2 Three questions

Adapting to discontinuous technological change from the perspective of knowledge management: a case study from the lighting industry in Lin’an, China

This study aims to answer the question of how incumbent firms cultivate dynamic capabilities through knowledge management so that they can efficiently adapt to the changing external environment.

Design/methodology/approach

This study adopts a case study approach and collects data through interviews and secondary public information on the lighting industry and two lighting firms in Lin'an, China. It qualitatively examines the challenges and strategic recommendations for incumbent firms in the context of discontinuous technological change from a knowledge management perspective.

Findings

Incumbent firms often face a variety of challenges when responding to discontinuous technological change. These challenges include identifying opportunities, overcoming path dependence and dealing with employee resistance to change. To overcome these difficulties, three strategies have been proposed to enhance the dynamic capabilities of incumbent firms through knowledge management: cross-border search helps firms improve their knowledge acquisition capabilities and better understand their environment to identify opportunities; building strategic leadership overcomes path dependence and improves knowledge integration capabilities; organizational learning deepens employees’ understanding of change and enhances organizational knowledge application capabilities.

Research limitations/implications

Previous research attributes a firm's ability to cope with discontinuous technological change solely to its general resources, which weakens the importance of knowledge management in this context. This study emphasizes the importance of knowledge as a crucial strategic resource in developing the essential dynamic capabilities for incumbent firms to cope with discontinuous technological change.

Practical implications

This study provides an in-depth analysis of incumbent firms' coping strategies in the new context of discontinuous technological change and further promotes cross-disciplinary research.

Originality/value

This study provides an in-depth analysis of coping strategies in the new context of discontinuous technological change, furthermore theoretically advancing the interdisciplinary research of firm transformation and knowledge management. Meanwhile, it is crucial to identify the preconditions for cultivating dynamic capabilities, especially from a knowledge-based view, which enhances the depth of knowledge management research.

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1. Introduction

Discontinuous technologies, are often characterized as “disruptive” or “radical,” referring to technological advances that deviate significantly from the existing paths of product development (Kammerlander and Ganter, 2015). Technological changes refer to significant changes in technology caused by some force majeure, and discontinuous technological change (DTC) is a typical technological change caused by discontinuous technology. DTC often appears across industries when a new technology emerges (Chinying Lang, 2001), providing a rare window of opportunity for latecomers to catch up (Yu  et al., 2020), but poses significant challenges to incumbent firms (Lambe and Spekman, 1997). DTC is more complex than we imagine (Ehrnberg and Jacobsson, 1997); if incumbent firms cannot make a timely judgment or adapt quickly, they may be eliminated and replaced by new entrants. The demise of Nokia is a very typical example. With the advent of the smartphone era, Nokia’s downfall was due to its inability to keep up with the rapidly changing technology landscape. In today's business context, we must discuss change every minute of every day (Kotter and Cohen, 2012). DTC, as a typical situation, poses a significant challenge for many incumbent firms, requiring companies in related industries to quickly change themselves in response to environmental changes (Lambe and Spekman, 1997).

Although adapting to DTC is important for incumbent firms (Wei and Zhang, 2020), its high failure rate warns us that it is also extremely challenging (Kammerlander and Ganter, 2015). Extant literature explores various factors from the perspective of dynamic capability (DC) that contributes to the demise of organizations when DTC occurs: Firms struggle to comprehend their surrounding environment (Lanza and Passarelli, 2014), which hinders their ability to identify and capitalize on opportunities (Langley and Tsoukas, 2010); firms are trapped in the so-called “capability trap,” where managers recognize the need for change but find it difficult to implement the necessary adjustments (Wenzel, 2015); firms also encounter internal obstacles in implementing transformation strategies due to employee resistance to change (RTC) (Amarantou  et al., 2018). There is substantial research on DTC, most of which emphasizes how new entrants can use this window of opportunity to catch up, but few discuss how incumbent firms respond to DTC. In particular, numerous studies have pointed out that the absence of dynamic capabilities is one of the main reasons for transformation failures of many incumbent companies (Albino  et al., 2023). Indeed, firms that use knowledge management to acquire a knowledge foundation by continuously acquiring, integrating and applying internal and external knowledge will effectively improve their ability to quickly respond to a potential crisis and maintain sustainable development. In summary, while knowledge management can enhance dynamic capabilities, few studies have explored its specific application in dealing with DTC. Existing studies fail to consider DTC as a distinct context, despite it requiring the unique knowledge management and dynamic capabilities of organizations. Although some studies acknowledge the role of knowledge in the context of technological changes, they often treat it as an ordinary resource, which undermines its true importance. This lack of insight leaves an important research gap, particularly regarding the contribution of knowledge management to change.

Based on the above discussion, we propose that the ability of incumbent firms to discover and respond to opportunities when faced with DTC is significantly related to knowledge management. Therefore, it is necessary to apply more advanced and comprehensive interdisciplinary methods and combine them into one framework. Both theoretical research and practical experience have shown that acquiring new knowledge adapted to the environment and building dynamic capabilities for transformation or upgrading are pivotal for firms to adapt to external environmental changes (Mikalauskienė and Atkočiūnienė, 2019). This study aims to answer the key question of how incumbent firms can develop dynamic capabilities for environmental adaptation through knowledge management in response to DTC. The study analyzes the process of developing knowledge management capabilities to identify and seize opportunities, while exploring the relationship between knowledge management and transformation.

At the beginning of the 21st century, the lighting industry experienced a wave of conversion from energy-saving lamps to light-emitting diode (hereinafter referred to as “LED”) technology. China, a major producer, exporter and consumer of lighting products, plays a crucial role in the lighting industry. Lin'an, located in Hangzhou, Zhejiang, is a major production base for energy-saving lamps in China. At that time, the area had over 600 companies in the lighting industry. The emergence of LED technology has led to a sharp decline in the number of companies, with less than 10 remaining today. Although facing challenges in DTC, some companies have effectively dealt with them and are thriving in the LED industry. They used a knowledge management approach to develop dynamic capabilities during the transformation process, providing a new perspective on how organizations can transform in the context of DTC. To demonstrate the successful implementation of knowledge management in organizational transformation in the context of DTC, we used a case study approach. The far-reaching impact of LED technology on the lighting industry is illustrated by the case of Lin'an, making it a suitable example for our research. Specifically, two prominent companies, Woojong and Lijiacheng Electric, were selected as case samples to illustrate the successful transformation through knowledge management. This study identifies three key challenges that incumbent firms face when dealing with DTC and provides some suggestions for building dynamic capabilities in terms of recognizing and responding to opportunities. These findings contribute to the existing literature on incumbent firm transformation practices and offer valuable insights for corporate managers seeking to improve their management practices.

2. Theory and methodology

2.1 Theoretical background

In response to significant environmental changes, organizations must adapt their strategies by leveraging their existing knowledge and resources to align with the external environment and achieve long-term sustainable growth (Augier and Teece, 2009). DC theory, which stems from the resource-based view, assumes that to effectively navigate a rapidly evolving environment, it is essential to reorganize and improve existing resources and capabilities (Teece, 2007). DC is the ability of firms to create, expand and change their knowledge base to adapt to the environment (Teece  et al., 1997). It is of importance for the long-term development of the organization (Fait  et al., 2023). According to DC theory, DC enables organizations to continuously modify the allocation of resources to adapt to changes in the environment and helps enterprises enter new technological fields (Schilke, 2014; Anand  et al., 2010).

The knowledge-based view (KBV) is a further development of the resource-based view, which emphasizes the importance of the knowledge of organizations and individuals in strategic management (Botha  et al., 2014). This theory asserts that knowledge has the attributes of value, scarcity and inimitability and is the most important strategic resource for an organization (Grant, 1996). Therefore, an enterprise can be considered a knowledge-processing system, and its ability to manage knowledge determines its development. To continuously enhance the core competencies of organizations, firms can improve their knowledge base through knowledge management behavior such as disseminating, accumulating and collating internal and external knowledge (Barney, 1991).

Both as complements to the resource-based view, DC theory emphasizes that an organization must adapt its strategies to the external environment based on available resources to achieve sustainable development, whereas KBV emphasizes that knowledge is one of the most important strategic resources of an enterprise. There is a close relationship between DC and KBV, and some studies have attempted to establish a correlation between dynamic capabilities and knowledge, to propose a solution that takes into account knowledge management strategies (Cordeiro  et al., 2023). Meanwhile, knowledge management is linked to change management mechanisms in various application scenarios, such as the management of organization-wide technological change in universities (Shoham and Perry, 2009). For firms, to effectively adapt to the evolving external competitive landscape and DTC, it is critical to generate new knowledge through knowledge integration, diffusion and innovation (Botha  et al., 2014). This process enables them to develop dynamic capabilities and adapt to the changing business landscape. This type of DC is closely related to organizational flexibility and is particularly important in this context (Bamel and Bamel, 2018). Identifying windows of opportunity requires the organization to quickly process signals from the internal and external environment into new knowledge (Sabherwal and Becerra-Fernandez, 2003) and use judgment to identify them (Morgan  et al., 2009). Seizing an opportunity requires the ability to change by acquiring, integrating and applying new knowledge (Migdadi, 2022) to transform external technological changes into development opportunities.

Based on the above discussion, this study examines how organizations can leverage knowledge management to obtain dynamic capabilities for responding to DTC by combining DC theory and KBV, from a process perspective. According to the knowledge management process (see the middle layer of the European knowledge management framework, Figure 1), we divide the dynamic capabilities of incumbent enterprises in the face of DTC into knowledge acquisition, integration and application. The importance of knowledge and dynamic capabilities for change management has already been recognized. However, there is relatively little research on how to build these three knowledge-related dynamic capabilities. Therefore, this study combines DC theory and knowledge theory from the perspective of knowledge management to discuss the challenges that incumbent firms face in building the required dynamic capabilities in the face of DTC.

2.2 Method

Even if the case study sample has some limitations that may make a comprehensive review difficult, nevertheless, the analysis and generalization of the selected representative samples can facilitate exploratory research and enable deep causal inferences that can also summarize general rules. Identifying and responding change is a complex and dynamic process. Therefore, this study uses the longitudinal case study method (Eisenhardt, 1989), which is suitable for exploring general rules (Yin, 2011). The research focuses on the lighting industry of Lin'an, selecting Woojong and Lijiacheng Electric as typical firms that successfully resolved threats of external discontinuous technology through transformation and upgrading. The lighting industry has developed through four stages, all of which have been driven by discontinuous technology. The main representative products are incandescent lamps, fluorescent lamps, halogen lamps/energy-saving lamps and LED lamps. During each technological transition, a significant number of firms encountered the risk of closure due to their inability to adapt to the ever-changing technological environment. Thus, the lighting industry is an illustrative example of an industry in which incumbent companies must constantly adapt to external technological advances.

The lighting industry in Lin'an has significantly decreased from over 600 firms at its peak to less than 10 firms presently. This significant decline indicates that the transformation challenges faced by incumbent firms are representative. Despite the obstacles, some companies have successfully navigated these challenges by seizing opportunities and effectively implementing transformation strategies. The two selected firms for analysis represent typical examples of such success. Woojong, the first and largest lighting firm in Lin'an, under the leadership of its chairman Linfu Zhang, anticipated the market potential of LED lighting and successfully transitioned to LED based on its original strengths. Currently, Woojong is the vice president unit of the China Association of Lighting Industry and has earned a reputation as an industry-leading domestic and international lighting firm. Lijiacheng Electric is another representative enterprise. In 2013, at the inception of the global popularity of LED technology, it established a technical department dedicated to LED technology to integrate traditional illumination with modern, forward-looking lighting technology. In 2016, Lijiacheng Electric made a significant investment in equipment, adding 10 automated LED production lines. This expansion has enabled the company to position itself as an original design manufacturer, catering to the needs of Fortune 500 companies. The experience of these two representative firms has implications for other enterprises facing similar circumstances.

The data for this study mainly consists of two parts: information on the lighting industry in Lin'an and information on two sample companies. Second-hand data was gathered from various online platforms and public reports, whereas first-hand data was obtained through on-site visits to the local industry association and the selected companies for investigative purposes and interviews. To ensure objectivity and accuracy, we conducted triangulation on those data from different sources (Eisenhardt, 1989). From May to August 2023, we conducted semistructured interviews, comprising of two offline and two online surveys. A total of seven individuals were interviewed [1], resulting in an interview record of approximately 113,000 words. Secondary sources included the official company social media accounts and websites, public speeches by managers, reports and academic papers. The authors sorted and verified the data, transcribed the interview data into text and used them for in-depth analysis. By coding, classifying and identifying keywords, an outline for this paper was extracted.

3. Dilemma analysis in discontinuous technological change context toward a knowledge management perspective

3.1 Dilemma 1: Local search leads to insufficient knowledge acquisition

Incumbent companies must remain vigilant of their surroundings and swiftly respond to external changes to align their organization with the ever-changing environment (Sarta  et al., 2021). Acquiring knowledge is the first step in responding to external shocks, and the search strategy plays an important role in this process (Hou  et al., 2023). In light of the increasing speed of environmental change, it is particularly important to consider the sources, quantity and types of available information all of which multiply, making it more difficult for firms to obtain usable knowledge. For example, in 2014, over 100 lighting firms in Lin'an went bankrupt before they could respond to the emergence of new LED technology. According to the Person-in-Charge of Lijiacheng Electric, the lack of knowledge acquisition and anticipation of the resulting crisis when LED technology emerged is one of the primary reasons for this phenomenon. LED technology was widely adopted in the 1990s, with enterprises from Europe, the USA and Japan leading the market. The governments of which also crafted LED support policies regarding environmental protection considerations. LED showed a strong international development momentum. However, during that time, most lighting firms in Lin'an only interacted and cooperated with domestic companies, and their social networks were confined to the local geographic boundaries. This restricted their access to the latest technical knowledge and first-hand market intelligence, resulting in insular and narrow knowledge. Although some firms recognized the impact of LED, their focus on local information constrained their potential to seize the opportunities of LED technology, leading them to solely drive growth in energy-saving lamp technology. In essence, seeking only local information leads to inadequate and homogeneous knowledge, which hinders the timely prediction of crises and the identification of opportunities (Shane and Venkataraman, 2000).

3.2 Dilemma 2: Path-dependence leads to a failure of knowledge integration

Firms are faced with the challenge of adapting to DTC, which involves a significant shift from the first to the second curve. In reality, despite recognizing the potential for new technological growth and the opportunities it presents, some companies may still be constrained from making changes due to path dependencies. This phenomenon refers to their continued reliance on outdated products or practices rather than embracing more efficient and innovative alternatives (Godkin and Allcorn, 2008). Without making changes, the firm would hit the limit point of the first curve, which is the stall point (Olson and Van Bever, 2008). For example, many energy-saving lamp firms in Lin'an were unable to break free from their path dependencies and were quickly eliminated after the emergence of LED. The transition from traditional energy-saving lamps to LED lamps was challenging, and it involved difficult decisions such as abandoning a significant quantity of equipment that was generating revenue. There are significant differences in the technical principles, skills required and sales channels between these two technologies, forcing firms to reconstruct their technical and market resources. Therefore, it compelled the firms to make a choice: preserve the status quo or abandon the existing technology and start from scratch. At that time, the energy-saving lamp market was profitable, thus many local entrepreneurs had just made their first profits and were reluctant to change direction. For most incumbents, the transformation needed substantial conversion costs, which would intensify the dependence and rigidity of the organization. Most of the equipment owned by the incumbent firms was a special-purpose asset that would have to be sold for scrap if they decided to transition. Consequently, they were more inclined to conservative incremental innovation and gave up on transformation (Maula  et al., 2013). DTC requires businesses to cross onto another curve, and the most successful approach is to make logical changes (Yu  et al., 2020). Negative path dependence hinders the integration of knowledge within enterprises and impedes the transformation of acquired knowledge into new knowledge, which is essential for changing and adapting to environmental changes. Ultimately, it leads to the elimination of such enterprises.

3.3 Dilemma 3: Employee resistance to change leads to inefficient knowledge application

Previous research on management research has not adequately considered the influence of individuals on organizational change. However, individuals within an organization can exert a significant impact on organizational change. For instance, during a company’s transformation, it is not uncommon for employees to lack enthusiasm and commitment. Organizations must recognize and address these natural psychological reactions, such as employee RTC, which is related to whether the new knowledge acquired by the organization is applied (Oreg and Sverdlik, 2011). If employees resist change, no amount of new knowledge can bring actual benefits (Imran  et al., 2017). Through research, we found that the shift from traditional energy-saving lamps to LED lamps necessitated firms to revise their materials, equipment and sales practices. This led to substantial changes across all departments, demanding a departure from previously well-established skills and paradigms. Employees tended to actively or passively resist these changes, hindering the implementation of change. During this transformation, Woojong found that many employees could not adapt or even chose to leave. The primary reason for the difficulty in implementing change was the lack of understanding and sense of urgency among employees with average education levels. Change is not designed at the top and mechanized at the bottom but needs employees’ support, so how can they be persuaded to support change? For most employees in the Lin'an lighting industry, the transition to LED touched their fundamental interests, forcing them to learn new things and raising uncertainty about the future, creating a sense of panic. Even though there was no public expression of resistance, there may have been negative attitudes toward transformation caused by the introduction of new LED technology. This obstacle hindered managers in recognizing and addressing employee RTC, impacting knowledge management and LED technology adoption. Essentially, when employees have a strong RTC, it is difficult to apply knowledge to activities that are beneficial to the organization.

4. Constructing dynamic capabilities in discontinuous technological change context: from the perspective of knowledge management

4.1 Cross-border knowledge searches enhance knowledge acquisition capability

Most companies engage in knowledge search after becoming aware of perceiving performance gaps caused by technological change. However, the scope is mainly aimed at the impact of new entrants on their own knowledge base (Ali, 2021). The knowledge obtained from this local search behavior is incomplete and homogeneous, which can only provide short-term solutions. To obtain more comprehensive and heterogeneous knowledge from the external environment, firms need to conduct cross-border searches beyond their organizational boundaries. This will enable them to gain long-term breakthroughs through cross-border knowledge acquisition (Klein and Todesco, 2021). They reduce the shielding effect of organizational boundaries by seeking diverse knowledge sources external to the organization, thereby facilitating the influx of valuable new knowledge from various channels including customers, suppliers, universities, technology agencies and even competitors (Klein and Todesco, 2021). Cross-border searches require a comprehensive approach encompassing both depth and breadth. Lijiacheng Electric acknowledges the importance of local knowledge and recognizes the value of expanding its horizons beyond geographical boundaries. Gathering information from technologically advanced regions, such as the USA and Europe, enables Lijiacheng Electric to enhance its understanding of trends in the lighting industry's development. This broadens Lijiacheng Electric's vision, allowing it to better grasp development trends and become aware of the new LED technology before the domestic market has time to respond. At the same time, Lijiacheng Electric actively engages with foreign experts to stay updated on the latest trends in LED development. By continuously searching and accessing various knowledge sources, Lijiacheng Electric enhances its search depth, allowing the company to stay at the forefront of the field (Choi  et al., 2018). Technical and market knowledge are the two most important sources of organizational innovation (Lin and Li, 2013), both of which are extremely important for the organizational adaptability. Woojong maintained regular communication with top research institutions in China, which is a kind of cooperation across cognitive distance. Acquiring technical knowledge from senior scientific researchers in the lighting field helped firms identify the disadvantages of traditional energy-saving lamps such as their short lifespan, and the technical advantages of LED lamps such as environmental protection. Cross-border research also enables companies to obtain market knowledge, contributing to the development of new marketing channels and business model innovation. This allows companies to be continuously informed about customers' real-time preferences and other useful information (Lyu  et al., 2022), helping companies to increase their sensitivity to market changes and to make targeted adjustments to their strategic planning. Woojong visited overseas markets to understand the situation of the LED international market and communicated regularly with customers, peer companies, upstream and downstream companies and business associations. After acquiring knowledge and improving LED sales channels, it quickly laid out the LED lighting market and seized an excellent opportunity to develop LED. It can be seen that firms need to improve their knowledge acquisition capabilities through multidimensional and multicontent cross-border searches to promptly identify windows of opportunity, and react before new technologies become a threat (see Figure 2).

4.2 Building strategic leadership promotes knowledge integration capability

According to the upper echelons theory, the personal characteristics of managers will affect the strategic choices of the company (Hambrick, 2007), thereby influencing whether the company can successfully transform. Path dependence widely exists in organizations, for example, the lack of determination by managers to make changes leads to the inability of the company to effectively integrate external knowledge into the organization, making it difficult to achieve effective change. Linfu Zhang, the founder of Woojong, pursues growth opportunities with a clear intention to discover and explore new opportunities beyond the original strategy. After realizing that the pollution risk of energy-saving lamps would inevitably lead to their decline, he determined to transform. He stated:

We must change, otherwise the company cannot continue to operate. A large number of employees need their jobs, and we should be responsible for them. We are an important member of the China Lighting Industry Association, so we should also be responsible for the development of the entire industry.

Recognizing the inevitability and urgency of change, Zhang prioritized transformation as the primary focus of development. He decisively established the LED technology department, actively integrating externally relevant knowledge of new technologies into the existing internal knowledge, thus establishing the knowledge foundation necessary for transformation. Zhang possesses strong strategic planning skills and plays a crucial role in guiding the organization to identify external opportunities and adjust the organizational strategies accordingly. In addition, he can translate strategy into action. Despite facing significant losses from discontinuing the production of energy-saving lamps, Zhang resolutely did so and switched to producing LED products. He encouraged employees to discard outdated knowledge that was not conducive to technological advancement and to quickly absorb the emerging knowledge of LED. Knowledge learning should learn to forget at first so that it will not be imprisoned by inertia and have stronger adaptability and renewal ability in a turbulent environment (Snihur, 2018). Many energy-saving lamp firms are unable to integrate new knowledge as they are trapped on specific paths, ultimately leading to an inability to adapt to the environment and thereby facing elimination. They have not abandoned outdated concepts and experiences, which hinders their ability to gain new ideas and practices (Klammer and Gueldenberg, 2019). To achieve knowledge integration, foster organizational dynamism and attain sustainable development, leaders must possess strategic innovation capabilities and effectively translate strategy into action. They must also discard outdated knowledge and overcome path dependency (Kodama and Shibata, 2014). Nonetheless, many firms are reluctant to abandon their existing core advantages and resist adopting new thinking patterns that would enable them to adapt to external changes (Gilbert, 2005). Strategic leadership needs to better perceive opportunities, maintain flexibility, guide organizations in making long-term judgments and enhance their ability to integrate knowledge. That will facilitate dynamic organizational development and sustain competitive advantage (see Figure 3).

4.3 Strengthening organizational learning improves knowledge application capability

Improving the overall cognitive level through organizational learning can help reduce employees’ RTC, allowing companies to better apply acquired knowledge to internal activities, thereby improving the organization’s knowledge application capabilities. Only when employees possess a profound comprehension of change and its significance can they actively participate in the transformation. Communication and education are the most common strategies for managing employee RTC (Alas and Sharifi, 2002). Employees acquire diverse and heterogeneous knowledge through organizational learning, enabling them to comprehend changes in the external environment, the obsolescence of past technologies and the necessity of change, which reduces their RTC. Woojong invited scientific researchers to explain the shortcomings of energy-saving lamps to grassroots employees and analyzed the trend in the lighting industry by introducing the new international regulations prohibiting the sale of incandescent bulbs, aiming to make employees realize deeply that they would face being abandoned if they are unwilling to make changes. Strengthening communication with upstream and downstream enterprises serves as another vital avenue for organizational learning. For example, Lijiacheng Electric’s technicians were exposed to cutting-edge technology through communication with suppliers, and sales staff gained the latest market knowledge from customers, which made them realize that LED technology was an unstoppable trend and they needed to make changes to adapt it.

Internal communication is also an important means of organizational learning. The introduction of new talents helps organizations acquire more fresh knowledge and carry out organizational learning, thereby improving the ability to apply knowledge. Recruiting suitable new talent from universities was one of Lijiacheng Electric’s priorities during its transformation period. As the manager pointed out, the team’s ability to acquire and embrace new technologies more efficiently depends on the combination of new idiosyncratic knowledge with the organization's existing knowledge. Knowledge sharing within the organization also helps the organization enhance its knowledge application capabilities. The teams in Lijiacheng Electric share knowledge through intragroup meetings and intergroup communication. The technical director stated that this allowed successful experiences to be shared to achieve a spiral growth of knowledge (Nonaka and Von Krogh, 2009), and allowed the exchange of failed experiences to help all teams avoid pitfalls, which was conducive to more efficient application in the organization. Moreover, digital tools can optimize knowledge sharing (Tortora  et al., 2021; Tseng, 2008). Lijiacheng Electric adopts a product lifecycle management system where relevant personnel can upload information. This ensures that their products continuously undergo iteration and innovation as the market changes, always meeting market needs. By sharing information through digital technology, knowledge can be better applied to promote enterprise development. Another critical strategy is fostering a culture of sharing within teams, which increases employees’ willingness to share (Trigg, 2020). Zhang Linfu, the founder of Woojong, has an open and inclusive personality that permeates the corporate spirit of the company. He encourages employees to express themselves, listen and understand the ideas of others, which ultimately shapes the corporate culture that is willing to share. In such an organization, employees are more willing to share knowledge and take the initiative to learn, thus helping the organization apply knowledge during change activities. Based on the above discussion, external cooperative learning and internal exchange learning can both contribute to enhancing employees’ comprehension and support for change (Jain, 2023). This enables firms to apply new knowledge to their production and innovation activities, effectively addressing the challenges of DTC (see Figure 4).

Based on the discussion above, we analyzed two successful firms and proposed a framework for developing dynamic capabilities in the face of DTC to solve the three knowledge management dilemmas and provide some strategic suggestions (see Figure 5).

5. Discussion, implications and future research

5.1 Discussion

The world has entered a time of technological revolution and industrial transformation. Numerous scholars have extensively discussed the phenomenon of DTC. Scholars have mainly studied the catch-up paths of new entrants and the reaction strategies of incumbent firms from the perspective of dynamic abilities. From theoretical and practical perspectives, it can be seen that the DTC faced by incumbent enterprises and the dynamic capabilities required to deal with them are unique (Langley and Tsoukas, 2010). However, little research has systematically explored ways of building DC (Faccin  et al., 2019), especially in the context of DTC. Simultaneously, academic research has recognized the significance of knowledge as a critical resource in processes of change and capability building (Botha  et al., 2014). By reviewing the literature and combining DC theory with KBV, we can better explore how organizations use knowledge, an important strategic resource, to improve their dynamic capabilities in dealing with DTC. That is to say, using knowledge-based theory to explore the dynamic capabilities required by incumbent firms in discontinuous technological environments, can not only deepen the understanding of the path to building dynamic capabilities but also promote the application of knowledge management to organizational change in the new context of DTC.

Based on existing research and a case study from the lighting industry in Lin'an, we propose three main challenges faced by incumbent firms in the context of DTC: Identify windows of opportunity, overcome path dependence and manage employee RTC. Then, through an in-depth analysis of two successfully transformed lighting companies, we propose that when incumbent firms face DTC, they can overcome the obstacles in three ways: searching across boundaries, building strategic leadership and strengthening organizational learning. Specifically, cross-border search can help firms improve their ability to perceive the environment and identify opportunities; building strategic leadership can help organizations overcome path dependence and improve their ability to integrate new knowledge; organizational learning can help employees deepen their understanding of change and improve their ability to apply knowledge.

5.2 Theoretical and practical implications

To fill the gaps in the existing literature, this study provides an in-depth analysis of incumbent firms’ coping strategies in the new context of DTC, which takes a comprehensive and interdisciplinary approach to establish a stronger connection between knowledge management and DC in the face of external discontinuous technology. It expands the scope of interdisciplinary research on related theories and extends existing research in two important ways in particular. First, we combine two theories, DC theory and KBV theory, which are both based on the resource-based view, to explore the capabilities required by organizations in the process of responding to changes in the external environment. This combination complements the mediating path of dynamic capabilities between knowledge management and organizational performance, better explains why knowledge management improves the sustainable competitiveness of organizations, and further enriches the application of knowledge management research to organizational transformation. It complements a key perspective that has been overlooked in existing studies, namely the significant role of knowledge as a unique resource in the process of firm transformation. Second, traditional DTC-related research places more emphasis on the opportunities that DTC brings to new ventures while ignoring the dilemmas that incumbent firms may encounter. In fact, in the context of DTC, the challenges faced by incumbent firms and the required knowledge are somewhat unique. We proposed a framework for dynamic capacity building in the face of DTC to solve the dilemmas and provide some strategic suggestions. This study re-examines the importance of DTC to incumbent firms, emphasizing dynamic capabilities and knowledge management in this specific context, which will help expand theoretical research in this research area.

This research also has practical implications for facilitating the transformation of incumbent firms, emphasizing the significance of knowledge management in the context of DTC. The results indicate that managers should fully recognize the important role of knowledge in the transformation in the context of DTC and improve the ability of enterprises to acquire, integrate, and apply knowledge to effectively respond to the ever-evolving technological changes. First, enterprises should allocate more attention to knowledge beyond organizational boundaries. In the context of DTC, the acquisition of heterogeneous knowledge through search activities outside of organizational or technological boundaries helps firms to identify and respond to environmental changes as early as possible. Second, managers should improve strategic leadership to provide a good foundation for implementing strategic changes under DTC. This higher level of integrative leadership can be improved through effort, particularly by developing the ability to make sound judgments and decisions in dynamic environments, and the ability to effectively translate ideas into action. Third, enterprises should fully recognize the complementary nature of external and internal organizational learning, and combine the two approaches to make employees aware that even knowledge and experience that has proved correct in the past may have adverse effects, such as hampering transformation, thereby reducing employee RTC. Specifically, enterprises can promote a virtuous cycle of external and internal learning, and strengthen the construction of a learning organizational culture.

In summary, DTC occurs frequently as a threat to incumbent firms (Kim  et al., 2022). This study explores the dilemmas and outlets for incumbent firms in the context of DTC from the perspective of knowledge management. It not only helps organizations understand the significance of knowledge management but also provides new ideas and directions for organizational practice.

5.3 Limitations and future research

It should be noted that this study has some limitations. First, we chose a case study as the research method, which may lead to the issue of a limited sample size. Therefore, future research should consider validation in a wider range of studies to enhance the generalizability of the findings. Second, the transformation dilemmas we presented are not comprehensive enough. We selected two large enterprises for the case studies that are better equipped with adequate resources, but SMEs may face different dilemmas due to resource constraints. In addition, the technical requirements of different industries may vary, and so will the difficulties they face in the context of DTC. Based on this, scholars can further study the dilemmas and solutions for different types of industries or different sizes of enterprises in the context of DTC.

The authors are very grateful for the editor’s helpful comments, suggestions and the anonymous reviewers. This paper was supported by the National Social Science Foundation of China (Grant No. 22AJY012). The authors thank them heartedly for funding this study.

Note

1.Including the Chairman of Woojong, the Human Resources Center director of Woojong, the President’s Office director of Woojong, the Chairman of Lijiacheng Electric, the Technical Director of Lijiacheng Electric, the functionary of local government, the member of Lin’an Association of Lighting Industry.

Figure 1

The framework of European knowledge management and the process of knowledge management

Figure 2

Framework of cross-border knowledge searches and knowledge acquisition capability

Figure 3

Framework of strategic leadership and knowledge integration capability

Figure 4

Framework of organizational learning and knowledge application capability

Figure 5

Build dynamic capabilities toward a knowledge management perspective and solve the transformation dilemmas