It's been said that Wall Street doesn't like surprises. Does that go for game-changing innovation, too?

Recent studies by Mary Benner, an associate professor at the University of Minnesota's Carlson School of Management, concludes that's often the case for major players in their industries. She examined how analysts reacted when companies like Kodak and Polaroid shifted to digital photography or when telecommunications companies began pursuing Voice over Internet Protocol technology. Analysts showed a preference for incremental change rather than breakthrough innovation.

Benner came to the Carlson School last year from the Wharton School of the University of Pennsylvania. She's a Minnesota native who earned an undergraduate degree in economics from the U of M and also held several management positions with Honeywell. The following are excerpts from a recent interview.

QThere's been a lot written about Wall Street's focus on short-term results. What's new about your study?

AMy research does a couple things. It focuses on instances where a new technology is really going to substitute for an old technology. So it's a do-or-die situation for these companies. The other thing that's different about my research is that it looks at these external stakeholders as opposed to internal pressures that can discourage change.

QIs this situation true just for incumbent companies, the big players in their respective industries?

AMy research shows that it very clearly affects these kinds of large firms. That would include a lot of the Fortune 100 that are headquartered here. The thing that separates the ones that are affected from those that aren't is whether they're publicly traded where expectations have been created that earnings, cash flow will be predictable. It's very hard for them to change and do something entirely new. There are firms that are categorized as growth stocks where analysts and stakeholders are more willing to see them innovate. Even Amazon spent many years being a growth stock without a lot of expectations for predictable earnings. Private companies also have more leeway with their shareholders.

QWhat role have lean management practices like Six Sigma and Total Quality Management played in this?

AThey're directly and indirectly related to the pressures you see from Wall Street. They focus on mapping processes and predictable, measurable improvement. My research shows that tends to spur more incremental innovation and crowd out radical innovation. The direct effect is that Wall Street tends to react very positively when companies adopt these management practices. They can be wonderful in some parts of companies that need efficiency, stability. But they're not always wonderful, particularly with technologies that are so new we don't really know them yet. How do you measure them or the markets for them?

QYour study would suggest the market prefers smaller companies to focus on developing game-changing technologies and products. Isn't there a problem with this, since these businesses may lack the resources to pursue this type of work?

AYou frequently hear that small companies are better at innovation -- they're more nimble. That may be true for some kinds of inventions. But there's more to it than that. There's the idea of being able to commercialize the innovation and to appropriate the value by having patents. There's the idea of having the financial resources. There have been studies on who survives these technological changes and it does tend to be incumbent firms. IBM is a great example of a company that has remade itself several times and created lots of shareholder value but has had to make investments in the process.

QDo incumbent companies gets punished equally for investing in breakthrough technologies by making acquisitions?

AI actually have a research study going on now that is looking at that. My sense is that the market reaction would be more positive. Information to investors is more available than when you do the development internally. With an acquisition you know what a company is buying, what it's paying. It's ironic because research also has documented that in general there are problems with acquisitions. A company's stock price tends to drop after it announces an acquisition, because the market has gotten so used to so many acquisitions not paying off. Another thing that's ironic is that a company should be more likely to get the value from innovation if a lot of people don't know about it, something that's easier to accomplish if you're doing it internally.

Susan Feyder • 612-673-1723