Learning To Imitate A Successful Innovation Strategy

strategy and innovation

Imitating successful innovation efforts is a possible strategy encapsulated through terms like “Fast Follower” and “Second-mover Advantage.” Indeed, in his famous paper “Footnotes to Organizational Change” Jim March suggested that innovation is an act of altruism because the odds of any specific innovation being beneficial are so low that it is better to wait for others to make innovations and cherry-picking the best.

I think this argument makes sense. But, it comes with an important qualification because cherry-picking the best innovation isn’t as easy as it seems. Innovations don’t come rolling out of some laboratory (or garage) with an attached “price and benefit tag” that says exactly what it costs to adopt them and what benefits they have. Instead, innovations are highly uncertain at first. The uncertainty can only be reduced through adoption or use, or through information gained by observing others who adopt and use them. But this might mean that it is not the second-mover who has the advantage, but perhaps the third-mover or tenth-mover. Or maybe it is the first-mover after all? The longer the wait, the more certain the evaluation is, but the more other adopters will be around to have experienced the innovation and learnt how to build competitive advantage with it. This is the imitator’s dilemma: How much uncertainty is acceptable when evaluating an innovation that could produce competitive advantage?

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To answer this question, consider first how firms often are faced with a choice of product or process innovations made by others and with highly uncertain benefits. This is in part because the centers of innovation are equipment and material suppliers to the industry rather than firms in the industry. The use of composites in aviation, new chip designs in computing and communications industries, computer-controlled tools in custom manufacturing, and transaction processing systems in many service industries are technological changes in which suppliers have much of the technology design and implementation capabilities, but firms still need to assess independently whether the benefits for them are high enough to justify adoption. The problem is compounded by the fact that neither party has the full information – suppliers don’t fully understand the end user; buyers don’t fully understand the innovation. No wonder the decision is difficult, making the first adoption highly uncertain – as well as the second, third, and so on. And of course, the adopters are competitors, and would not normally share information about the costs and benefit of adoption.

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Is there any evidence that there is an imitator’s dilemma? Let’s take one study I did on innovative ship designs in the merchant shipping industry. One innovation was the post-panamax container ship, which is a larger and more cost effective container ship than previous designs. The other was the double-hull oil tanker, which is less likely to spill oil than the earlier single-hull design. The first innovation improved costs, while the second was needed for compliance with new rules that were being put in place. In retrospect, they are both seen as obvious choices. Post-panamax container ships are now used in all routes with sufficient demand for the capacity they give, and new orders for container ships are steadily increasing the size as shippers become more comfortable with the operation of these giants (current orders are triple the size of the original post-panamax ships). Double-hull oil tankers are nearly universal because single-hull tankers are locked out of many markets by law or by insurance costs. But here is the evidence of the imitator’s dilemma: It took more than 10 years for the post-panamax ship to even start the upturn in the diffusion curve that shows wide-spread acceptance. For the double-hull tanker, it took 9 years. Because ships have life-times of 20+ years, the early adopters had time to build their market position and experience operating them that is equivalent to nearly the half-life of these assets.

One could say that the slow adoption isn’t evidence of any dilemma, because it only shows that managers were slow to realize the benefits, perhaps because of irrational fears or lack of information.

Adapted from via The imitator’s dilemma 

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Jim Woods is president of The Jim Woods Group. A management consulting firm. Go here to see his work www.jimwoodsgroup.com. He advises and speaks to organizations large and small on how to increase top line growth in times of uncertainty and complexity. Some of his speaking and consulting clients include: U.S. Army, MITRE Corporation, Pitney Bowes, Whirlpool, and 3M. See more at his website www.jimwoodsgroup.com.

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