[ESSEC Knowledge] by Sen Chai - Associate Professor of management at ESSEC Business School.

Abstract

The text discusses a study by Sen Chai, Anil R. Doshi, and Luciana Silvestri, which examines the impact of a catastrophic innovation failure on the perceived legitimacy of Virgin Galactic and the commercial space industry. The study focuses on the 2014 crash of Virgin Galactic's SpaceShipTwo and how this event affected the legitimacy of both the firm and the industry.

The commercial space industry, which includes companies like SpaceX and Blue Origin, is characterized by radical innovation and a need to establish legitimacy. The study analyzes reactions to the crash from various stakeholders, including investors, Virgin Galactic executives, space experts, the press, and government representatives. Two main camps of reactions emerged:

1. Detractors: These individuals perceived Virgin Galactic as losing legitimacy due to the crash. They attributed the failure to flawed firm practices or poor technology. Some also considered space tourism, the firm's product category, as frivolous, expensive, dangerous, and lacking social value. Detractors isolated the firm from the space industry.
2. Supporters: Supporters, including the firm itself, viewed Virgin Galactic's endeavors as technologically sound and socially valuable. They characterized the failure as a consequence of the challenging innovation process in the commercial space industry. Supporters aligned the firm's identity with the industry's identity to assert its legitimacy.

The study findings suggest that stakeholders interpret failure differently. In the aftermath of a catastrophic innovation failure, stakeholders tend to maintain the legitimacy of the industry itself. However, not everyone continues to see the implicated firm as legitimate. Additionally, the firm may realign its identity with the industry's identity to reassert its legitimacy.

In summary, the study sheds light on how stakeholders perceive the legitimacy of a firm and an industry following a major innovation failure. It highlights the complexities of establishing and maintaining legitimacy in nascent industries, particularly when faced with high-profile failures.

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