The Promise–Risk Balance: Recalibrating Design Choices and Strategic Framing Following Catastrophic Innovation Failure*

Abstract

Catastrophic innovation failure derails firms’ innovation process and threatens their legitimacy. Prior research has analyzed internal and external responses to failure separately, focusing either on intra-firm learning and failure remediation or on efforts to sustain stakeholder support. Research on these responses’ co-evolution has been notably absent. We examine how a firm jointly recalibrated internal design choices and external strategic framing following catastrophic innovation failure, through a study of Virgin Galactic’s 2014 test flight crash. We introduce and develop the concept of the “promise–risk balance”: a state in which the uncertainty inherent to innovation and the framing communicated to stakeholders stand in generative tension and jointly support the innovation process. Catastrophic innovation failure disrupts this balance. We map Virgin Galactic’s recalibration of risk via internal design choices and recalibration of promise via external framing as interdependent levers to restore balance. We show that design choices aimed at de-risking technology can have adverse effects on a firm’s capabilities, externally dampening promise. Following failure, strategic reframing must bring the firm’s external message in line with actual capabilities and inspire stakeholder support. Recognizing and managing interdependencies between design choices and strategic framing is crucial to the continuity of the innovation process and firm survival.