Wharton’s Laura Huang and Anoop Menon discuss their research on aerospace industry
Space exploration is a complex, highly technical and increasingly expensive endeavor that traditionally has been the domain of big governments. But more private firms are jumping into the fray and achieving success. In a recent paper, “Watershed Moments, Cognitive Discontinuities, and Entrepreneurial Entry: The Case of New Space,” Wharton management professors Laura Huang and Anoop Menon — along with coauthor Tiona Zuzul from the London Business School — studied the watershed moments that have enabled this frenzy of entrepreneurial activity. Huang and Menon recently spoke about their findings on the [email protected] show on Wharton Business Radio on SiriusXM channel 111.
An edited transcript of the conversation follows.
[email protected]: Could you summarize what you were studying in this paper?
Anoop Menon: We are big aerospace buffs. There has been a huge amount of buzz in the aerospace industry in the past five years or so. There’s Elon Musk, there’s Mars colonization, space travel. But aerospace is a classic example of a hard-to-break-into industry. This is a really entrenched industry with very high entry costs because of capital requirements, skills that are required, and regulatory connections that you need to have. Many people have tried to enter it to do private space and have failed. But all of a sudden, in the past decade or so, a big change. What happened here? Why? What drove this change, and can we understand something about industry evolution and entrepreneurial entry by studying this particular case? That’s what got us started.
Laura Huang: We were interested in this aspect that there’s new private firms that are entering this industry. I was really interested in looking at these private firms. Anoop was really interested in their cognitive models and their mental models, and our third co-author, Tiona Zuzul, who is at London Business School, was also interested in this aspect of entrepreneurial entry. You have this industry where it’s been so difficult to enter, yet we see progress has been made in the past decade. We wanted to investigate why that was and how did that happen.
[email protected]: How did you do that and what did you find?
Huang: We recognized that this is an industry that has a lot of history. We went back to the 1950s and even earlier. We have 21,000 articles, conference proceedings and documents dating back to that time period all the way to the present day. We looked at what was happening. What are the changes? Where do these changes come from? We also supplemented that with lots of interviews with regulators, engineers, people at all the different touch points in the industry.
Menon: One of the really fun things about this project was that I got to talk to an astronaut; I got to talk to a colonel in the Pentagon; I got to talk to NASA people. It was fantastic.
“You have this industry where it’s been so difficult to enter, yet we see progress has been made in the past decade.”–Laura Huang
Huang: Sometimes all in the same day. They have been incredibly willing to share their own thoughts on this industry. We’ve used that and looked at both the conference proceedings and all these documents we had, and we thought about all of these different angles that we could [examine].
[email protected]: Was there a particular watershed moment for the industry?
Menon: The academic literature on how industries change, where do opportunities come from, tend to look at either big breaks in technology, big regulatory changes or some sort of social movement or collective action. These are three big buckets that we have been talking about, and there are aspects of that here, too. But what was interesting is this cognitive element as well, and that’s where this watershed moment comes in.
If you think about any industry, especially these kind of stable, long-standing industries, you have the major players who all have beliefs about who does what, how things work, the rules of the game, if you will. If anybody tries to deviate, they get kicked out or pulled back into it. These are relatively resilient mental structures, or collective mental models, that define the rules of the game for the industry. What we are trying to say is that these watershed moments are big, shocking events that cause actors to sit back and wonder if things should always be this way. There’s the initial big watershed moment, which is the Sputnik moment, and it is a term by itself. Sputnik gets launched and all of a sudden we freak out. That causes NASA to be founded, DARPA (Defense Advanced Research Project Agency) to be founded — big changes. All of a sudden, this is the Cold War being played out in space. That gels the collective mental model around the belief that space is for big governments, big firms, failure is not an option, a lot of money is required, only the top talent can be here.
The first set of shocking watershed moments happened at the end of the ’80s. You get the Challenger disaster — which very shockingly, very vividly demonstrates to the public that maybe the government doesn’t always get it right. Maybe things can go really badly wrong. At the same time you get the Cold War ending, the Berlin Wall falling, and that causes many people to question why we are spending so much on space. Then committees get formed. How do we rethink space? That causes what we call the initial shake-up of the model.
Huang: What Anoop is referring to is this dislodging of this mental model that was there. A lot of this entry, a lot of this disruption that we’ve seen in the past was happening through technological discontinuities, through regulatory discontinuities, through collective action. But we’re finding in our data and analysis of this context that it’s these cognitive discontinuities that are catalyzed from these watershed moments. Watershed moments here are these very emotionally resonant, very publicly recalled moments — like Challenger, like the fall of the Berlin Wall. Those dislodged. Then we find three other ones that re-solidified, that brought about this new mental model. In 1986 we had Challenger, in 1989 we had the Berlin Wall, then we have the Columbia disaster. It’s something that we all vividly remember. I can remember watching this and can recall where I was when Columbia happened. Then we also have the awarding of the COTS (Commercial Orbital Transportation Services) contract and Ansari XPRIZE. We’re seeing that there is this new entrant, this relatively unknown company that is getting awarded this contract that was going to people connected to the government. We’re seeing this sort of shift that it’s not just the government; it’s not just a national endeavor. Now these private firms are coming in.
Menon: That initial model, which was called the Old Space or the Big Space model, gets really shaken at the end of the 1980s, and then the government tries pretty hard to encourage private sector engagement. They try different programs through the 1990s, but there isn’t much success. There is a Texan banker