced the PC, at rst glance, this Schumpeterian innovation looked like a case of crea-

Schumpeterian Innovations in the Computer Industry We briey review the main product innovations during the research period and evaluate them using the three criteria of Schumpeterian innovation. Shortly before the beginning of the research period the mainframe computer was introduced. In 1951 Remington Rand Corporation introduced the rst commercial mainframe computer: the UNIVAC (UNIVersal Automatic Computer). The mainframe computer employed a new, substantially different technology: the electronic vacuum tube. Until that time computing was limited to the tabulating machines; mechanical calculating machines using punched cards. The mainframe computers substituted for the tabulating machines. In addition, the mainframe computers created a new industry with new applications, new clients and new rms. The introduction of the mainframe computer meets all three criteria of Schumpeterian innovations (see Table 3). In 1958, Texas Instruments and Fairchild Semiconductor independently invented a new, substantially different technology: the integrated circuit. The integrated circuit made mainframe computers more powerful, but more importantly, it led to the development of a new type of computer: the mini-computer. The mini-computer opened up a new market as it was smaller and cheaper than the mainframe. From then small and medium-sized organizations as well as the departments of large mainframe-using organizations could afford a computer. New computer rms like DEC, as opposed to the established rms

Table 3 The Criteria of Schumpeterian Innovation and Two Radical Product Innovations in the Computer Industry

Radical Innovation Time of innovation and innovating rm Substantially different core technology

Mainframe Computer 1951: rst commercial mainframe UNIVAC; Remington Rand Yes; Vacuum tube (1st generation of mainframe); proprietary, closed computer architectures Yes: substitute for tabulating machines

Personal Computer (PC) 1981: rst non-proprietary, open personal computer; IBM Yes; Microprocessor; nonproprietary, open computer architecture, industry standard Yes, substitute for terminals connected to mainframe or minicomputer Yes, new application of personal computing, new clients, vertically disintegrated rms (mainly assembly)

Threat of substitution

Emergence of a new industry

Yes, new application of central data processing, new clients, new vertically integrated computer rms

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tive accumulation. However, IBM did not own or control the computer architecture and the core components of the PC. Microsoft and Intel controlled the PC innovation. This Schumpeterian innovation was creative destruction in disguise. In the 1990s the development of networks, ranging from local area networks to the Internet, represented another major technological development in the computer industry. However, networks did not constitute a Schumpeterian innovation as they did not lead to the substitution of existing types of computers. Interestingly, these networks reinforced the use of both personal computers and mainframe computers. The latter beneted from the need for network servers.

Superior Performance We used the IKS-methodology to calculate the three performance strata of the sample of Fortune Global 500 computer rms: (1) the superior stratum; (2) the modal stratum; and (3) the sub-modal stratum. Figure 4 shows the three strata for the rolling veyear windows. As Figure 4 reveals, not all three strata are always present during the research period. During some intervals the superior or the sub-modal stratum was absent. These absences do not mean that no rms performed in a sub-modal or superior way, but that the performance differences were not signicant.

Persistent Superior Performance

The Persistency of Superior Performance of Computer Firms

Performance Figure 3 shows the raw performance data, that is, the return on assets of the Fortune Global 500 computer rms during the 19542002 period. The graph reveals relatively stable performance patterns until the early 1980s. During the 1980s the volatility of performance increases and continues to increase during the following decade. Not only the volatility of the return on assets changes, but so do the absolute performances. Until the early 1980s the performance of all rms in our sample is positive. However, during the 1980s and 1990s we observe, besides higher levels of positive performance also the occurrence of negative performance.

Our research question can be positively answered as we observed persistent superior performance by Fortune Global 500 computer rms. Table 4 shows the strata memberships of the Fortune Global 500 computer rms during the research period. Occurrences of persistent superior performance have been highlighted: six consecutive windows of superior performance (1). We identied ve occurrences of persistent superior performance during the research period. IBM achieved 24 consecutive windows of superior performance between 1958 and 1985 (see Figure 5). Burroughs achieved six consecutive windows between 1970 and 1979 (see Figure 6). Apple (see Figure 7) and Hewlett-Packard (see Figure 8) also achieved six consecutive windows. Apple achieved persistent superior performance between 1985 and 1994, while

N.B: Burroughs was renamed Unisys in 1986 after acquisition of Sperry

Figure 3 The Return on Assets of Fortune Global 500 Computer Firms, 19542002

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100%

80%

60%
1 0 -1

40%

20%

0%
8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 00 -2 19 98 95 96 96 96 96 96 97 97 97 97 97 98 98 98 98 98 99 99 99 99 99 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 -2 00 2

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Window

Notes: 1 : superior performance stratum: above model economic performance 0 : modal performance stratum: modal economic performance -1 : sub-performance stratum: below model economic performance

Figure 4 The Performance Strata of Fortune Global 500 Computer Firms, 19542002

Hewlett-Packard reached persistency between 1992 and 2001. Finally, Dell achieved nine consecutive windows so far, from 1990 to the end of the research period, 2002 (see Figure 9). Four other rms achieved superior performance for shorter time frames: Compaq, DEC, Honeywell, and NCR. These rms achieved superior performance but not long enough to qualify for persistent superior performance. As Table 5 indicates, none of the rms that achieved persistent superior performance occupied the submodal stratum in the six windows preceding the period of persistency. During the six windows following the end of persistency, only one rm, Burroughs, descended to the inferior stratum.

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that contains data from 1954 onwards. The relationship between the second Schumpeterian innovation, the introduction of the PC and the ending of the persistent superior performance of IBM seems plausible. We apply the conceptual framework (see Figure 1) to investigate the relationship between the persistent superior performance of IBM and the Schumpeterian innovation of the PC. The persistent superior performance of IBM during the 19581985 period suggests a sustainable competitive advantage of that rm. Proprietary, closed computer architectures, ownership of the industry standard in mainframe computers, and the superior sales and service force were three of IBMs core competencies in that period. The vertical integration of computer rms, economies of scale, the proprietary, closed architectures of mainframe and mini-computers, and the sales and service forces constituted mobility barriers. The core competencies and the mobility barriers contributed to the sustainable competitive advantage of IBM. The PC undermined each of IBMs three before mentioned core competencies and lowered mobility barriers as it brought: non-proprietary architecture, open standards, vertical disintegration, that is, purchasing key components, and distributing through independent wholesalers and retailers. The PC constituted a substitute for IBMs mainframe and minicomputers. This case provides support for the second proposition about the impact of creative destruction. The elimination of IBMs persistent superior performance and even the superior stratum as a whole (see Figure 4) may be related to the PC introduction
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Relating Persistent Superior Performance, Sustainable Competitive Advantage, and Schumpeterian Innovation Figure 4 shows two intervals without a superior stratum. The rst interval without superior performance consisted of three windows, 19551961. The second interval without superior performance also consisted of three windows, 19821988. Both intervals without superior performance have been preceded by a Schumpeterian innovation. The mainframe was introduced in 1951, shortly before the rst interval. The introduction of the PC took place in 1981, just before the second interval. Can we attribute the absence of (persistent) superior performance to Schumpeterian innovation? The impact of the introduction of the mainframe computer on the occurrence superior performance is difcult to investigate with our data set
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Table 4 The Performance Strata Memberships of the Fortune Global 500 Computer Firms, 19542002
1954-1958 1955-1959 1956-1960 1957-1961 1958-1962 1959-1963 1960-1964 1961-1965 1962-1966 1963-1967 1964-1968 1965-1969 1966-1970 1967-1971 1968-1972 1969-1973 1970-1974 1971-1975 1972-1976 1973-1977 1974-1978 1975-1979 1976-1980 1977-1981 1978-1982 1979-1983 1980-1984 1981-1985 1982-1986 1983-1987 1984-1988 1985-1989 1986-1990 1987-1991 1988-1992 1989-1993 1990-1994 1991-1995 1992-1996 1993-1997 1994-1998 1995-1999 1996-2000 1997-2001 1998-2002

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Membership Apple Bull Burroughs* Casio Compaq Control Data DEC Dell Fujitsu Honeywell HP IBM NCR Nixdorf Olivetti Sperry Sun Toshiba Wang Zenith

-1 -1 -1 -1 -1 -1 -1 -1

1 0 0 0 0 -1 -1 -1 -1 -1 0 0 -1 -1 -1 -1 0 0 0 -1 -1 -1 -1 0 0 0 0 0 -1 -1 -1 -1 0 -1 -1 -1 1 0 0 0 1 0 0 0 0 0 0 0 -1 -1

1 1 0 -1 0 -1 1 1 1 0

1 1 1 1 0 0 -1 -1 -1 -1 0 0 0 0 0 0 0 0 0 0 1 0 1 1 0 0 1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 0 1 1 0 0 1 0 0 0 0

0 0 0 0 1 0 1 0 1 1 0

0 0 0 0 1 0 1 0 1 1 1

0 0 0 0 1

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0

0 1

0 1

0 1

1 0 -1

0 0 0

0 -1 0 0 0 -1

1 1 0

1 1 0

1 1 0

1 1 0

1 1 1

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

0 1 0

1 1 1 1 0 -1 -1 -1

0 1 1 0

0 -1 0 -1 1 0 1 0 1 0 0 -1

1 0 1 1 1

1 0 1 1 1

1 0 1 1 1 0

1 1 0 -1 0 0 1 0 1 0 0 0

0 0 0

0 -1 -1 -1 -1 -1 -1

0 0 -1 0 0 0 0 0 0 0 0 0 0 0

Notes: 1: above modal economic performance 0: modal economic performance 1: below modal economic performance Grey marking: persistent superior economic performance * Burroughs was renamed Unisys in 1986 after acquisition of Sperry

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Superstrata membership

0
8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 00 -2 0 00 -2 19 98 -2 19 00 2 98 -2 95 96 96 96 96 96 97 97 97 97 97 98 98 98 98 98 99 99 99 99 99 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 -1 96 00 2

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19 6 99 -1 94 19

-1

Window

Figure 5 The Performance Path of IBM

Superstrata membership

0
8 0 2 4 6 8 8 0 8 0 2 4 6 0 2 4 6 2 95 96 96 96 96 97 98 99 4 96 97 97 97 97 98 98 98 98 99 -1 -1 -1 -1 -1 -1 -1 -1 99 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 19 99 96 8

54

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84

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88

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90

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-1

Window

Figure 6 The Performance Path of Burroughs

which had large negative implications for the leading established computer rms. During three windows, 19821988, the superior stratum is absent. As Microsoft and Intel controlled the Wintel-architecture and the core components of the PC, it was difcult for the computer rms to achieve sustainable competitive advantage and superior performance with the assembly of PCs. Nevertheless, the three computer rms that eventually achieved persistent superior performance during the PC era owed their success to the PC. Dell and Hewlett-Packard did not have a sustainable competitive advantage with regard to the PC hardware but created advantages in related areas. Dells competitive advantage is based on its distribution concept (the direct model), while Hewlett-Packard beneted from the demand for its PC printers. The third rm, Apple, developed its own
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proprietary architecture instead of adopting the architecture and components of Microsoft and Intel. These three cases provide support for the third proposition about the impact of creative destruction. The performance topography as displayed by Figure 3 suggests a trend break around the early 1980s. This break coincides with the Schumpeterian innovation of the PC in 1981. To investigate the stability of performance during the research period, we calculated the number of strata transitions per window, i.e., rms transferring from one stratum to another. To compensate for changes in the sample size, we calculated relative number of transition rates by dividing the absolute number of strata shifts by the number of rms in the sample (see Figure 10). Figure 10 displays high relative number of transitions during the
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Superstrata membership

0 1980- 1981- 1982- 1983- 1984- 1985- 1986- 1987- 1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 19981984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

-1

Window

Figure 7 The Performance Path of Apple

Superstrata membership

0 1980- 1981- 1982- 1983- 1984- 1985- 1986- 1987- 1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 19981984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

-1

Window

Figure 8 The Performance Path of Hewlett-Packard

beginning of the research period and since the second half of the 1980s. Both instances of relatively high transition rates might be related to the Schumpeterian innovations as creative destruction induces the ending of prevailing persistent superior performance (Proposition 2), while enabling other rms to improve their performance and achieve persistent superior performance (Proposition 3).

Discussion
With ve out of twenty rms achieving persistent superior performance, the ratio of rms achieving persistent superior performance is 25 per cent. Our
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ndings seem to contradict previous research that revealed persistent superior performance to be very rare. For example, Wiggins and Ruei (2002) found in a previous study of multiple industries a ratio of 5.17 per cent. This study included the ofce equipment and electronic computer industry. The ratio for this industry amounted to only 3.95 per cent. How may the difference in outcomes between Wiggins and Ruei (2002) and this study be interpreted? We adopted the methodology of Wiggins and Ruei. However, the time frames differ. Wiggins and Ruei studied a 25 year period (19741997), while our study captured 49 years (19542002). If we apply the same 25 year period, we nd a persistent superior performance ratio of 10 per cent as only IBM and Apple achieved persistent superior performance during
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Superstrata membership

0 1987-19911988-19921989-19931990-19941991-19951992-19961993-19971994-19981995-19991996-20001997-20011998-2002

-1

Window

Figure 9 The Performance Path of Dell

Table 5 Performance Paths of the Persistently Superior Performing Firms

Firm Achieving Persistent Superior Performance IBM Burroughs Apple Hewlett-Packard Dell

Six Windows Before Persistent Superior Performance Four modal All modal Mixed modal/superior Mixed modal/superior Three mixed modal/superior

Six Windows After Persistent Superior Performance Mixed modal/superior Mixed modal/inferior All modal One modal Not applicable

1.20

Relative number of shifts

1.00

0.80

0.60

0.40

0.20

0.00
19 55 -1 19 95 57 9 -1 19 961 59 -1 19 963 61 -1 19 965 63 -1 19 96 65 7 -1 19 969 67 -1 19 971 69 -1 19 97 71 3 -1 19 975 73 -1 19 977 75 -1 19 979 77 -1 19 98 79 1 -1 19 983 81 -1 19 985 83 -1 19 98 85 7 -1 19 989 87 -1 19 991 89 -1 19 99 91 3 -1 19 995 93 -1 19 997 95 -1 19 99 97 9 -2 00 1

Window

Figure 10 The Relative Number of Stratum Shifts of Fortune Global 500 Computer Firms, 19542002

these years. Therefore, part of the difference can be explained by the difference in research period. Another explanation for the different outcome is the difference in the samples of rms. Our study focuses on
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the leading established rms in the industry, the Fortune Global 500 rms, while Wiggins and Ruei studied a much broader sample. The studies reveal that the performance dynamics of the Fortune Global
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500 sample deviate from the larger industry sample. The persistency of performance differences between the Fortune computer rms turns out to be larger than that of the larger industry sample.

Research Limitations and Future Research

Our study focused on leading established rms and, therefore, restricted to the Fortune Global 500 sample. The differences in ndings compared to previous studies suggest future research based on a broad industry sample of computer rms for the same long research period. Furthermore, we could not test the rst proposition as no creative accumulation took place during the research period. Finally, it is of interest to study other industries over the same long period of time. Part of the differences between the ndings of Wiggins and Ruei (2002) and our ndings appear to be attributable to the longer time frame of analysis. A mixture of different types of industries, for example automotive, food, and oil, may offer interesting comparison material.

rms that exploited the innovation. The study did not nd creative accumulation during the research period. But the ndings of creative destruction in the computer industry support the framework. While during the era before the Schumpeterian innovation of the PC two rms achieved persistent superior performance, the introduction of the PC enabled three other rms to achieve persistent superior performance. None of these rms initiated the Schumpeterian innovation but each of these rms exploited the Schumpeterian innovation in its own distinctive successful way. The two rms achieving persistency during the preceding era of the mainframe computer did not initiate the Schumpeterian innovation of the mainframe. Our study revealed that none of the rms achieving persistent superior performance introduced a Schumpeterian innovation. These ndings suggest that rms do not have to be Schumpeterian innovators to achieve persistent superior performance. Although rms do not have to initiate the next Schumpeterian innovation (see, for example, Dell), they do have to explore the potential of the innovation before their competitors. The objective of top management striving for persistent superior performance is, therefore, to balance exploitation of the current business and the exploration of new potential (e.g., Volberda, 1998).

Conclusion
In this study we addressed the question whether superior economic performance persists within industries that are confronted with Schumpeterian innovations. We analysed the performance of 20 Fortune Global 500 computer hardware rms in the period 19542002. The analysis was based on the Iterative KolmogorovSmirnov performance stratication technique, developed by Ruei and Wiggins (e.g., 2000, 2002). Theory predicts that Schumpeterian innovation will destroy sustainable competitive advantage and hence persistency of superior performance. Previous research indicated that persistent superior economic performance is very rare. However, this study found a relatively high ratio of rms achieving persistent superior performance in an industry that was confronted with Schumpeterian innovations. As the conceptual framework (see Figure 1) suggests, two sides to Schumpeterian innovation can be distinguished with regard to persistent superior performance. Schumpeterian innovation may destroy sustainable competitive advantage and hence persistent superior performance. However, Schumpeterian innovation may also contribute to persistent superior performance in two ways. First, creative accumulation by leading established rms will renew their sustainable competitive advantage and extend their period of persistent superior performance. Second, Schumpeterian innovation introduced by other rms (creative destruction) may become the basis for new sustainable competitive advantage and related persistent superior performance of the rms that introduced the innovation or
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Acknowledgement The authors would like to thank Prof. T.W. Ruei for providing them with his Iterative KolmogorovSmirnov stratication software programme.

Notes
1. For a detailed discussion of the IKS analysis and its particularly distinguishing characteristics we refer to: Ruei and Wiggins (2000) Technical note: longitudinal performance stratication an iterated KolmogorovSmirnov approach, Management Science, 46(5), pp. 685692. 2. Delphi Ver. 5.51 May 8, 1999 copyright Timothy W. Ruei, 1998.

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MARC BAAIJ, Erasmus University, Rotterdam, Rotterdam School of Management, Department of Strategic Management and Business Environment, F2-21, P.O. Box 1738, Rotterdam NL3000, The Netherlands. Email: mbaaij@fbk.eur.nl Marc Baaij is Associate Professor of strategic management at the Department of Strategic Management and Business Environment of the Erasmus University Rotterdam. His research interests are concerned with persistence of superior economic performance, the role of corporate centres, and with the management consulting industry. MARK GREEVEN, Erasmus University, Rotterdam, Rotterdam School of Management, Department of Organisation and Personnel Management, F3-38, P.O. Box 1738, 3000 DR, Rotterdam, The Netherlands. E-mail: mgreeven@fbk.eur.nl Mark Greeven is a doctoral student in the eld of organization at the Erasmus Research Institute of Management. His research interests are social networks, innovation, China, IT industry, business systems, evolutionary and institutional economics.

JAN VAN DALEN, Erasmus University, Rotterdam School of Management, Department of Decision and Information Sciences, F3-48, P.O. Box 1738, Rotterdam NL3000, The Netherlands. E-mail: jdalen@fbk.eur.nl Dr. Jan van Dalen is Associate Professor of Statistics at the Rotterdam School of Management. His current research includes the analysis of technical biases in hedonic price indices, an exploration of corporate ethics, turnaround times of product carrier, and the measurement of persistent superior performance in the computer industry.

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