trying to become a different type of company: …

Strategic Management JournalStrat. Mgmt. J., 32: 1–31 (2010)

Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.863

Received 24 January 2008; Final revision received 11 April 2010

TRYING TO BECOME A DIFFERENT TYPEOF COMPANY: DYNAMIC CAPABILITY AT SMITHCORONA

ERWIN DANNEELS*Department of Management, University of Central Florida, Orlando, Florida, U.S.A.

Smith Corona, formerly one of the world’s leading manufacturers of typewriters, was challengedto exercise dynamic capability in the face of the dissipation of its main product category. Astudy of the last two decades of the life of the company shows how Smith Corona tried to alterits resource base by leveraging existing resources, creating new resources, accessing externalresources, and releasing resources. Using the extended case method, this study advances dynamiccapability theory by confronting it with an empirical case. The Smith Corona case providesrich insights into the resource alteration processes by which dynamic capability operates, andhighlights resource cognition as a missing element in dynamic capability theory. Copyright 2010 John Wiley & Sons, Ltd.

What experience and history teach is this—that peoples and governments never havelearned anything from history, or acted onprinciples deduced from it. (Georg WilhelmFriedrich Hegel, Philosophy of History,[1831] 1991: 6)

INTRODUCTION

Scholars and managers have long tried to under-stand why some firms survive and even prosperin the face of environmental changes, while oth-ers wither. To cope with environmental changes,firms need to renew themselves (Dierickx andCool, 1989; Floyd and Lane, 2000). Inability todo so may have severe consequences for firms,

Keywords: dynamic capability; resource leveraging;resource cognition∗ Correspondence to: Erwin Danneels, Associate Professor,Department of Management, University of Central Florida,P.O. Box 161400, Orlando, FL 32816-1400.E-mail: [email protected]

the people they employ, and the communitiesin which they operate. Organizational renewalinvolves changing organizational resources andcompetences over time, often accompanied bya change in the organization’s products (Baden-Fuller and Stopford, 1994; Floyd and Lane, 2000).Why are some firms able to renew themselveswhen environmental changes threaten their long-run viability, while others are not? One of themost prominent theories proposed to address thisquestion revolves around the notion of ‘dynamiccapability.’ Dynamic capability refers to the abilityof a firm to renew itself in the face of a chang-ing environment (Teece, Pisano, and Shuen, 1997)by changing its set of resources (Eisenhardt andMartin, 2000). The term ‘dynamic’ refers to therenewal of resources and competences to addresschanging environments. Dynamic capability theorystates that some firms thrive in the face of envi-ronmental changes because they have the ability tochange their resources (Teece, Pisano, and Shuen,1997; Eisenhardt and Martin, 2000). Changes inthe firm’s set of resources can be achieved by

Copyright 2010 John Wiley & Sons, Ltd.

2 E. Danneels

various modes: leveraging, creating, accessing, andreleasing (Eisenhardt and Martin, 2000).

To date, the discourse on dynamic capabilitieshas taken place at an abstract and even esotericlevel (Kraatz and Zajac, 2001). In addition, thereis a dearth of empirical research on dynamic capa-bilities (Barr, 2004). The purpose of this study is toadvance dynamic capability theory by confrontingit with an empirical case. I use the extendedcase method (Burawoy, 1991), which draws on adetailed study of a case to extend current theory.I start from the existing dynamic capability the-ory, in particular its enumeration of resource alter-ation modes, and confront these ways of resourcealteration with the empirical context provided bySmith Corona, formerly one of the world’s lead-ing manufacturers of typewriters. I examine howSmith Corona implemented each of these modesand show how dynamic capability theory can beextended by relating it to other literatures, andreveal a gap in the theory.

Smith Corona is a salient example of a companythat needed to renew its resource base in the faceof the environmental changes that obsolesced itsmain product category, typewriters. The declineof its core product category challenged the firmto exercise dynamic capability, lest it decline andeventually demise with the product. Even thoughthe exact form of the product life cycle has longbeen debated, product categories go through stagesthat consist of introduction, growth, maturity, anddecline (Day, 1981; Lambkin and Day, 1989). Thedecline of the typewriter product category was pre-cipitated by various environmental changes, suchas the increasing computer literacy among con-sumers, the development of electronic circuitryand software, and changes in channels of distri-bution. Thus, to avoid declining along with itsproduct category and to survive as a firm, SmithCorona needed to enter into other product cat-egories, which required access to the resourcesunderlying these products (Danneels, 2002; Teece,1982). Smith Corona was challenged to find anew product domain position and to renew itsresource base (Danneels, 2002; Floyd and Lane,2000). However, its attempts at renewal did notresult in viable new products enabled by a new setof resources.

In their seminal article, Eisenhardt and Mar-tin (2000) stated that the firm’s resource basecan be altered in various ways, such as leverag-ing, creating, accessing, and releasing. However,

these modes of dynamic capability have remainedinside a ‘process black box’ (Priem and Butler,2001a: 33); there is a lack of knowledge abouthow dynamic capability is exercised, that is, howand why resource alteration modes are used. I willconfront the modes of resource alteration enumer-ated in dynamic capability theory (Eisenhardt andMartin, 2000) with detailed data on Smith Corona,a firm that tried to change its resource portfolio tocope with environmental changes and attempted torenew its resource base in response to the grow-ing obsolescence of its core product category.1

Smith Corona is a particularly well suited case tostudy the exercise of dynamic capability becausethe necessity of resource renewal was sharplypronounced as its core product category declinethreatened its survival. In 1980, Smith Corona hadabout 50 percent of the U.S. market in typewrit-ers, was shipping over a million typewriters peryear, and employed over 4,000 people. In 2001,Smith Corona was gasping its last breath, under-going liquidation. The study of a firm that failedmay have a higher potential for contributing todynamic capability theory because, as eloquentlystated by Williamson (1999: 1093 fn 3): ‘Moreinformative, often, than success stories are storiesabout failure—especially the failures of once suc-cessful enterprises to adapt to new circumstances’(see also Denrell, 2003; Priem and Butler, 2001a;2001b).

After discussing the data collection and dataanalysis procedures, I examine how Smith Coronaattempted each of the various modes of dynamiccapability: leveraging existing resources, creat-ing new resources, accessing external resources,and releasing resources. First, leveraging existingresources involves putting them to new uses (Dan-neels, 2002, 2007; Miller, 2003). A resource isa tangible or intangible asset that the firm owns,controls, or has access to and from which it poten-tially derives rents (Helfat and Peteraf, 2003).Some resources are fungible, that is, amenable tomultiple applications (Teece, 1982). For example,resources embedded in products such as brand, dis-tribution access, and manufacturing facilities maybe leveraged by applying them to other prod-ucts. However, resources vary in the extent to

1 Smith Corona also had two wholly owned subsidiaries inoffice paper supplies, stationery, and office forms, which werecombined with the typewriter business in a 1982 reorganizationwithin SCM. Because they represent a small portion of itsbusiness, I do not discuss them herein.

Copyright 2010 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1–31 (2010)DOI: 10.1002/smj

Dynamic Capability at Smith Corona 3

which they are product-specific versus fungible,and hence vary in the extent to which they canbe leveraged from current products to new prod-ucts (Danneels, 2002, 2007). Smith Corona triedto leverage its brand, distribution, and customerunderstandings in order to enter product categoriesother than typewriters. Second, new resourcescould be created internally and combined to form anew competence. A competence is a configurationof resources that enables the firm to accomplish aparticular task (Grant, 1991; Helfat and Peteraf,2003; McGrath, MacMillan, and Venkataraman,1995; Verona, 1999). Adding resources and config-uring them into competences involves explorativelearning (Floyd and Lane, 2000; March, 1991;Levinthal and March, 1993). The ability of a firmto build new competences has been referred toas a second-order competence (Danneels, 2002).While Smith Corona built a competence in elec-tronics that led to great success with extensionsof its typewriter category, after that it did notadd any proprietary technology that would haveenhanced its entries into other product categories.Third, it is possible to access new resources exter-nally. Sometimes complementary resources can beaccessed externally and be configured with cur-rent resources. Smith Corona tried to access exter-nal complementary technically related resourcesthrough alliances, but found that its market-relatedresources did not add value to alliance partnersnor to the products sourced from them. Finally,the alteration of a firm’s set of resources mayinvolve dropping existing resources, such as byselling assets or reducing workforce, which SmithCorona did in order to support losing operationsrather than to foster renewal.

The Smith Corona case will provide rich insightsinto the resource alteration processes by whichdynamic capabilities operate, and hence start tofill the process gap in dynamic capability the-ory. In addition, the examination of the modes ofdynamic capability (leveraging, creating, access-ing, and releasing) will highlight a missing elementin dynamic capability theory: resource cognition.Correcting strategy’s excessive focus on environ-mental conditions, Teece et al. (1997: 513) arguedthat ‘what a firm can do is not just a function of theopportunities it confronts; it also depends on whatresources the organization can muster.’ This studywill add to this insight that what resources man-agers try to muster depends on their mental models

of these resources. I argue that managerial cogni-tion about firm resources is essential to explainingthe exercise of dynamic capability, as the identifi-cation of resources and the understanding of theirfungibility affect which directions of renewal arepursued.

METHOD

This study follows in a tradition of in-depth his-torical case studies on the effects of market andtechnological changes on a firm, and the responseof the focal firm to such changes. Prominent exem-plars include Burgelman’s (1991, 1994) studies ofIntel’s transition from memory chips to micropro-cessors, Rosenbloom’s (2000) study of how NCRtransitioned into an electronics-based office equip-ment company, Sull’s (1999) study of Firestone’simpediments to adoption of radial tire technology(1999), and Tripsas and Gavetti’s (2000) study ofhow Polaroid’s obsolete business model hamperedentry into digital photography. Smith Corona isa particularly attractive firm for a detailed histor-ical case study (cf. Golder, 2000). Because thefirm’s demise in 2001 is recent, key decision mak-ers of the last two decades could be located andinterviewed. Because press articles were archiveddigitally since the early 1980s, database searcheswere much facilitated. Additionally, because SmithCorona was well known, it received a lot ofpress attention. Finally, as the firm was publiclytraded, financial statements, management discus-sions, stock market data, and press releases wereavailable.

The focal period of interest is 1980 to 2001. Thestudy period starts in 1980 when Smith Coronaintroduced its first electronic typewriter, contin-ues through the period that the personal computer(PC) obsolesced typewriters, and ends with the liq-uidation of the company in 2001. The first stepof my data gathering was to develop a compre-hensive collection of publicly accessible sourcesof evidence. I collected extensive archival dataon Smith Corona and the typewriter industry ingeneral. Most of these data come from the tradepress and business press, and were collected inexhaustive searches of Factiva, Lexis-Nexis, Info-Trac, EBSCO, and ProQuest. Key industry publi-cations used include HFN: The Weekly Newspaperfor the Home Furnishing Network; TWICE: This


4 E. Danneels

Week in Consumer Electronics; The Office; Deal-erscope Merchandising; and Modern Office Tech-nology. Additional data were gathered from theSecurities and Exchange Commission’s (SEC) fil-ings, Moody’s Industrial Manual, and Value Line.I also collected about 20 actual products and 50advertisements through eBay. I collected data fromthe U.S. Census Bureau and Gale Research’s U.S.Industry Profiles, International Data Corporation(IDC), and Standard and Poor’s (S&P) Indus-try Surveys about general industry trends. I alsosecured detailed data on shipments, sales, prices,and market shares from the market research firmVenture Development Corporation, which pro-duced annual reports from 1981 to 1997. In all, Igathered about 3,000 pages of press articles, 1,000pages of SEC filings, and 3,000 pages of indus-try data. A complete set of company newsletterswas reviewed and selectively copied at the Cort-land County Historical Society. Based on thesearchives, I constructed an event timeline, whichconsists of 87 discrete events (list of events avail-able upon request).

To supplement my detailed archival data, I con-ducted interviews with key decision makers of thecompany from 1980 to 2001. To collect these pri-mary data, I identified top management team mem-bers and board members through SEC filings andinterviews reported in the press, and gained con-tact information on most of them. I sent a letter ofinvitation to all those for whom I had contact infor-mation, sometimes followed up with phone calls.Of the 21 informants for whom I could confirmcontact information, and who were in good health,only two declined (two others were unavailable). Iinterviewed 17 top managers (vice presidents andchief executive officers [CEOs]) and board mem-bers—all but two interviews were conducted face-to-face. To protect confidentiality, I present quoteswith only the title of the interviewee. Each quotecould refer to any holder of such title in the focalstudy period.

Interviews focused on the circumstances andreasons of the events during the informant’s tenure.Where available, I brought press articles in whichinformants were quoted, and asked them to reviewand expand on those statements. Interviews com-monly lasted from one to two hours, and wererecorded with permission. The recordings weretranscribed verbatim. To confirm the accuracy ofmy facts and the credibility of my interpretations,

I exchanged emails with some of the intervie-wees. These member checks served to revise andclarify the history and findings discussed below(Hirschman, 1986; Lincoln and Guba, 1985). Someof the interviewees provided internal companydocuments such as memos, meeting minutes, em-ployee handbooks, and project proposals.

Interviews were long-term retrospective, andtherefore open to potential critique regarding mem-ory loss and retrospective rationalization. Whilethese may be limitations, the elapsed time alsoengendered greater openness among respondents(statements no longer affected their career). Inaddition, information from interviews was trian-gulated with information from other interviews aswell as contemporaneous secondary data (Cardi-nal, Sitkin, and Long, 2004; Jick, 1979; Golder,2000).

I used the extended case method, which usesempirical data gathered through case studies toreconceptualize and extend theory (Burawoy,1991). The extended case method approach goesthrough many cycles of confrontation between dataand theory in each iteration, directing the analystto additional data and drawing on additional con-cepts and theories. The extended case method con-sists of two ‘running exchange[s]’ (Burawoy 1991:10–11): between literature review and data analy-sis, and between data analysis and data collection,represented as: literature review data analysisdata collection.

The first running exchange involves the interplayof existing concepts/theories and analysis of empir-ical data. In the extended case method, intensiveanalysis of the data and exploration of the schol-arly literature occur in conjunction. Data analysispoints to relevant concepts and theories in the liter-ature, while the literature simultaneously providesconceptual frameworks to aid in the interpretationof the data. This study started with the dynamiccapabilities literature, which after confrontationwith the Smith Corona case, led into literaturesabout distinct areas such as resource fungibility,brand extension, and organizational cognition. Thesecond running exchange calls for continuouslymoving back and forth between data collectionand analysis. The analysis of initial data (itselfinformed by the first exchange) suggests additionalinformation to be collected. For example, in thecourse of this study, I was directed to the brandextension literature by the repeated mention in bothinterview and archival data of the effort to use the



Smith Corona brand to enter new product areas.I subsequently examined brand extension researchand found a plausible cause of the failure of newproducts: the product-specificity of the brand. Sub-sequent thought trials (Weick, 1989) and case evi-dence provided further support for the limitationof the brand.

I generated memos when analyzing transcripts,documents, and scholarly literature. Memos arebrief analytical notes that contain insights that theresearcher achieves as he/she proceeds with theanalysis (Strauss, 1987). I continuously matchedand contrasted memos to refine theoretical under-standing (McCracken, 1988), and I systematicallycompared the emergent theoretical interpretationscontained in the memos with the evidence to assesshow well or how poorly they fit with the case data(Eisenhardt, 1989). This iterative process of con-stantly comparing emergent theory and data led toadditional more qualified and refined memos.

The following provides an example of the rolethat memos played in the iterations between datacollection, data analysis, and theory. In a memo Iasked: ‘Why did Smith Corona try this particularsequence of product categories after the ET [elec-tronic typewriter] and PWP [personal word pro-cessor] (electronic reference products, PCs, printer,faxes, etc.)?’ This line of thought was discontinuedwhen interviews revealed there was no rationale tothe sequence of attempted product entries; ratherit was opportunistic based on available productsfrom third-party vendors for printers, faxes, andso forth. This led to the recognition that sincethe new product categories were all sourced, theirbrand was likely the only differentiator with com-petitive products. I subsequently asked questionsto determine whether Smith Corona had any inputinto product design, or whether they were simplysourced on the open market and branded. Since thelatter was the case, it became clear that neither thebrand nor customer understandings, as resourcesof the firm, added value to the products.

In order to organize and analyze my data,the development of three tables was instrumen-tal. Table 1 contains the key numerical data aboutSmith Corona over the focal study period from1979 to 2000. I assembled these annual data,mainly drawing on the annual reports, the prospec-tus, and the Chapter 11 filings. Another data table(not included due to space constraints) lists thekey events in the history of Smith Corona. Table 2presents an overview of the core concepts, their

related concepts and literature, and how they wereempirically manifested in the case. In order to ‘. . .describe the case in sufficient descriptive narra-tive so that readers can experience these happen-ings vicariously and draw their own conclusions’(Stake, 2005: 450), I provide ample interview seg-ments in the findings, and start with a brief histor-ical context.

A BRIEF HISTORY OF SMITH CORONA

Even though the focus of this article is the 20-yearperiod before Smith Corona’s demise in 2001, it ishelpful to summarize the history of the companypreceding this period. In 1886, the brothers Lyman,Wilbert, Monroe, and Hurlburt Smith, who ownedthe L.C. Smith Shotgun Company of Syracuse,New York, founded the Smith-Premier TypewriterCompany. Its first product was the Smith-Premier,a heavy office typewriter. In 1893 Smith-Premiermerged with six other typewriter manufacturers toform the Union Typewriter Company of America.The star product of Union Typewriter remainedthe Smith-Premier, which after Remington wasthe most successful typewriter in the last decadeof the 19th century. In 1896 the ‘visible writing’typewriter was invented, which allowed typists tosee what they had typed without having to lift thecarriage. After failing to convince their partnersof the need to shift to the user-friendly design, theSmith brothers quit Union Typewriter and, in 1903,founded the L.C. Smith & Brothers TypewriterCompany in Syracuse. Visible typewriters becamethe prevailing design.

Yet, the writing machines made by L.C. Smith& Brothers were unwieldy, heavy, and for officeuse only. Standard Typewriter Company (foundedas the Rose Typewriter Company in 1906), wasproducing a folding typewriter. This first portabletypewriter had a carrying case, weighed just sixpounds, and featured a carriage that folded overthe keyboard. This folding typewriter took marketleadership in the portable segment and became thestandard for journalists and the military in WorldWar I. Standard’s next model, the ‘Corona,’ metwith such great success that in 1914 it was renamedthe Corona Typewriter Company.

L.C. Smith & Brothers and Corona merged in1926 to become L.C. Smith & Corona. Their focuson user-friendly and portable typewriters wouldset their future path. Some 3,000 people were


6 E. Danneels

Tabl

e1.

Key

num

eric

alda

taon

Smith

Cor

ona∗

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

Ann

ual

sale

s19

5.1

197.

619

5.5

177.

416

4.3

198.

517

6.3

212.

825

930

7.1

%an

nual

sale

sgr

owth

rate

1.3%

−1.1

%−9

.3%

−7.4

%20

.8%

−11.

2%20

.7%

21.7

%18

.6%

New

prod

uct

sale

s%

ofsa

les

toW

alm

art

<10

%<

10%

#U

Sem

ploy

ees

4200

4065

3300

3400

3000

1200

950

1300

2300

2000

#E

mpl

oyee

sw

orld

wid

e40

00R

&D

expe

nditu

res*

*5.

76.

3R

&D

inte

nsity

(R&

D/s

ales

)**

2.2%

2.1%

Adv

ertis

ing

expe

nditu

res*

*11

.215

.3A

dver

tisin

gin

tens

ity(a

dver

tisin

g/sa

les)

**4.

3%5.

0%To

tal

asse

ts13

8.8

153.

314

8.1

148.

614

8.6

149.

112

312

2.3

156.

615

6.1

1981

to

1985

: $1

14.6

mill

ion

cum

ulat

ive

oper

atin

g lo

sses

Ope

ratin

gin

com

e20

.75.

4−1

5.9

−23.

8−1

1.6

−15.

9−4

7.4

23.5

42.4

60R

OA

(ope

ratin

gin

com

e/as

sets

)0.

149

0.03

5−0

.107

−0.1

60−0

.078

−0.1

07−0

.385

0.19

20.

271

0.38

4O

pera

ting

mar

gin

(ope

ratin

gin

com

e/sa

les)

10.6

%2.

7%−8

.1%

−13.

4%−7

.1%

−8.0

%−2

6.9%

11.0

%16

.4%

19.5

%N

etin

com

e**

15.2

23.6

38.8

Cur

rent

ratio

**2.

42.

42.

32.

12.

72.

52.

12.

22.

62.

6To

tal

debt

toto

tal

capi

tal*

*40

.538

37.6

39.5

3835

.644

.166

.656

.256

.2St

ock

pric

e(a

tlin

gof

10K

inSe

ptem

ber)

Shar

esou

tsta

ndin

g(i

nm

illio

ns)

Mar

ket

valu

e(i

nm

illio

ns)

%of

tota

lsa

les

from

ET

61.9

%56

.7%

%of

tota

lsa

les

from

PWP

2.3%

8.9%

%of

tota

lsa

les

from

ET

/PW

PSu

pplie

san

dA

cces

sori

es<

10%

<10

%

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Ann

ual

sale

s40

1.8

372.

530

2.3

294.

323

2.3

261.

319

6.3

112.

577

.358

.943

.730

%an

nual

sale

sgr

owth

rate

30.8

%−7

.3%

−18.

8%−2

.6%

−21.

1%12

.5%

−24.

9%−4

2.7%

−31.

3%−2

3.8%

−25.

8%−3

1.4%

Sale

s pe

ak in

198

9 an

d de

clin

e ra

pidl

y th

erea

fter

Sale

s fr

om n

on-t

ypew

rite

r pr

oduc

ts n

ever

rea

ch m

ore

than

11.

8%N

ewpr

oduc

tsa

les

7.6

11.8

7.5

03.

86

ofsa

les

toW

alm

art

<10

%<

10%

5.0%

5.1%

12.3

%12

.2%

14.0

%10

.1%

19.8

%29

.7%

27.0

%#

US

empl

oyee

s16

0013

5045

045

045

037

532

030

022

594

43#

Em

ploy

ees

wor

ldw

ide

3600

3300

3600

3400

3000

2300

1100

1000

225

9443

R&

Dex

pend

iture

s**

8.4

9.4

9.1

1110

.18

7.2

21.

94.

81.

9R

&D

inte

nsity

(R&

D/s

ales

)**

2.1%

2.5%

3.0%

3.7%

4.3%

3.1%

3.7%

1.8%

2.5%

8.1%

4.3%

Adv

ertis

ing

expe

nditu

res*

*16

.414

.38.

38.

07.

83.

20.

00.

01.

26.

01.

6A

dver

tisi

ngin

tens

ity

(adv

erti

sing

/sal

es)*

*4.

1%3.

8%2.

7%2.

7%3.

4%1.

2%0.

0%0.

0%1.

6%10

.2%

3.7%

Tota

las

sets

245.

622

1.8

182.

319

0.4

197.

919

513

6.1

83.9

60.6

50.1

22.2

15.2



Tabl

e1.

(Con

tinu

ed)

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Ope

ratin

gin

com

e51

.147

.629

.130

.1−1

5.1

7.7

−47.

7−9

.1−0

.8−7

.8−1

5.9

−3.8

RO

A(o

pera

ting

inco

me/

asse

ts)

0.20

80.

215

0.16

00.

158

−0.0

760.

039

−0.3

50−0

.108

−0.0

13−0

.156

−0.7

16−0

.250

Ope

ratin

gm

argi

n(o

pera

ting

inco

me/

sale

s)12

.7%

12.8

%9.

6%10

.2%

−6.5

%

−9

2.9%

−24.

3%−8

.1%

−−1.

0%−−

13.2

%−3

6.4%

−12.

7%

Net

inco

me*

*42

33.5

19.6

22.1

5.1

−52.

4−1

1.1

−7.3

−6.6

−15.

9−3

.919

93 is

fir

st lo

st y

ear

Cur

rent

ratio

***

2.4

2.7

2.7

2.2

2.3

2.3

1.4

4.7

2.3

2.5

1.9

1.4

Tota

lde

btto

tota

lca

pita

l***

65.5

51.3

29.2

9.7

19.7

20.9

46.2

00

00

0L

iqui

dity

rem

ains

the

sam

e an

d de

bt is

pai

d do

wn

subs

tant

ially

Stoc

kpr

ice

(at

ling

of10

Kin

Sept

embe

r)21

4.5

7.25

6.5

4.75

4.5

0.6

0.05

3.6

5.5

1.2

0.34

Shar

esou

tsta

ndin

g(i

nm

illi

ons)

30.2

530

.25

30.2

530

.25

30.2

530

.25

30.2

530

.25

2.76

2.98

3.06

3.22

Mar

ket

valu

e(i

nm

illio

ns)

635.

313

6.1

219.

319

6.6

143.

713

6.1

18.2

1.5

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ets

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les

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atin

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edo

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ude

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esu

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wer

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es19

89–

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etin

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eof

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lies

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ries

(SC

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ista

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tw

ere

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idia

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1989

–19

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figur

esar

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sed

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ns(e

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e)U

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87)


8 E. Danneels

employed by the new company prior to the Depres-sion, which started in 1929. At the start of WorldWar II, L.C. Smith & Corona had to cease theproduction of typewriters to make war equipmentsuch as bomb fuses, cryptographic equipment, andSpringfield rifles. In 1943, the company started tomanufacture typewriters again.2

In 1946, the firm changed its name to SmithCorona. In 1955 Smith Corona introduced its firstelectric typewriter for the office, and in 1957 itintroduced the world’s first portable electric type-writer. In the50s and 1960s, the company fol-lowed the trend toward conglomeration of unre-lated businesses (Davis, Diekmann, and Tinsley,1994). In 1956, Smith Corona began to diver-sify with the purchase of Kleinschmidt Labora-tories, a producer of telecommunications equip-ment. The merger with the Marchant CalculatorCompany in 1958 led to Smith Corona’s entryinto electro-mechanical calculators, which was fol-lowed by entry into office copiers. The result-ing Smith Corona Marchant Inc. continued todiversify and changed its name to SCM Cor-poration in 1962. Acquisitions during the 1960sfurther enlarged the size and scope of the cor-poration. Among the largest additions were theGlidden Company (paints and chemicals), Dur-kee Foods, Proctor Silex (appliances), and AlliedPaper.

In the late 1960s and early 1970s, Smith Corona,the typewriter business unit of SCM, exited cal-culators and copiers. Its mechanical calculatorswere displaced by competitors’ electronic ones,while plain-paper copiers (for which Xerox heldthe proprietary technology) were favored overSmith Corona’s coated-paper copiers. The com-pany focused on portable (or compact), rather thanoffice typewriters.

Besides some minor design changes, the onlyimportant novelty in typewriters in the 1970swas the first removable cartridge ribbon system.The ‘Coronamatic Cartridge’ (introduced in 1973)replaced the ribbon that was wound on two spoolsand made it possible to change the ribbon quicklywithout touching the inked surface.

2 For further details on the early history of Smith Corona, seeBeeching ([1974] 1990), Typewriter Topics ([1924] 2000), andSmith Corona (1946). Since there is no published history ofSmith Corona after World War II, the post-war events wereassembled from a myriad of sources such as business pressarticles, SEC filings, company documents, and cross-checkedwith the interviewees.

In 1974, Smith Corona began its fight againstalleged dumping by Japanese competitors, a fightthat would last for two decades. Also in 1974,Smith Corona reached its highest ever employmentof 5,300, with over 4,000 manufacturing employ-ees in Cortland, New York and the rest in the new(opened in 1973) plant in Singapore.

In the late 1970s, office ETs were pioneered byQyx (a unit of Exxon), IBM, Xerox (in 1978), soonfollowed by Olivetti and Olympia (in 1979). ETstypewriter business unit of SCM use microproces-sor and memory integrated circuits, which allowfor character storage and limited text formatting.They also have small displays of one or two linesof text, which allow users to view and change textbefore it is printed.

Several years earlier, Smith Corona had startedto build a technological competence in electronicsby hiring electrical engineers and setting up a sep-arate organization in Connecticut, far away fromthe manufacturing site in New York. In 1976, theDanbury, Connecticut research and development(R&D) lab opened (company newsletter, Spring,1976). This effort resulted in the Typetronic, anoffice ET, introduced in 1980. In all, the com-pany spent $25 million on R&D and introductoryexpenses for its first ET entry (for comparison, thisis 12.7 percent of 1980 sales), which neverthelesswas plagued by manufacturing difficulties.

The company introduced a series of ETs, whichin 1983 represented about 25 percent of its sales(company newsletter, November, 1983). Most no-table were the computer-compatible ‘dual-purpose’ typewriters, which could be connected tocomputers and serve as printers. Because they usedthe daisywheel printing technology, these print-ers delivered high-quality character print, but wereslow and incapable of printing graphics. SmithCorona also introduced a series of daisywheelprinters, which were derivative of the ET platform,and could be connected with personal computers.Throughout the 1980s, ETs were introduced withincreasingly sophisticated features, with apt namessuch as Word Eraser, Spell Right, and Gram-mar Right. In 1985, the company introduced itsfirst PWP. Unlike the small display of an ET, aPWP has a screen-like display and a larger mem-ory, which allow for easier text editing. Its edit-ing capability (e.g., store, insert, delete, move,find, replace text) makes its functionality similarto that of computer-based word processing soft-ware. PWPs also have removable memory disks,



Tabl

e2.

Con

cept

ual

fram

ewor

k

Cor

eco

ncep

tsR

elat

edco

ncep

tsw

ithke

yre

fere

nces

Em

piri

cal

phen

omen

a

Res

ourc

eal

tera

tion

Fung

ibili

ty(D

anne

els,

2002

,20

07;

Smith

Cor

ona

iden

tified

bran

dan

ddi

stri

butio

nas

itske

yre

sour

ces

that

wou

lden

able

itm

ode:

leve

ragi

ngM

iller

,20

03;

Penr

ose,

1959

;Te

ece,

toen

ter

‘sm

all

offic

e/ho

me

offic

e’pr

oduc

tca

tego

ries

exis

ting

reso

urce

s19

82)

Smith

Cor

ona

bran

dw

asno

tfu

ngib

ledu

eto

dom

inan

tpr

oduc

tca

tego

ryas

soci

atio

nB

rand

exte

nsio

n(H

err

etal

.,19

96;

Inde

pend

ent

offic

est

ores

wer

edi

spla

ced

byla

rge

reta

ilers

Mey

vis

and

Jani

szew

ski,

2004

)Sh

allo

wcu

stom

erun

ders

tand

ings

did

not

help

tode

velo

psu

peri

orpr

oduc

tsC

usto

mer

unde

rsta

ndin

gs(D

anne

els,

2003

)R

esou

rce

alte

rati

onSe

cond

-ord

erR

&D

com

pete

nce

Smith

Cor

ona

deve

lope

del

ectr

onic

sco

mpe

tenc

e(s

etup

elec

tron

ics

R&

Dfa

cilit

yin

mod

e:cr

eati

ngne

w(D

anne

els,

2002

)C

onne

ctic

utin

1976

—de

velo

ped

elec

tron

ics

man

ufac

turi

ngex

pert

ise

and

faci

litie

sin

reso

urce

sE

xplo

ratio

n/ex

ploi

tati

onla

te70

s/ea

rly

80s)

(Lev

inth

alan

dM

arch

,19

93;

Mar

chE

lect

roni

csco

mpe

tenc

efo

rmed

the

basi

sof

entr

yin

totw

one

wpr

oduc

tca

tego

ries

1991

)(i

ntro

duce

dits

first

elec

tron

icty

pew

rite

rin

1980

,an

dits

first

pers

onal

wor

dpr

oces

sors

in19

85)

Did

not

deve

lop

any

new

tech

nolo

gyaf

ter

elec

tron

ics—

R&

Dbe

cam

eex

ploi

tativ

e(m

oved

R&

Dfa

cilit

ies

next

tom

anuf

actu

ring

plan

tin

New

Yor

kin

1982

)D

idno

tha

vepr

opri

etar

yte

chno

logy

toen

hanc

eot

her

prod

uct

entr

ies

Res

ourc

eal

tera

tion

Alli

ance

sSm

ithC

oron

are

lied

onso

urci

ngal

lianc

esto

ente

rth

epr

oduc

tca

tego

ries

outs

ide

ofm

ode:

acce

ssin

g(D

asan

dTe

ng,

2000

;H

arri

son

etal

.,ty

pew

rite

rs(l

abel

edso

urce

dpr

oduc

tw

ithits

bran

d)ex

tern

alre

sour

ces

2001

;K

ale

etal

.,20

02)

Smith

Cor

ona

trie

dto

acce

ssex

tern

alco

mpl

emen

tary

tech

nica

llyre

late

dre

sour

ces

Com

plem

enta

ryre

sour

ces

(Har

riso

nth

roug

hal

lianc

es(a

llian

cew

ithA

cer

toin

trod

uce

Smith

Cor

ona

bran

ded

PCs)

etal

.,20

01)

Smith

Cor

ona’

sm

arke

t-re

late

dre

sour

ces

(bra

ndan

ddi

stri

butio

n)di

dno

tha

veva

lue

for

allia

nce

part

ners

orpo

tent

ial

acqu

irer

sR

esou

rce

alte

rati

onA

sset

dive

stm

ent

(Har

riga

n,19

80)

Red

uced

wor

kfor

cein

earl

y19

80s

and

thro

ugho

utth

e19

90s

mod

e:re

leas

ing

Smith

Cor

ona

sold

off

man

ufac

turi

ngas

sets

(mov

edm

anuf

actu

ring

from

New

Yor

kto

reso

urce

sM

exic

ost

arti

ngin

1991

—so

ldSi

ngap

ore

faci

lity

in19

95)

Ass

etsa

les

sust

aine

dlo

sing

oper

atio

nR

esou

rce

cogn

itio

nSc

hem

a(F

iske

and

Tayl

or,

1984

;Id

entifi

edas

key

reso

urce

sits

bran

dan

dcu

stom

erun

ders

tand

ings

,bu

tno

tits

Stub

bart

,19

89;

Wal

sh,

1995

)m

anuf

actu

ring

skill

san

deq

uipm

ent.

Eva

luat

ion

ofbr

and

exte

nsio

ns(M

eyvi

sD

idno

tre

cogn

ize

lack

offu

ngib

ility

ofth

ebr

and

and

supe

rfici

ality

ofcu

stom

eran

dJa

nisz

ewsk

i,20

04)

unde

rsta

ndin

gs.

Prod

uct

cate

gory

subs

titut

ion

(Adn

eran

dFa

iled

tole

arn

from

faile

dbr

and

exte

nsio

nsL

evin

thal

,20

01;

Dan

neel

s,20

04)

Dis

mis

sed

PCas

asu

bsti

tute

prod

uct


10 E. Danneels

but their software is permanently encoded and can-not be updated.

In 1981, Smith Corona started to lose money,the beginning of five years of losses, that cumu-lated to $114.6 million by 1986 (see Table 1).With the company running deeply in the red, amajor restructuring of the operations was imple-mented that resulted in substantially reduced man-ufacturing costs, a 50 percent reduction in world-wide employment, and the consolidation of UnitedStates operations.

In 1986, after a hostile takeover court battle, theBritish conglomerate Hanson Trust acquired SmithCorona as part of the $930 acquisition of SCM.Hanson soon sold the paint, paper, and food busi-nesses, making back its $930 million investment inone year, while still retaining Smith Corona andthe extremely profitable titanium dioxide chemi-cals business. Hanson took Smith Corona publicin an initial public offering (IPO) in July of 1989,which coincidentally or not, was right at the peakof Smith Corona’s performance. Hanson retained47.9 percent of the company’s shares and placedfour directors on its nine-member board. Shortlyafter the IPO on the New York Stock Exchange,news of declining demand started a steep declinein the stock price. The stock dropped from the IPOprice of $21 a share to $5 a share a year later.

In 1986, the ET became successful in the mar-ketplace, and Smith Corona started to turn a profit.From 1986 to 1989 Smith Corona’s sales and prof-its climbed steadily and operating margins edgedup to an impressive 19.5 percent in fiscal 1988 (seeTable 1). Manufacturing could barely keep up withdemand. Smith Corona’s PWPs became increas-ingly more like computers. Smith Corona launchedthe world’s first laptop PWP, made its PWPsDOS compatible, developed spreadsheet softwarefor them (called ‘CoronaCalc’), and used stan-dard 3.5 inch disks. Files were made convertible toASCII, WordPerfect, and Lotus123, and were thustransferable to PCs. Smith Corona’s ad campaignstried to convince consumers that PWPs could dothe job that they thought they needed a computerfor, at a fraction of the price.

The annual Venture Development Corporationreports show that in the early to mid 1990s, com-petition from Japanese entries into the ET andPWP markets increased, prices declined, and mar-gins were eroded. In consumer ETs, Smith Coronamaintained its leading market share (consistentlyabout 45%) of a shrinking market. In PWPs,

Smith Corona lost its market share leadership whenBrother and Canon introduced models with inkjetprinting technology (in 1993). Inkjet, in contrastto printwheels, is a nonimpact printing technologythat allows for faster printing, flexible fonts, andgraphics.

At the same time, the distribution landscapechanged. The office superstores, the electronicssuperstores, and the mass merchandisers weregaining strength and driving Smith Corona’s enor-mous network of small office supply stores outof business. The number of office superstoresincreased from 19 in 1988 to 800 by 1993.3

As ETs started to decline in both size and prof-itability and PWPs stagnated and became unprof-itable, Smith Corona started a series of entriesinto different office-related product categories. Thestrategy was to build on the strength of the SmithCorona brand and its distribution channels whilesourcing products from third-party manufacturers.The first entry outside of typewriter-related prod-ucts was a line of electronic reference products(a handheld dictionary, thesaurus, spell checker,and calculator), introduced in 1989. This line failedand most of the inventory was written off or givenaway in a promotion.

The most significant attempt to branch out fromthe typewriter category started in 1990, whenSmith Corona announced an alliance with Acer,the Taiwanese computer manufacturer, to developand market PCs specifically designed for the smalloffice and home office markets. Smith Coronadid software engineering to make the interfaceof the PC unique to Smith Corona, more user-friendly, with a start-up menu and a word pro-cessing program that was modeled on the SmithCorona PWPs. The PCs were on par with compe-tition regarding performance and price. They werebranded ‘Smith Corona by Acer.’ Acer allied withSmith Corona because it felt Smith Corona couldhelp penetrate the U.S. market. After a few monthsthey realized this was not the case; the SmithCorona brand and distribution were not helpingmuch and sales goals were not met. For theirnext models, using the more advanced 486 pro-cessors, Acer dropped the alliance and introducedits own branded products. Smith Corona’s ventureinto PCs was a failure and resulted in a loss ofseveral million dollars. It was terminated in June

3 U.S. Industry Profiles, Office Machines, 1993.



1992 only nine months after the PCs had beenintroduced.

From 1992 through 1995, many product linesrelated to the office were introduced in this se-quence: inkjet printers, a line of ribbons com-patible with many brands of ETs, PWPs, anddot matrix printers, laminators, calculators, faxmachines, home office furniture (including officechairs, desks, and desk lamps), label printers, andhandheld labelers. All of these, except the label-ers, were manufactured by third parties. Exhibit1 presents a 1994 advertisement that provides acomprehensive overview of all product lines. Prob-ably the most obscure among these products wasthe HandiFax, a handheld PDA-like device thatcould transmit text typed into its keyboard to faxesby connection to a phone, but could not sendor receive paper faxes. Meanwhile, Smith Coronacontinued to introduce new models of ETs (until1993) and PWPs (until 1995).

Despite these efforts, Smith Corona did notsucceed in stopping its steady decline in rev-enues and profits year after year (see Table 1).1993 was the first year with a loss. Most of theentries into new product categories were failuresand led to losses, some were small successes,but none created sufficient revenues and profits toreplace the decline in the core product category.None of the new product category entries tookoff in the marketplace. In 1995, sales of productsother than ETs, PWPs, and their supplies repre-sented only six percent of total sales ($11.8 out of$196.3 million).

In 1992, Smith Corona announced its decisionto end manufacturing in the United States and tomove its manufacturing operation to Mexico. AsSmith Corona was now manufacturing abroad, andBrother was manufacturing in the United States,the companies lost legal grounding for their tradedisputes. In 1994, Smith Corona and Brother ina mutual agreement ended their legal battles overdumping. The trade litigations, which had lastedtwo decades, were the longest in U.S. legal his-tory.

In July of 1995, the firm filed for bankruptcyprotection under Chapter 11 of the U.S. BankruptcyCode. In 1997, Smith Corona emerged from bank-ruptcy and its new stock began trading on NAS-DAQ. The company outsourced the manufactureof ETs and PWPs and tried to transition to amarketing organization. The strategic goal devel-oped during the reorganization was to source

products that would offer solutions for the smalloffice/home office market (SOHO). Smith Coronasourced and marketed a broadened line of officeproducts, including cordless phones, office tele-phones, personal organizers, combination fax andcopier machines, label printers, digital photo print-ers, replacement inking products, and telephoneheadsets and amplifiers. The company conducteda 10 million dollar print and television advertisingcampaign to reposition itself into ‘the preferredelectronics brand among the nearly 50 millionpotential SOHO consumers in the United States.. . . The campaign . . . portrays the brand as a lib-erating force for professionals who choose to workfrom home.’4

Post-bankruptcy Smith Corona never obtainedan operating profit. The effect of operating losseson net income was reduced by continuing assetsales, such as the sale of its manufacturing oper-ations in Singapore and Mexico, and its previousmanufacturing site in Cortland, New York. Thesewere the last remnants of its manufacturing oper-ations. A continuing installed base of typewritersalso generated a profit stream from the very highmargin supplies such as ribbons, correcting tapes,and printwheels, which represented over 30 per-cent of sales in the last three years (1997–1999,see Table 1). In May 2000 Smith Corona filed forChapter 11 bankruptcy protection for the secondtime, but this time it did not emerge. Its assetswere bought by Pubco, a manufacturer of labelprinters and printer supplies. Smith Corona closedits doors in April 2001.

FINDINGS

The above history shows that Smith Corona wassuccessful in transitioning within its product cate-gory, going from mechanical to electric to elec-tronic typewriters to personal word processors.However, it was not able to transition into othercategories. The company never achieved more than11.8 percent (in 1995) of sales from products out-side of typewriters and their accessories and sup-plies (see Table 1). Smith Corona was unable toenter a viable new product domain enabled by anew set of resources (cf. Danneels, 2002; Floydand Lane, 2000). The findings section is orga-nized according to the various modes by which

4 Business Wire, 8 January, 1998.


12 E. Danneels

SMITH CORONA PRODUCT LINES IN 1994

EXHIBIT 1

a resource base can be altered: leveraging existingresources, creating new resources, accessing exter-nal resources, and releasing resources (cf. Eisen-hardt and Martin, 2000). In addition, it developsthe notion of resource cognition, which is essen-tial to explaining the exercise of dynamic capabil-ity.

Leveraging existing resources

Leveraging resources enables a company to renewitself by drawing on its existing resources, andapplying them to new uses, such as new productcategories (Danneels, 2002, 2007; Miller, 2003).Penrose (1959: 25) stated that ‘resources con-sist of a bundle of potential services and can . . .

be defined independently of their use.’ Accord-ing to Teece (1982: 45) ‘. . . a firm’s capabil-ity lies upstream from the end product—it liesin a generalizable capability which might wellfind a variety of final product applications.’ How-ever, resources vary in their degree of fungibilityand can only help new product category entry ifthey are fungible. As the next sections shows,Smith Corona tried to leverage its brand, distri-bution, and customer understandings, but theseresources did not add value to the new prod-ucts.

Leveraging the brand

The resource that most impacted Smith Corona’sattempts at renewal was its brand. Resources havebeen categorized into two types: market-relatedand technology-related (Mitchell, 1992). Brandnames are among a firm’s most significant market-related resources. Smith Corona tried to leveragethis market-related resource. The firm’s strategywas to ‘capitalize on the strength of the SmithCorona brand name in pursuing new product cat-egories.’5 This is a strategy of brand extension,which has been studied extensively in the mar-keting literature. Brand extension is ‘the use ofestablished brand names to enter new product cat-egories’ (Keller and Aaker, 1992: 35). The premisefor extending an existing brand name is that cus-tomers use their beliefs about the brand to drawinferences about an extension product (Klink andSmith, 2001). Brand associations are transferredto the extension product. I argue that the SmithCorona brand, because it was so strongly and inti-mately connected with the typewriter category,was actually a liability in the effort to enter other

5 Annual report, 1994.



product categories. This contention can be sup-ported with evidence from the case and examina-tion of prior research on brand extension in relationto the case.

From 1991 on, as their core product categorystarted to decline both in terms of volume and mar-gins, Smith Corona sought to leverage its brandto many other product categories for the SOHO(small office/home office) market that they hadhistorically served. However, none of these brandextensions was successful or garnered any signif-icant market share. Therefore, understanding thereasons for the failed brand extensions is criticalto understanding Smith Corona’s demise.

I am proposing that their brand was not fungi-ble, that is, it was not transferable to these otherproduct categories. Theory developed in the brandextension literature helps to understand the limitedfungibility of the Smith Corona brand. Three typesof brand associations greatly impact their fungi-bility: product category associations (e.g., SmithCorona—typewriters), benefit associations (e.g.,Smith Corona—easy to use), and usage situationassociations (e.g., Smith Corona—home and smalloffice). The ease of cognitive access in customers’minds of one type of association may interfere withthe accessibility of other associations (Meyvis andJaniszewski, 2004). In the case of Smith Corona,the most accessible brand association was the type-writer category association.

Smith Corona tried to extend itself along each ofthe three types of associations. The ET and PWPentries were extensions along the typewriter cat-egory association. These were very successful asSmith Corona maintained from 30 percent to 50percent of the market and had very high brandawareness (based on Venture Development Cor-poration reports). In contrast, the efforts to extendalong the usage situation (SOHO) and benefit (e.g.,the ‘ease of use’ of the Simply Smart PC) dimen-sions were not successful.

Smith Corona’s brand name was strongly andnarrowly associated with typewriters, such thatthis category association dominated over any ben-efit or usage situation associations (Meyvis andJaniszewski, 2004). The reason for the product cat-egory dominance in the brand was the accessibil-ity of the product category association. Accordingto associative network models of memory, stim-ulation of one cognitive element leads to activa-tion of linked other cognitive elements (Anderson

1983). I suggest that the Smith Corona brand acti-vated a product category association, which dom-inated over any other association. Highly acces-sible knowledge structures concerning the brand,held in long-term memory, dominate over lessaccessible associations (Meyvis and Janiszewski,2004). Smith Corona had a century-long, histori-cal association with typewriters, first manual, thenelectro-mechanical, then electronic, and ultimatelypersonal word processors. The very strong productcategory association of the brand is plausible giventhe exposure to and experiences with Smith Coronatypewriters that many consumers accumulated overtheir lifetime (cf. John, Loken, and Joiner, 1998).Since consumers thought of Smith Corona as atypewriter brand, the brand did not add any com-petitive value to the other product categories.

‘When we were sourcing products, we were justhandling them. Passing on the product with novalue added but the name. That’s all we had. Therewas nothing more that we could do. We couldn’tmake the products ourselves competitively. If yousource a product you compete with the manufac-turer who slaps a different name on it. And wewere banking on the customers’ feeling of SmithCorona as being a trusted name’ (a chief financialofficer [CFO]).

According to Herr, Farquhar, and Fazio (1996:153), ‘a strong category-to-brand association isboth a blessing and a curse. Strongly category-dominant brands have widespread customer recog-nition and often enjoy substantial market share.But this strength in the parent category may alsolimit the brand’s direct extendibility to other prod-uct categories.’ The dominance of the product cat-egory association of the brand was a hindranceto expanding into other, seemingly related productcategories such as PCs, fax machines, or print-ers. The initial extensions of the Smith Coronabrand into the electrics (1950s) and into the ETand PWP (in the 1980s) were successful becausethese extensions were considered by consumers asstill fitting within the typewriter category. How-ever, when these category-based brand extensionswere followed with the benefit (ease of use) andthe usage situation (SOHO) extensions, they wererejected.

Smith Corona tried to leverage its brand to allkinds of products that they considered germane toSOHO, what they defined as their core market.


14 E. Danneels

These products included PCs, fax machines, label-ers, label printers, laminators, printers, PDAs, tele-phones, telephone headsets, calculators, and evenoffice furniture (see picture of many of these prod-ucts in Exhibit 1). Executives describe the rationalebehind the efforts to extend the brand along theusage situation:

‘The logic we had was: “What’s the common-ality that exists between typewriters, word proces-sors, and these new products that we’re offering?Well, it’s for a small office. It’s for a home office.It’s the little user. We’re a trusted company thatwas there with this great product for all theseyears. Guess what? We’re in these other lines. Itall sounds good and intellectually it makes sense’(a CFO).

‘When we introduced the line of PCs, the mar-ketplace said you guys are really not a computercompany, you’re a typewriter and word processorcompany. . . . It seemed to us a logical line exten-sion. We did some focus groups, and consumershad a fascination with this typewriter that had putthem through college. We heard that over and overand over again. We felt that since they did havethat trust of our brand name, wouldn’t they havethat same allegiance to another product with ourname on it? . . . People were having difficulty withSmith Corona because they were thinking type-writers and we were selling computers. We hadbeen known for typewriters for 100 years’ (a chiefoperating officer [COO]).

Smith Corona had been a category leader fornearly 100 years. Hence, the Smith Corona brandwas prototypical of (a good instance of) the type-writer product category (Aaker and Keller, 1990;Herr et al., 1996), and it was particularly difficultto extend into other product categories. If a brandis seen prototypical for a category, it is difficult forconsumers to think of it in any other way (Keller,2003).

‘The name was golden then, Smith Coronabecame a generic name’ (a director). ‘What doyou mean by generic?’ (me). ‘Well, you use thebrand name to describe the entire product cate-gory. You need a typewriter, and you say SmithCorona, even though there are multiple typewrit-ers. You say Jacuzzi, even though there are differ-ent manufacturers of spas. You say Kleenex, evenif there are different manufacturers of tissue paper’(a director).

Beyond the historical association of SmithCorona with typewriters, there are various other

strong arguments that support that the brand hadlittle fungibility. First, apart from Acer, SmithCorona could not find an alliance partner: ‘[TheCEO] was in communication with different tech-nology companies in the Far East and in Europe,but their attitude was why waste our time andmoney. He was trying to say that the Smith Coronaname would be a great marketing name for oneof these other companies and they just didn’t buyinto it’ (a director) ‘So this is in the early ‘90sthat [the CEO] was looking for alliance partnersto get into new technology, and offering the SmithCorona brand name as a trade’ (me). ‘That’s it’ (adirector).

A CFO tells of the attempt to make an alliancewith a major European computer manufacturer:‘I thought we could pull off the deal that wewere trying to do with [a European computermanufacturer]. We were trading for the technology,the product. They were never successful cominginto the States with their name. And we thoughtwe had the name, they had the product, so weshould be able to do it. But they didn’t feel, otherthan money, that we had very much to offer them.’

Second, in the 1990s, no firm was interested inacquiring Smith Corona. This is further evidencethat the brand had little fungibility. Since the brandwas tied to a dying product category, acquirersdid not value it. If it had broader applicability,acquirers would have valued it since they coulduse it for other products:

‘[A large consumer electronics firm] was theEuropean company that I was hoping would buySmith Corona, and they weren’t interested. . . . Wetried to see if some company would buy SmithCorona and leverage the name better than we wereleveraging it. We couldn’t get anybody to buy it’(a director).

‘The company was shopped all over the world.And there was no interest’ (a director).

‘Certainly we tried to sell it. We couldn’t. Theonly thing that seemed salvageable at the time wasthe name, and it didn’t generate much interest. . . .

There was no acquisition interest in its product lineor its name. At that point in time, you could seethat the product line was going to become extinct.And then it was just the name. PC manufacturers,distributors, they all looked. None was interested’(a director).

‘During Chapter 11, we looked at people thatwould come in to buy the company, and none ofit happened. Everybody thought they were going



to get it for a rock bottom price’ (a vice president[VP] of operations).

From the perspective of potential acquirers, thereplacement supplies business was the only valu-able part of Smith Corona. The large installed baseof Smith Corona typewriters guaranteed a substan-tial, albeit declining, demand for ribbons, correct-ing tapes, and printwheels.

‘Frankly, the people who were negotiating tobuy the business were primarily interested in theaftermarket activity and not necessarily in the pri-mary typewriter and word processing machines.. . . The aftermarket was very profitable. It’s theold razor and razor blade; you sell the razors at nomargin, because you make 75 points on your razorblades’ (a CEO). ‘Exactly. People always men-tioned the brand and distribution. Were acquirersinterested in that?’ (me). ‘They had their own dis-tribution. So they already had shelf space at mostof the places that Smith Corona had shelf space.. . . As I said they were primarily interested in theaftermarket’ (a CEO). ‘And they weren’t reallyinterested in the brand? (me). ‘Well, the brand tothe extent that it would sell the aftermarket prod-ucts’ (a CEO).

Checking my interpretation that potential acquir-ers did not place value on the brand, a directoragreed: ‘That makes perfect sense. I was a mergersand acquisitions guy, and I went in there thinkingthat I had something of value, albeit intangible, inthe Smith Corona name. And nobody wanted tobuy it. At least nobody wanted to pay for it. Andmaybe others saw what we didn’t, which was thatit wasn’t worth anything anymore. So that alone issupport for what you’re saying. . . . I remember itbeing a big disappointment to me that there didn’tseem to be any value; they didn’t want to put valueon the Smith Corona name.’

Third, the lack of transferability of the brand tothe PC is the most plausible explanation for its fail-ure. The market share of the Smith Corona brandedPC was very low, even though it did reach retailshelves. The product reviews of the time were pos-itive, stating that the line had parity performanceand price points, and gave it top ratings for userfriendliness. A trade publication stated about thejoint venture with Acer to introduce PCs: ‘Thatventure fizzled after a year, analysts said, becauseretailers found little support for a Smith Coronabranded PC.’6

6 HFN, 10 July, 1995.

Leveraging the distribution

In addition to its brand, Smith Corona also tried toleverage its distribution channels. Its relationshipwith the traditional independent office stores wasa strong resource for many decades:

‘I remember going from mom and pop to momand pop to mom and pop. They’d have cinnamonbuns waiting. “Come on, get a cup of coffee andsit down, I want you to meet my wife, and wewant to take your picture.” Really, that was theloyalty. Because they put their kids through schoolselling Smith Corona typewriters. It was like itreally meant something to the family’ (a COO).

The changes in the distribution channels in the1980s and 1990s eroded the value of its chan-nel relationships. Small retailers were graduallydisplaced by large ones. The resource of relation-ships with a large network of office supply storesbecame irrelevant with the emergence of the mega-retailers:

‘The retail industry at that time was in a big evo-lution, going from independent dealers to the majormass merchandisers and the category killers. . . .

Smith Corona had the broadest network of inde-pendent dealers. Very quickly the retail industryevolved into the mass merchandisers and categorykillers. They wanted to drive customers into thestore with the lowest possible price’ (a CEO).

Smith Corona went from serving many thou-sands of fragmented small office stores to servingfew very large retailers: ‘In the old days you wouldbuy a Smith Corona typewriter in an office supplystore in your local downtown, which sold ribbonsand paper and pencils and typewriters and desksand things like that. With the Kmarts and the Wal-marts of the world, and the mass volume outlets,the channels were changing tremendously’ (a VPof operations).

Even though Smith Corona gained access tothese large retailers, the relationships with themwas a much weaker asset: ‘You’re like a punchingbag. Every time you’d go back to Staples or OfficeMax or Office Depot, they’d say, “oh, by the way,I’ll place that order, but we want better terms.”And you’d say, “what do you mean you want betterterms?” “Well, instead of paying in 30 days we’renot going to pay until 60 days”’ (a COO).

‘One of the things that killed us with the OfficeDepots and the Walmarts of the world was theirno questions asked returns. The return policy wasa disaster. In one case, we actually got back one


16 E. Danneels

of our high-end word processor boxes with fourwhite birch fireplace logs. Not only did we haveto give full credit, we got a 15 percent surchargeplus handling’ (a CFO).

‘There was a lot more loyalty in the distribu-tion channels before the big hitters came in. Thatloyalty eroded, particularly with the success ofWalmart’ (a CFO). ‘So perhaps it doesn’t meanas much for the Best Buys and the Walmarts thatyou’ve done business with them for decades’ (me).‘If you have a product that matches up with yourcompetitor, or is better or cheaper, then they’llstick with you. But if you don’t, they won’t’ (aCFO).

In sum, the old distribution channel of traditionaloffice stores eroded, and the access to large dis-tributors offered little to draw on in renewing thecompany. In the press articles of the late 1980s,both brand and distribution are mentioned as keyassets of the company. Notably, in the discourseof the early 1990s, mentions of the distributionrelationships disappear and only the Smith Coronabrand is mentioned as a key asset.

Leveraging customer understandings

Customer understandings reflect an integrated men-tal model of customers’ identity, needs, lifestyles,and purchasing behaviors (Danneels, 2003). Assuch, they are a resource that a firm can drawupon in attempting to renew itself. I propose thatSmith Corona’s customer understandings were notof the customers in their own right, but rather ofhow the ET and PWP satisfied customers. Conse-quently, these understandings, as a firm resource,were product-specific and therefore not fungible.

The lack of deep customer understandings pre-vented the company from introducing products thathad superior benefits. When sourcing from third-party manufacturers was pursued starting in 1989,and increasingly until the end, Smith Corona didnot show evidence of a strong understanding of itscustomers. Such a resource could have been usedto develop competitively advantaged products, thatwere better tailored to customer needs then com-petitors’ products.

‘There was no reason to believe that we had any-thing in our history or our core competencies thattold us technology is the way out of this. Sourcingmaybe, in a smart way, to go to somebody in Koreaand say here’s what the market really wants, canyou make that?’ (a director). ‘But if you source

you’re not going to get access to the most inno-vative stuff’ (me). ‘No, of course not. . . . The keyis you have to know who your customer is, andfigure out if somebody can make it’ (a director).

New product category entries were not basedon in-depth understanding of SOHO customers,but rather on competitive imitation: ‘Unfortunatelywe were followers in most of those products.Brother had come out with a labeler that wasextremely successful. We tried to follow that anddidn’t do particularly well with it. . . . Likewise,the laminator was an also-ran product. . . . Theother products were all in response to competitorsintroducing those products, so we were alwayscatching up’ (a CFO).

‘Nothing ever really caught on. We didn’t rein-vent the telephone, we didn’t reinvent the faxmachine, all we did was try to tag on to what wasalready out there, and so even though we wouldget into the fax machine or the laminator busi-ness, all we were doing was try[ing] to get someof that market share. . . . After the typewriter, allthe other products were just tagalongs. There wasnothing innovative. The labeler was bought fromanother company, the fax machines were madeoverseas, and the telephones were made overseas.Everything was made by someone else’ (a VP ofoperations).

In sum, the entries into alternative product cate-gories required different resources than those thatSmith Corona had, even though they were all officeproducts, ostensibly targeted at customers the com-pany was already serving. Smith Corona PCs, forexample, were targeted at the same customers astheir ETs and PWPs, in particular novices andtechnophobics. However, even though the cus-tomers were the same, they required differentmarket-related resources to serve (see the analo-gous distinction between fit and familiarity in dis-cussions of product innovativeness, Danneels andKleinschmidt, 2001). The company’s traditionaldistribution channel eroded, the Smith Coronabrand was no longer valuable, and the companylacked the in-depth understanding of its customersto develop superior products.

Creating new resources

In the absence of existing resources to leverage,building or creating new resources might havealtered the resource portfolio and presented another



mode of dynamic capability. Together, these bun-dles of resources form a new competence (Grant,1991; Helfat and Peteraf, 2003), the ability todo new things. Following Eisenhardt and Mar-tin (2000), this is the second mode of dynamiccapability. The development of new competences,constituted by a set of new resources, requiresa second-order competence (Collis, 1994; Dan-neels, 2002, 2007, 2008; Winter, 2003). A second-order competence is a competence at adding newcompetences, that is, a competence at explo-rative learning (Levinthal and March, 1993; March1991).

During the focal study period, Smith Coronacreated a new competence only once when itassembled resources in electronics, such as alab and engineers. Smith Corona did not try toserve non-office markets during this period. There-fore, it did not exercise any marketing second-order competence, that is, it never built market-related resources to enter new markets.7 Thereforethis section focuses on the company’s second-order R&D competence. Technological compe-tence consists of such resources as engineeringknow-how, manufacturing facilities and know-how, and patents. Building a new technologicalcompetence involves identifying promising tech-nologies, hiring engineers in new areas, setting upnew development and production facilities, and soon. Second-order R&D competence is a compe-tence at exploring new technologies and addingnew technological competences to the firm’s reper-toire (Danneels, 2002; Levinthal and March, 1993;March, 1991). Smith Corona hired new engineers,established an R&D facility, set up new manufac-turing operations, and at great effort and cost addeda competence in electronics.

‘We had an engineering office in Newtown, Con-necticut [close to Danbury] at that time and therewere all these electronic engineers. The productengineering was done there, in a whole separateenvironment. . . . When they started they broughtin an electronic engineer. He headed up that groupthat developed that first electronic typewriter’ (aVP of operations).

7 It should be noted that at times Smith Corona did serve twodistinct market segments: offices and SOHO, although it wasalways more successful in the latter segment. In the focal period,the only product introduction that was distinctly targeted at non-SOHO was the Typetronic, its first ET, which obtained a verysmall market share.

The technological competence in electronicsenabled the company to develop ETs and laterPWPs. The extensions into ETs and PWPs lever-aged Smith Corona’s brand and distribution andrequired a new technological competence. Becausethey drew on an existing competence to serve par-ticular customers while requiring a new techno-logical competence, these new products are of the‘customer competence leveraging’ type (Danneels,2002). Customer competence leveraging is a com-bination of exploitation of an existing customercompetence (the ability to serve certain customers)and the exploration of a new technological com-petence (the ability to use a technology to physi-cally make something). The difference between theentries into ET and PWP and the entries into othernon-typewriter categories is that the former couldleverage the company’s market-related resourceswhereas the latter could not.

In the late 1970s, Smith Corona started thedevelopment of the ET. Although the transitionwas costly and took several years, it was eventu-ally successful. Smith Corona designed integratedcircuits and put the software on them to pro-vide functionalities beyond the traditional electrictypewriter.

‘About 1978 they really started looking at theelectronic typewriter and so I spent a few yearsworking in that arena. The transition from amechanical electric typewriter to an electronictypewriter was a huge undertaking. It reducedthe amount of parts in a typewriter from about3,300 down to about 400. So everything was basi-cally completely redeveloped. . . . Most of SmithCorona’s engineers were mechanical engineers andso the first thing that really had to happen [was]some electronic engineers had to be hired. . . . Andso the transition was not just hiring new electronicengineers and getting them to work close[ly] withthe mechanical guys, but the entire manufactur-ing process had to change and new equipmenthad to be purchased: things like equipment thatwould insert diodes and resistors into printed cir-cuit boards and a soldering machine to solder thebottom of the board’ (a VP of operations).

The manager of manufacturing engineering stat-ed in the company newsletter:

‘Within our department we are fortunate to havea number of dedicated employees covering dis-ciplines including die castings, plastic molding,sheet metal fabrication, heat treating, and product


18 E. Danneels

assembly. The more recent transition to the Type-tronic family of electronic typewriters required theacquisition of new technical personnel to supportthe electronics assembly and testing operations. . . .

The introduction of electronic products has createda challenge to this group to evaluate and implementthe most up-to-date technology.’8

‘A mechanical engineer could have never devel-oped the personal word processor. The company’swhole focus changed in the 70s and 80s. Peoplefrom all over the United States came to work forSmith Corona out of college and from electronicfirms. We brought in the best of the best that wecould recruit into Smith Corona. Then we neededmanufacturing people to come in to make and testthe boards. We needed to bring in new blood’ (aVP of operations).

No new resources were created after the mid-1980s when ETs and PWPs were developed. Tech-nological work was focused on refining the fea-tures and manufacturing of the ETs and PWPs.In other words, it was exploitative (Levinthal andMarch, 1993; March 1991). Smith Corona stoppedtechnological exploration when the R&D facilitiesin Connecticut were closed down in 1982.

‘At one time engineering and manufacturingwere separate organizations reporting to the chiefexecutive of the division. But [the CEO] com-bined those positions somewhere in the early ‘80s.. . . Eventually they closed the Newtown engineer-ing facility and combined it up here’ (a VP ofoperations).

Smith Corona did not develop any new tech-nology after the electronics that enabled ET andPWP products. The annual reports mention thatthe company had no significant patents. ‘BeforeI got to Smith Corona, they had developed somepretty interesting products. They developed a spell-checker. They developed a really mean line ofelectronic typewriters. And when I got there, I waslooking around, saying, where are all the peoplethat were designing all this great stuff I’ve seenover the years? And I couldn’t find them’ (anony-mous at request).

The remaining R&D and engineering becamefocused on improving the functionalities of theexisting two product lines. Virtually all of the R&Dspending noted in Table 1 was focused on ETs andPWPs. Asked about the kind of R&D conductedat the plant in Cortland, the VP of operations said:

8 Company newsletter, September, 1982.

‘It was mainly focused on engineering that couldbe tied to the electronic typewriter or PWP busi-ness. It was an extension, really, of that. That wastheir primary focus, to continue to develop, espe-cially software that could be used to incorporateadditional features that people wanted in word pro-cessing. . . . I don’t recall a budget number, butthere was not a large part of the engineering bud-get that went to R&D. Most engineering was tiedto the advancement of the PWP.’

From the mid-1980s on, R&D at Smith Coronawas almost entirely exploitative, apart from someminor and failed efforts to develop faxing andprinting technologies. ‘A lot of the money wentto continually trying to redesign the typewriterand word processing line, to get cost out. . . . TheR&D function was really part of manufacturing,that’s why that money would be spent to refineproduct and get cost down. . . . But it never triedto develop unique technology’ (a VP of productdevelopment).

‘There were people up at the plant that weredoing some level of research and development, butthere was never much of an effort, there weren’tthat many people, there wasn’t that much money.I would have heard more about it. You’re talkingabout a handful of engineers’ (a director.). ‘Wellwhat you see is that the products kept improvingincrementally but you don’t see anything reallynew coming out’ (me). ‘Right, right’ (a director).

Because Smith Corona did not develop any com-petitively distinctive technologies, its entries intoalternative product categories were me-too prod-ucts. They were sourced from third-party suppliersand private labeled. Smith Corona had no distinc-tive or propriety technology that could enhance thefunctionality of these offerings.

‘We really had nothing to offer. It was a highlycompetitive marketplace and we had no leg up.From my point of view we had two things goingfor us, brand name and distribution, and one fedon the other’ (a CFO).

I examined the lack of financial resources as areason for the lack of second-order competencesin the focal study period (1980–2001). Havingfinancial slack, such as low leverage and highcurrent ratio, allows a company to take on debtto invest in building new technological and mar-ket resources (Nohria and Gulati, 1996). At SmithCorona, the current ratio was stable, whereas thedebt load actually declined after the IPO in 1989



(see Table 1). Smith Corona did not use its finan-cial slack to alter its resource base. Even thoughfinancial slack was available, Smith Corona didnot invest in building new technological or market-related resources. In an interview with the CFO ofthe time, I asked whether the dividend paymentand the debt burden after the IPO may have put adamper on what the company could do to adapt tothe disappearance of its product category:

‘Is there a connection between the financialconstraints and a lack of innovation? (me). ‘There Imay be the wrong guy to talk to, but I don’t thinkso. I think it was failure of vision, managementvision’ (a CFO).

Indeed, a lack of ‘vision’ led to a paradoxof lack of second-order competence and resourceallocation: because there was no vision of whatspecific resources needed to be accumulated, therewas also no request for funding (cf. Danneels,2007). ‘I believe that if Hanson [the majorityowner] had said you can have a huge amount ofcapital from us if you want it, it would not havemade a difference. . . . I never heard [CEO] say “ifwe just had a little more money for advertising or ifI just could hire some more engineers, everythingwould be okay”’ (a director). ‘I kept thinking thatmanagement needed to go to Hanson and say,here’s what we need and here’s what we’re goingto do, and they never did’ (a director).

‘I don’t think the company was ever investmentstarved. There are people who might say we shouldhave been spending a lot more money on R&D tocome up with the next idea. Even looking back15 years, I still don’t know what that idea wouldhave been’ (a COO).

Accessing external resources

Another way to change the resource base is toaccess new resources from outside the firm. Indeed,rather than build new resources on its own, SmithCorona relied on partnerships to enter the prod-uct categories outside of typewriters. Alliances andacquisitions are two ways that a firm can accessother firms’ resources (Das and Teng, 2000; Eisen-hardt and Martin, 2000; Harrison et al., 2001).When trying to leverage its brand and distribution,Smith Corona relied on alliances with suppliersto access the complementary technically relatedresources. Arguably the most crucial of these wasthe alliance with Taiwanese PC-manufacturer Acerto introduce Smith Corona branded PCs into the

U.S. market. In 1990, Acer and Smith Coronastarted the alliance intended to combine their com-plementary resources (cf. Harrison et al., 2001;Kale, Dyer, and Singh, 2002). Acer wanted to useSmith Corona’s brand and distribution resources toget access to the U.S. market, and Smith Coronawanted to gain access to the technological compe-tence of Acer to design and manufacture PCs.

‘For Smith Corona to survive, we had to dosomething to marry up with a technology com-pany. One way or another we had to get PC tech-nology into the company. . . . One of the strengthswe had with Smith Corona was the distributionnetwork and the relationship with the large retailoutlets’ (a CFO).

‘Acer was to develop the product and we were tomarket it. . . . I felt, and there may have been othersthat shared that feeling, that we were adding valid-ity to the Acer name by tying in Smith Corona.. . . Again, I, and perhaps others, felt that we werelending credibility to go into these retailers becauseof the fact that Smith Corona with fifty plus sharemarket in typewriters and word processors haschosen Acer to partner with. We were a crediblesupplier’ (a VP of marketing).

Complementary resources can generate newvalue if pooled across firms through an alliance(Das and Teng, 2000; Harrison et al., 2001). How-ever, as discussed, the Smith Corona brand namedid not add value in the PC product category, andthe sale of the PCs was poor. After less than ayear, Acer terminated the alliance and introducedits more advanced models using the 486 micropro-cessor under its own name.

The reliance on alliances to gain access toexternal technological resources continued untilthe end of the firm. In a memo section entitled‘Strategic Alliances—Our Technology Infrastruc-ture’ a CEO states that after its Chapter 11 fil-ing, Smith Corona needed to rely on alliances toengage in product development: ‘Plain and simple,we could not afford to continue funding internaldesign and development activities. The alterna-tive to “in-house” design and development, in theshort-term, is, of course, partnering for product,product design, and product development.’9

Acquisitions were impossible for Smith Coronabecause of lack of financial resources.10 ‘For Smith

9 Company memo, 1997.10 In 1974, Smith Corona began a 20-year legal battle againstJapanese typewriter manufacturers, in particular Brother. Even


20 E. Danneels

Corona to do an acquisition, they didn’t have thebalance sheet or the financial credibility to get thefinancial backing to do that’ (a director).11

In sum, external resources did little to renew thecompany as it had no valuable internal resources tocomplement them with. Smith Corona faced ‘themost fundamental irony of alliancing: firms musthave resources to get resources’ (Eisenhardt andSchoonhoven, 1996: 137).

Releasing resources

The last mode of exercising dynamic capabil-ity—the shedding or dropping of resources (Eisen-hardt and Martin, 2000; cf. Harrigan, 1980)—waswhat sustained the company in its last decade. Atvarious points, Smith Corona tried to make itsoperations more efficient by laying off employ-ees and moving manufacturing abroad. The work-force reduction in 1984 had a notable effect onthe turnaround to profitability starting in 1986 (seeTable 1). The move of manufacturing operationsto Mexico, however, was less successful. By someestimates it seems that the expense of the Mexicomove exceeded the cost savings, particularly if oneconsiders that the estimate of cost savings used byexecutives at the time of the decision in 1990 wasa function of their forecasts of future sales. Thisinterpretation is supported by the fact that the Mex-ico facility had twice the needed capacity whenfinally completed: ‘We had two production facil-ities: one in Singapore and one in Mexico. Andneither was up to 50 percent utilization’ (a CEO).

The move took over three years to be completed,and some of the skilled labor force (such as in toolmaking) was unavailable at the selected location.‘Moving the plant to Mexico was a great move,because it was $18 or $19 or $20 per hour forlabor fully loaded up in Cortland, New York, andwe went down to about 75 cents an hour. But youcouldn’t save your way to survival because thereweren’t enough ways. So low-cost manufacturingreally wasn’t the issue. It was a top line issue’ (aCOO).

though the trade and dumping legal battle diverted some financialresources and managerial attention, the decrease of slack fromthis effort did not seem to have a large effect.11 The firm did make a few minor acquisitions in the officesupplies area.

In 1997, this manufacturing operation was soldto a contract manufacturer: ‘We sold off the manu-facturing facility in Tijuana because of the decreas-ing demands for the product. We had excess plantcapacity, so therefore our per unit cost was justskyrocketing and so we ended up selling the facil-ity to a contract manufacturer who buys facilitiesand serves in a contract manufacturing role to a lotof different people’ (a CFO).

The divestment of manufacturing assets sus-tained the company for its final years. While thecompany never obtained an operating profit after1994, it does show a positive net income in 1997 asa result of the divestment of assets (see Table 1). Itis important to note that none of these divestmentsredirected resources into alternative uses that couldlead to organizational renewal. Instead, they wereused to sustain an ailing operation.

Ironically, the same typewriter business legacythat hampered its renewal, helped sustain the com-pany until the very end. An important share ofSmith Corona’s sales came from supplies andaccessories for ETs and PWPs, which in the lastfew years were over 30 percent of total sales (seeTable 1). ‘The company’s installed base of type-writers and personal word processors, consistingof an estimated 20 million units, results in a sub-stantial accessories and supplies business.12

‘One of the things that was very important andwas a huge draw to continue in the typewriter fieldwas the aftermarket profits you make from ribbons,printwheels, correction tapes, and so forth. You sellan electronic typewriter every two or three yearsto an individual, possibly. But if that product isused a lot, which they were, the volume of theseaftermarket items [becomes] enormous. Like theold-time safety razor. You sold the razor for adollar, but you made all your money on the blades.. . . There was a reluctance to give that up, becauseit was always a very good business’ (a VP ofoperations).

‘People were burning through the ribbons. Andthe ribbons were 50 percent, 60 percent, 70 percentgross margin items for the company’ (a COO). Itwas this supply business that represented the lastvaluable Smith Corona asset, the only asset thatpotential acquirers were interested in.

12 Prospectus for the IPO, 1989.



Resource cognition

To understand the ways in which managers mighttry to exercise dynamic capability, it is essential toconsider how they conceptualize the resources oftheir company. The extended case study of SmithCorona reveals that this is a gap in current theo-rizing about dynamic capability; how and to whatextent dynamic capability is exercised depends onexecutives’ cognitions about their firm’s resources.Managerial resource cognition helps to explainwhich paths firms do or do not take. As the SmithCorona case demonstrates, the cognitions may notconcur with the resources’ actual nature, and maylead managers down unfruitful paths.

Resource cognition refers to the identification ofresources and the understanding of their fungibility(cf. Denrell, Arvidsson, and Zander, 2004; Marino,1996) and results in resource schemas. A ‘resourceschema’ is the mental model that managers holdof their firm’s resources and contains answersto questions such as ‘what are our resources?’and ‘what are the potential applications of ourresources?’ It is the result of a subjective pro-cess of self-conscious inquiry and requires viewingresources in their own right, as distinct from theproducts in which they are embedded (Danneels,2002; Hamel and Prahalad, 1994; Teece, 1982;Wernerfelt 1984). This concept builds on exten-sive work in cognitive psychology and managerialcognition. A schema is ‘a cognitive structure thatrepresents organized knowledge about a given con-cept or type of stimulus’ (Fiske and Taylor, 1984:140). Acting as guides for action (Stubbart, 1989),schemas are aids to sensemaking of the environ-ment and drawing inferences. Managers constructthese belief structures to simplify their representa-tions of their world and facilitate decision making(Walsh, 1995; Stubbart, 1989).

Smith Corona managers’ schemas about tworesources—their brand and their customer under-standings—impacted the way that they tried toexercise dynamic capability to renew the firm.First, Smith Corona executives identified the firm’sbrand and distribution as key resources, which wasreduced to just the brand in the early 1990s. Themanagers’ belief that the brand was the firm’s keyresource set the avenues of renewal that they pur-sued. Smith Corona tried to leverage its brand tonew product categories, but not its manufacturingskills and equipment. In fact, my interviews con-firm that this option was never even considered.

Instead, they increasingly divested these manu-facturing assets. Interestingly, their long-standingcompetence in mechanical assembly, and morerecent competence in assembly of electronic com-ponents, might have proved valuable in otherapplications.

The Smith Corona managers’ conceptualizationof the brand did not recognize its lack of fungibil-ity. Penrose (1959) made a distinction between thefirm’s resources and the services those resourcescan render. This study shows that there may bedisconnect between the services that resources canactually render, and what managers think they canrender. None of the printed evidence contemporaryto the entry into the other product categories, norany of the interviews, suggest that Smith Coronamanagers appreciated the limited fungibility of thebrand.

‘When you reorient, first you identify the re-sources that you have, and then you think abouttheir fungibility, as economists call it, to whatextent are they applicable to different uses’ (me).‘We never looked at it that way, and that’s anoversight. We looked at it and said: it’s a very,very powerful brand’ (a CEO).

Smith Corona managers evaluated their brandextensions on the basis of product similarities, forinstance, printers and faxes are similar to type-writers because they also put ink on paper, theyare used in offices, they serve to communicatethrough printed words, and so forth. ‘[The CEO]felt that the Smith Corona name was recognizedthroughout all American households and would bea great marketing name for any other product’ (adirector).

‘If somebody was willing to spend $2,000 or$3,000 or $4,000 for a PC made by some guynamed Dell, I mean there was no history to thatname, why wouldn’t they buy a product that hadsome history? At least you could say I know thesepeople from the typewriter business. There’s brandloyalty. They make a quality product. They standby their product’ (a CFO).

Meyvis and Janiszewski (2004) found in theirexperimental studies that simple similarity-basedevaluations of brand extensions are erroneous.Instead, consumers evaluate brand extensions byrelying on the most diagnostic and accessible asso-ciations that they have of the brand. The actualfungibility of the Smith Corona brand was muchlower than believed by managers. Because exec-utives misunderstood the nature of their brand as


22 E. Danneels

a resource, they made erroneous inferences aboutentry into other product categories. They did notrecognize that the resources necessary to succeedin alternative product categories were distinct, inspite of superficial product similarities. For exam-ple, they did not see that computers required dif-ferent market-related resources and regarded thePC as a straightforward product line extension:‘The company’s new line of Simply Smart per-sonal computers is a logical evolutionary extensionof the core products in text and information pro-cessing.’13 When asked about the transition fromET to PWP, the CEO of the time expands: ‘Andthen from word processors to computers, again it’snot a big step.’ I then asked ‘for the consumers orfor the company?’ and the CEO replied ‘for thecompany and the consumers.’

Similarly, regarding its entry into fax machines,a Smith Corona press release stated: ‘Leveragingits strong brand name and distribution network,Smith Corona has introduced . . . fax machinesfor the home, home office and small office mar-kets. Fax is a natural new product category forSmith Corona because we understand paper han-dling, print handling and person-to-person com-munications from our leadership in the electronictypewriter and word processing markets,’ said (dis-guised) vice president of new product develop-ment. . . . The fax product is the newest memberof Smith Corona’s expanding product line, makingSmith Corona the leading provider of home officesolutions.’14

Upon trying to emerge from the 1995 bank-ruptcy, the same lack of appreciation for the lim-ited fungibility of the brand held. The companytried to position itself as the SOHO solution sup-plier: ‘We talked about how we could extend intoother products. The plan we had of extendinginto other areas of the small office, home officeenvironment, everybody bought into it. Everybodycould logically make that extension and so that’swhat we based it on and it just didn’t take. . . .

When we put our plan of reorganization together,our CEO had conversations with [the next CEO]about different product offerings, and [the nextCEO] said “I’ve got some connections overseasfor sourcing. We could use the name and go intothe same distribution channels. You know, it’s thesame distribution channel and it’s now using our

13 Annual report, 1991.14 Business Wire, 29 September, 1993.

name as an extension to different products,” but itjust didn’t stick’ (a CFO).

Interestingly, Smith Corona failed to learn fromits pre-bankruptcy failed brand extensions experi-ences. A post-bankruptcy CEO stated: ‘Our obvi-ous concern, going forward, is the status of ourbrand image, and its prospects for use in connec-tion with new categories of products. . . . SmithCorona still continues to be favorably perceivedwith regard to quality, reliability, dependability,and as an established company. These percep-tions [are] evoked from our legacy as the “type-writer company.” . . . We’ve got to bridge the gapfrom our “typewriter legacy” and carry the positiveimages from that product and era to new evolvingtechnology products.’15

The idea of extending the brand to office prod-ucts continued until the demise of the company.A post-bankruptcy CEO described his strategyfor revitalizing the company in the followingexchange: ‘What did you think were the options atthat time to make the company survive? (me). ‘Wedid a brand audit and brand recognition was veryhigh. We had a sunset product, but the brand wasvery strong. So we said we’ve got to redevelop thebrand and make it transfer outside of this productconstraint. Hence, the SOHO approach. . . . SmithCorona has been around for a long time, it’s avery trusted name; let’s translate that into “if youtrust it for the typewriter you can trust it for smalloffice, home office solutions.” So it became a pro-cess of creating a brand that would translate intomore than just one product’ (the CEO).

In a memo to the current CEO, a future CEOstated his thoughts about the emergence of thecompany from Chapter 11: ‘The brand equity isstill strong. . . . It is easily transferable to com-puter/IT products.’16

The same CEO stated in a press release: ‘Thesize of our distribution network and the value ofthe Smith Corona brand name will be maximizedby the marketing of new, technologically advancedproducts for the small and home office. Theseproducts will enable Smith Corona to counteractthe continuing shrinkage in the typewriter andword processor market worldwide.’17

In fact, a pre-bankruptcy director proclaimedregarding the post-bankruptcy strategy: ‘I may be

15 Company memo, 1997.16 Company memo, 1996.17 Business Wire, 8 September, 1997.



wrong but my view from the outside is that secondshot was the first shot all over. Am I right?’ (thedirector). ‘Yes’ (me). ‘That’s why I wouldn’t stayaround, because I was convinced that I had readthis novel already. . . . Sorry, I won’t buy it, so I’mout of here’ (the director).

The last filed annual report stated: ‘The com-pany continued to refine its business plan, whichcalls for the expansion and diversification of itsproduct lines with a renewed emphasis on buildingon the market’s recognition of the Smith Coronabrand in printed document and data transmissionproducts.’18

The second perception that impacted the waythat managers tried to exercise dynamic capabilityto renew the firm was their belief that their under-standing of their customers was a key resource.This belief was faulty; they thought they under-stood their customers deeply, but they did not. Asdiscussed earlier, a company’s understandings ofits customers is also a resource (Danneels, 2002).The attempts to enter new product categories weredelayed by the dismissal of the PC as a productthat would substitute the ET and PWP. The lackof deep understanding of customer needs led thecompany to ignore product categories (PC hard-ware and software) that offered alternative waysof satisfying these needs. Customers’ needs moti-vate them to seek certain benefits of products, and,hence, what utilities they give to various aspectsof product performance (Danneels, 2004). If newtechnology makes possible a new product categorywith superior or distinctive benefits that provideincremental utility that justifies a price differential,the new product category will substitute the cur-rent product category (Adner and Levinthal, 2001).Smith Corona managers did not appreciate thateven though PWPs and PCs were different prod-uct categories, from the perspective of the benefitsthey provide to customers they were substitutes(Danneels, 2004, 2006). This led to the dismissalof the PC as a competing product category.

‘At the electronics shows you could see theadvancement of computers. [The CEO] alwaystook the position that computers were too expen-sive, too bulky. He said: “No, that’s not a com-petitive product to what we’re doing. We, SmithCorona, are making typewriters for the home,small business, student market.” That was wherehe felt his forte was. I used to argue with him. I

18 10K, 1999.

said this is the future. He said, “No, no, that’s adifferent market.” He always felt PCs were goingto be a different market and that he would havehis niche with the home user, the small businessand the students’ (a director).

In the mid to late 1980s decision makers atSmith Corona dismissed PCs as being too highpriced and too difficult to use to be competitionfor typewriters. ‘I remember a statement by anexecutive who said: “people will always want atypewriter. PCs will never be price competitivewith typewriters”’ (a director).

Other evidence of the lack of deep understandingof customer needs is the repeated reference thatstatistics showed that 80 percent of the peoplethat used PCs used them for word processing. ‘Wewere selling a product at $499 or $599; PCs wereselling at three times that, so we had a decidedprice advantage. And we firmly believed that thePWP was solving the needs of our customers’ (aVP of marketing).

The CEO at the time repeated on several occa-sions that PCs would not obsolesce ETs and PWPs:‘Many people believe that the typewriter and theword processor business is a buggy whip indus-try, which is far from true. . . . Our core market,which is in typewriters and word processors, willcontinue to be strong. . . . A growth opportunity iscertainly going to come in word processors, whichis a great cost alternative to a personal computer.. . . The word processor will emerge as a winnerand also we can’t count typewriters out.’19

The VP of marketing at the time expressed thefollowing in an interview: ‘How do you see a prod-uct like the Personal Word Processor competingwith low end PCs?’ (interviewer). ‘From our per-spective the typical personal computer representscomplete overkill for home word processing needs;it’s far more horsepower than you need to accom-plish the task at hand. The same is true for theexpensive high-end electronic office typewriters.What’s paramount for us, besides affordability, isease of use and ease of learning’ (VP of mar-keting).20 And again, in 1989 he stated: ‘Nearly75% of the people who own PCs today use themstrictly for basic word processing. The comput-ers have a ton of other capabilities that they’re

19 Wall Street Transcript, 23 November, 1992.20 Consumer Electronics, June 1986.


24 E. Danneels

just not using. It’s like hunting a rabbit with acanon.’21

Smith Corona commissioned a survey of homePC users, and shared the results in a press release,in which the VP of marketing stated: ‘The surveyprovided us with valuable insight into the usagehabits of PC users, and illustrates that the needs ofmost PC users can be met by a personal word pro-cessor equipped by our CoronaCalc spreadsheet,at a significantly more economical price. Our per-sonal word processors are an intelligent alternativeto PCs.’22

In fact, in a 1989 advertisement, Smith Coronaused the headline that its word processors were ‘anintelligent alternative to the personal computer.’ Iasked the same person for clarification of anotherfinding from the survey:

‘You quoted a survey of PC owners that showedthat 10 percent use their PC only for word process-ing, so that means 90 percent of them are lookingfor something else in addition to word processing.To me that implies that if you give PC users aword processor, only 10 percent can do what theygenerally do’ (me). ‘I think what the survey saysis that 10 percent of the people used their PCsonly for word processing, nothing else. So peoplewere using PCs for things other than word pro-cessing’ (a VP of marketing). ‘Right. To me thatmeans that 10 percent of people who have a PC,use it only for word processing. So you’d say tothem why don’t you guys have a word proces-sor, it would cost you a lot less? But that’s only10 percent of PC users?’ (me). ‘Correct.’ (a VPof marketing). ‘There’s 90 percent of that marketthat wants something more than a word proces-sor’ (me). ‘They want a PC. . . . And that’s whyin 1989, we began to look at getting into the PCbusiness’ (a VP of marketing).

These statements show a poor understandingof the differences between the product categoriesand the different benefits they provide, which inturn results from a shallow understanding of cus-tomer needs. Due to this lack of in-depth customerunderstandings, Smith Corona’s managers did notrecognize that PCs could potentially address theircustomers’ needs. They did not keep track of thetrajectories of performance and price (cf. Chris-tensen, 1997; Dosi, 1988) of PCs because they

21 Adweek’s Marketing Week, 2 October, 1989.22 PR Newswire, 9 January, 1990.

dismissed them as a totally different product cat-egory that would not invade their market. SmithCorona ignored the improvements in PCs, as theybecame more user-friendly and hardware pricesdeclined. PCs offered the unique benefit of allow-ing the installation of additional software, andovercame their inferiority in the ease of use bene-fit. There was a gradual evolution in the price andthe functionality of the PC. In 1990, a major shiftin functionality occurred with the introduction ofWindows 3.0, which made PCs much easier to use.This time point can be noted on Table 1 as the firstonset of Smith Corona’s decline. Another majorshift in functionality occurred around 1996, whenthe Internet became prevalent. This added uniquebenefit to PCs as interfaces with the Internet, butit dealt the final blow to Smith Corona.

‘No indications in the marketplace at that pointin time suggested that the PWP wasn’t going tocontinue for a while to be a very viable product.. . . We firmly believed that the PWP was solv-ing the needs of our customer at that point intime.’ (a VP of marketing). ‘None of us ever sawthe evolution but we did recognize that you couldtake a computer and type with it and print it. But[the CEO] just felt it was just not price compet-itive and it was not designed for the home andsmall business at that time. Little did we knowin a few years it would be, as it got smaller andmore affordable’ (a director). ‘I don’t know that weknew enough about the PC market per se, under-stood the dynamics of this new market that wasforming, the PC market. What is the obsolescencefactor? What are the demands? What are peoplewilling to pay for? What do they want? What arethe features? What are the functionalities? What isthe technology and are we on the leading edge ofthe technology curve? I don’t think Smith Coronareally understood it because it was a brand newarena for us. . . . It took 100 years for the type-writer to run its course and probably within thecourse of 12 months the PC industry underwentmore technological changes than the typewriter didin 100 years’ (a CFO).

In sum, managerial cognitions about two keymarket-related assets, brand and customer under-standings, influenced how the firm tried to exercisedynamic capability, which avenues of renewal itpursued, and which it did not. While the beliefin the fungibility of the brand led the companyto try to leverage this resource, these repeated



attempts were futile as the brand was not extend-able to another product category. In addition, thefailure to recognize the limitations in their cus-tomer understandings led the Smith Corona man-agers to dismiss the substitution of their core prod-ucts and made the creation of new resources seemunnecessary.

From this evidence it is clear that there waslittle learning over time, and inaccurate mentalmodels persisted (Barr, Stimpert, and Huff, 1992).There are two plausible reasons why the faultyresource cognitions regarding the brand and cus-tomer understandings were not corrected as SmithCorona accumulated failed experiences over morethan a decade.

First, the contradictory evidence was difficult tointerpret. Failure is associated with more attribu-tional ambiguity than success (Kruger and Dun-ning, 1999), and this contributed to the resistanceof the resource schemas to updating. Indeed, alter-native reasons for failed product introductions,in particular the alleged unfair pricing practicesof competitors, were prevalent. Erroneous attri-bution may be the reason why the transferabil-ity of the brand was never questioned, even aftermany failed brand extensions. It is noteworthythat there was essentially no change in the beliefthat the brand was the resource that would enablerenewal, but that consideration of the distribu-tion network as a resource was deleted. Exten-sive cognitive processing was necessary to inferlack of fungibility from failed brand extensionsand the lack of interest of potential alliance part-ners and acquirers (cf. Fiske and Taylor, 1984).In contrast, the closing of the small office storesand the antagonistic relationships with big retail-ers were concrete and vivid, and it was easyto infer that the distribution resource could notbe the basis of renewal (cf. Barr et al., 1992).Second, due to lack of constructive conflict amongtop management and the board, the faulty mentalmodels were not challenged (cf. Amason, 1996;Danneels, 2008; Finkelstein and Mooney, 2003;Jehn, 1995). The contrasting beliefs between theCEO and the board members were not explored,as the CEO did not tolerate dissent. There arehints in the interviews that the ‘powerful person-ality’ of the CEO prevented his view from beingchallenged, leading to a lack of ‘upward voice’(Detert and Edmondson, 2006), as this poignantquote suggests:

‘[The CEO] in the late ‘80s was saying no, thecomputer industry is totally different from SmithCorona. He would not acknowledge that relation-ship at that time’ (a director). ‘And neither didany of the board members or other top manage-ment team members?’ (me). ‘I remember argu-ing with him that computers are the future. Hesaid: “No, no, no, you don’t understand; our mar-ket is this, and this is where we are successful,and this is where we are recognized.” He wasadamant. I’ll never forget he was yelling at me.He had that strong of an opinion (a director).‘How about the other folks on the top managementteam? Did they have a dissenting opinion?’ (me).Not really, no. If they did, they didn’t express itto me. [The CEO] ran that company with verytight reins’ (a director). This lack of construc-tive conflict allowed inaccurate resource cogni-tions to go unquestioned and unexamined, in spiteof mounting disconfirming evidence (cf. Schulz-Hardt et al., 2006).

DISCUSSION

The decline of its core product category challengedSmith Corona to exercise dynamic capability, thatis, to alter its resources in order to enter into otherproduct categories. This study examined how thefirm used the various modes of resource alter-ation: leveraging, creating, accessing, and releas-ing resources (cf. Eisenhardt and Martin, 2000).The firm was not able to alter its resources to offercompetitively viable new products.

The purpose of this study was to advancedynamic capability theory by confronting it withan empirical case. This study has done so in sev-eral ways. First, by untangling the modes of alter-ation of a resource base, it helped to open to the‘process black box’ of dynamic capability theory.This study has provided a rich understanding ofthe modes of resource alteration, in other words,how dynamic capability enables renewal. It hasalso provided insights based on managerial cog-nitions into why various modes are used. Sec-ond, this study related dynamic capability to otherareas of conceptual and substantive inquiry. Someof these have been explicitly related to dynamiccapability (e.g., alliances and product innova-tion); others have heretofore not been consideredpart of the purview of dynamic capability (e.g.,


26 E. Danneels

brand extension, resource fungibility, and man-agerial cognition). Third, it showed relationshipsamong concepts that are relevant to understand-ing dynamic capability but that have remainedunconnected in disparate literatures, such as thework on brand extension in marketing and thework on resource fungibility in industrial organi-zation economics. Fourth, it empirically groundedthe rather elusive dynamic capability theory (Barr,2004; Kraatz and Zajac, 2001) through examin-ing in great detail how a firm managed its set ofresources in the face of the decline of its mainproduct. Making empirical referents explicit will,I hope, help to develop consensus about the mean-ing of key concepts in dynamic capability theory.Fifth, this study revealed a gap in current dynamiccapability theory, namely that it is necessary toconsider managerial resource cognition in orderto understand the actual or potential exercise ofdynamic capability. It is not only resources thataffect dynamic capability but also cognition aboutthose resources.

The next paragraphs will elaborate the impli-cations of the most important contribution of thisstudy: the development of the concept of resourcecognition. Understanding resource cognition iscritical to advancing the theory of dynamic capa-bility. Resources cannot be assumed to be a givento managers. As Barney and Arikan (2001: 174)stated, ‘resource-based theory has a very simpleview about how resources are connected to thestrategies that a firm pursues.’ The actions nec-essary to manage resources are not self-evident(Barney and Arikan, 2001); they are contingent onmanagerial cognitions. Managers’ cognitions abouttheir firm’s resources affect which directions ofresource renewal are pursued. I proposed the con-cept of ‘resource schemas’—mental models heldby managers involving the identification of firmresources and the understanding of their fungi-bility. So far there has been little study of man-agers’ conceptualizations of resources and compe-tences. Future research could examine the processof resource cognizing: how does a company cometo understand what its resources are and what alter-native uses could they be put to? While fungibilitymay be obvious for some resources, such as a plantthat can only produce one particular product, it ismuch more subtle in the case of other resources,such as brand. How does a company know what itis good at or which of its resources are still valu-able in a changed environment? Little is known

about how or how well managers understand theirown resources and competences (Denrell et al.,2004), despite the fact that the identification ofresources and competences has long been consid-ered a cornerstone of strategy (Andrews, 1980).In their recent conceptual article, Schreyogg andKliesch-Eberl (2007: 928) suggest that ‘organiza-tions often lack a well-articulated understandingof their own capabilities.’ In parallel with indi-vidual level research on meta-cognitive compe-tence—the ability of individuals to assess theirown competences, skills, and knowledge (Krugerand Dunning, 1999)—research regarding organi-zational self-cognition about resources and com-petences could be very fruitful. Research on man-agerial cognition about resources would extendprior studies of the role of managerial cognitionin firm renewal (e.g., Barr et al., 1992; Kaplan,Murray, and Henderson, 2003; Tripsas and Gavetti,2000).

There is minimal theory explaining how firmsmanage resources to create value (Sirmon, Hitt,and Ireland, 2007). Understanding managerial cog-nition about firm resources helps fill this gap. Formanagers, resource cognition is essential to theexercise of dynamic capability. Active manage-ment of the resource base requires accurate under-standing of the nature of the resources. This isfar from a trivial task (Coyne, Hall, and Clifford,1997; Marino, 1996; Narayanan and Kemmerer,2001). Contrary to managers’ beliefs, the SmithCorona brand had limited fungibility. Its redeploy-ment to other office products was unsuccessful, inspite of the fact that those products had surfacesimilarities with the firm’s historical core cate-gory of typewriters. This call for a more reflexiveapproach to resources is in tune with recent con-ceptual work on dynamic capabilities. Schreyoggand Kliesch-Eberl (2007: 913) proposed ‘capabil-ity monitoring’ in order to achieve explicit self-awareness. Teece (2007: 1341) stated that ‘use ofthe assets the enterprise owns involves knowingthe fine-grained structure of the firm’s asset base.’Clearly, the active and purposeful managementof resources, or resource ‘orchestration’ (Teece,2007: 1320), requires valid cognitions about thoseresources.

It should be emphasized that a single firm casestudy cannot demonstrate the relationship betweendynamic capability and success in dealing withenvironmental change. Because a declining prod-uct category was the core of its business, Smith



Corona’s need for renewal was more pronouncedthan it would be for a firm active in a portfolio ofproduct categories. This makes Smith Corona anespecially appropriate case to study dynamic capa-bility (Strauss, 1987), as it made many attempts toalter its resource base in order to enter productlines other than ETs, PWPs, and their accessoriesand supplies.

Despite its limitations as a single case study,some managerial implications can reasonably bedrawn. First, a firm wants to exercise dynamiccapability to achieve renewal needs to start withan honest self-assessment of its resource base.Firm executives need to identify current resourcesand competences and assess their fungibility. Twofocal questions should be addressed: what are ourkey resources and competences, and what is therange of their potential uses? The answers to thesequestions should be enriched and vetted by frankdebate among top managers and board members(cf. Finkelstein and Mooney, 2003). Characteriz-ing the fungibility of resources ex ante (beforemarket introduction) is possible. For brands, itinvolves identifying the semantic network of brandassociations that customers hold in their long-termmemory (cf. review of techniques for elicitingbrand associations in John et al., 2006), and judg-ing the fit of the dominant associations with pos-sible extensions. Second, decision makers shouldconsider all modes of resource alteration andtheir requirements. Leveraging existing resourcesrequires that these resources be fungible; creatingnew market-related and/or technological resourcesrequires marketing and/or R&D second-order com-petences, respectively (Danneels, 2008); access-ing external resources requires valuable comple-mentary resources (Harrison et al., 2001), and thefunds from releasing resources should be returnedto shareholders or used for viable renewal (Harri-gan, 1980). Third, it is possible to try to ‘peek intothe future’ to see what opportunities and threats itholds that would make the exercise of dynamiccapability attractive or necessary. Analysts canproject trajectories of performance offered by tech-nological alternatives and the trajectories of per-formance demanded in various market segments(Christensen, 1997). This requires a broad viewof emerging technologies and a deep understand-ing of the needs that customers are seeking tosatisfy.

It should be noted that Smith Corona was inmany ways a successful company, indeed, it was

an American icon. The study of Smith Corona’shistory suggests that firms may survive and pros-per for a long time without dynamic capability,tracking the life cycle of products. The com-pany survived for over a century, tracking thelife cycle of different form factors of typewrit-ers. This life was punctuated only twice: onceby a transition to electric typewriters and onceby a transition to ETs (cf. Tushman and Ander-son, 1986). These transitions involved the explo-ration of new technology, but did not require dif-ferent market-related resources. The developmentof a competence in electronics was its last man-ifestation of dynamic capability. Smith Coronanever again engaged in exploration, and eventuallybecame obsolete.

Could Smith Corona have done anything differ-ent that may have saved the company? Or wasthe company’s demise inevitable? Various reme-dies, such as the creation of a new brand or thedevelopment of new technologies are easy to imag-ine. They all involve building new resources andcompetences. The normative question ‘should any-thing different have happened?’ is more interest-ing. Dew, Goldfarb, and Sarasvathy (2006: 73)question whether it is desirable ‘to keep the cor-poration alive and thriving at all costs and underall circumstances.’ An implicit assumption in thestrategic management literature is that firms needto strive for survival, whereas finance and pop-ulation ecology perspectives accept the limitedlongevity of firms (Dew et al., 2006). From theperspective of its employees and the communi-ties in which it operated, Smith Corona’s survivalwould have been desirable. But from an arm’s-length capital allocation perspective, would it havebeen rational to invest money into changing theresource base of Smith Corona relative to alterna-tive investments? I don’t think such expenditureswould have been justified, from investors as wellas public welfare perspectives. First, the firm hadno resources or competences that could be lever-aged. It seems more rational to invest in anothercompany, either a new venture with a blank slate(e.g., Dell), or an established firm with resourcesand competences to leverage (e.g., Lexmark, whichused the broader IBM brand as a stepping stone).In assessing the rationality of investing in renewal,Dew et al. (2006) show the importance of com-plementary assets, which could be beneficial ordetrimental depending on whether they increaseor decrease the value of adding new resources to


28 E. Danneels

the firm. Smith Corona’s only remaining comple-mentary asset was its brand, and it was detrimen-tal. Moreover, building new resources and com-petences does not require only expending money.Recent research (Danneels, 2008) shows that orga-nizational factors—such as slack, the willingnessto cannibalize, constructive conflict, and scan-ning—impact second-order competences. SmithCorona’s poor showing on these factors suggeststhat even if it would have been desirable to createnew resources and competences, the company maynot have been able to do so.

Finally, Smith Corona’s demise sheds light onthe joint role of endogenous and exogenous forcesin the long-term survival and prosperity of firms.The firm’s resource base was endogenous; it accu-mulated over time as a result of choices thatspanned decades. The constraints this base sub-sequently imposed were of the firm’s own mak-ing. Concomitantly, exogenous changes, such as intechnology and distribution, reduced the value ofSmith Corona’s resource base. Its current resourceswere of little value for extending into new direc-tions, and it did not create new resources. Eventhough Smith Corona was a long-lived and suc-cessful company within its particular product cate-gory, it could neither draw on its existing resourcesnor build new ones when that product categorybecame obsolete. Smith Corona was stuck in itsproduct type. As its typewriters reached the end ofthe line, so did the company.

ACKNOWLEDGMENTS

I am indebted to Mattias Nilsson, BernardinoProvera, Liza Rivera, MB Sarkar, Christian Stadler,Steve Taylor, Christophe Van den Bulte, andGianmario Verona for their insightful suggestions,and to Christine Drew, Frank Eckstein, and JonGronlund for their able research assistance. Thisresearch was funded by the Institute for the Studyof Business Markets at Penn State University. TheVenture Development Corporation (VDC) gener-ously provided access to their archived reports.Data collection for this study would not have beenpossible without the trust and cooperation of theSmith Corona executives and board members. Thisarticle is dedicated to the memory of Marc Reg-berg, executive vice president of VDC.

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