It is surely one of business’s great paradoxes that maybe, just maybe, an innovator might have something to learn from an imitator. However unlikely, it is a truism, and this author describes why an innovator should pay close attention to, and even respect, an imitator. He also describes why and what an imitator can learn from – who else ? – an innovator. In the end, the innovation will stymie the competition.
Much of the current business scholarship will lead you to believe that there are great benefits associated with innovation and pioneering entry. The same is true for the popular media, which has elevated innovators to cult status. Yet the business environment is littered with first movers who have underperformed their peers. Think White Castle, the first standard-fare fast food purveyor, which is now a minor industry player; think Diners Club, the first issuer of a credit card, which holds on to a tiny sliver of the market it created; think EMI, which pioneered CAT scanners, but found itself out of the market in six short years.
Indeed, many imitators do so well that they push the innovator out of business. Some have been able to repeat the feat time and time again, as did IBM, at first with mainframe computers and then with the personal computer. Of course, not all imitators fare as well. Delta Airlines has tried not once but twice to imitate the Southwest Airlines model, the second time with the help of a famous consultancy, but to no avail. Some imitators arrive to market too late, after pioneers and early followers have established an insurmountable lead, or by the time the market has been flooded by other latecomers cutting into each other’s margins. Others stumble as they blindly follow the formula of a competitor whose capabilities they cannot match. Still others fail to discern the intricacies of a model, producing imitations that are not up to par, as twice happened to Delta in its failed attempts to clone a variant of Southwest Airlines. But this is precisely the point – one must know how to imitate.
Innovation vs. imitation
The argument for innovation seems well established. New products do three things: They lead to higher sales and growth, for instance by targeting higher margin segments; they lower costs, by marketing new and improved products to existing customers and saving the expense of attracting new ones; and they transform a firm’s capabilities so profits are sustained over a long period.
While this seems impressive, a close look will reveal that imitators enjoy many of the same benefits, and then some. Having observed market reaction, the imitator can better calibrate a product and is not encumbered by an investment in obsolete technology and infrastructure. Imitators are often better positioned to offer the customer something better/cheaper, often both. Even if the imitator’s search costs are higher, its overall cost is lower by an estimated 60 to 75 percent.1 A gap of that magnitude enables the imitator to make competitive moves ranging from passing the cost savings on to the consumer to offering superior features, distribution and service, or channel the extra margins toward, well, innovation.
With the innovator and pioneer paving the way, making much of the research and development and marketing investment, the second mover enjoys a “free ride.” It also avoids potential dead ends. Generic drug makers not only leverage the investment made by the original developer but also reduce risk and save billions and decades of efforts by steering clear of ideas shown not to work. After all, close to ninety percent of drugs under development fail in the trial phase, after having already absorbed, on average, one billion dollars worth of investment. While the innovator is granted a monopoly period during which it can try to recoup its investment, the first follower enjoys a lucrative monopoly of its own. The first generic maker to challenge the branded patent is granted a six-month window of exclusivity during which the copycat may sell the drug for as high as 80 percent of its branded equivalent. In the case of a blockbuster drug like Lipitor, this means a $1 billion payoff for an estimated $13 million investment.2 Not a bad deal under any circumstances, but an especially lucrative one given the low risk involved in following a route shown to work from both a scientific and market perspective. Since the innovator bears the investment for informing and convincing customers, the imitator also saves on marketing expenses.3 The imitator also has the luxury of channeling its efforts towards the “sweet spot” of superior return, and, observing the outcome of prior trials, avoids costly mistakes.4 For instance, it can delay entry into markets that have not yet reached a critical mass.5 Or, it can work from a “dominant design” that has been established at someone else’s expense without risking a losing bet, like Sony did with its Beta video format.
The advantages of imitation
With the benefit of hindsight, imitators capitalize on the shortcomings of the early offerings. Not only was Walt Disney able to capitalize on the technical and organizational innovations of the early animation studios, he was also in a position “to discern the limitations of existing cartoon animation with its excessive reliance on cartoon strip characters, the weak or even non-existent stories, their over reliance on recycled formulas, the lack of characterization of central figures, and their poor visual quality”.6
Imitators pick and chose what to adopt, which permits them to go after more profitable opportunities.7 They can tweak the original to fit shifting consumer tastes and adjust it to new or emerging circumstances. They can also leapfrog into the next technological generation since they do not carry the sunk-investment made by the pioneer incumbent, are free of limiting routines, and can utilize an experienced workforce.8 This is what Samsung did when it leapfrogged into digital technology, leaving behind an inferior base in analog technologies.9 This is also what Japanese and Korean semiconductor makers have done to capture a bigger slice of the pie from predecessors.10
Imitators are also less likely to become complacent, unlike innovators and pioneers who are so taken with their success that they underestimate the dangers lurking in the rear view mirror. Imitators, who come from behind, tend to be humble and paranoid about others following in their footsteps and hence are better prepared to defend against other imitators. Since they need to differentiate themselves from the original, imitators are attentive to game-changing technologies, whereas many pioneers stick to their original formula. The leading movie animation studios were reluctant to adopt sound and color when they became available, whereas Disney and other late entrants were quick to realize the promise of the new technologies and so emerged as the new standard bearers.11 Since they often work from more than one model, imitators are constantly reminded that there is more than one way to go forward, a precursor to, yes, innovation.
Imitation is anything but simple
Imitation is critical to the survival, evolution and wellbeing of species, human and non-human alike. Just ask biologists or scholars in other scientific fields. It is striking that all of those areas have radically changed their view over time, following decades of observations and rigorous experimentation. Once viewed as a primitive instinct, imitation is now regarded by biologists, neuroscientists and cognitive scholars as a complex, intelligent and creative endeavor that requires rare and highly valuable capabilities. This is true especially for “full-fledged” imitation, which implies in-depth understanding of the causal chain within which the means and goals are embedded.
Alas, business scholars have by and large failed to align their approaches with the emerging scientific consensus, most likely because the field of business has been for years severing its relations to underlying disciplines. As well, such an alignment would challenge, if not demolish, widely held beliefs, especially in the field of strategy, in particular the so-called resource-based “view.” These beliefs, already skewed by a tendency to overplay the advantages of innovation and downplay the value of imitation, would be highly problematic in this field (Have you ever wondered, for example, why second and third movers, in essence fast imitators, are lumped together with the innovator/pioneer as “first entrants”?). Companies, if they are going to rely on that scholarly knowledge, or rather lack of it, are in for a rude surprise: Don’t try this at home, or you will go astray and fail to realize how important it is to develop imitation capabilities and strategies.
This is the Age of Imitation
Theodore Levitt’s words from half a century ago that “not a single company can afford to even try and be the first in everything in its field” ring truer than ever.12 Indeed, the importance of imitation has grown exponentially, as a consequence of the advent of such phenomena as globalization, outsourcing, alliances and employee turnover, the emergence of imitation clusters, and the weakening of traditional defenses on the legal, strategic, technological and organizational fronts. Taken together, these trends have ushered in what I call an imitation age, where imitation has become more feasible, beneficial, and cost effective than ever. This is not to say that imitation has been unimportant in the past. On the contrary, it has been critical to the development of human civilization and to the competitive position of nations. Rather it is that environmental parameters have changed in a way that favors imitation even more.
Crucially, imitation and innovation are not two opposites. Today, innovators have to focus their effort on a few core features or produce a novel and creative recombination of imitated elements, a sentiment echoed by many senior executives. To cite Christopher M. Connor, Chairman and CEO of Sherwin-Williams, “Even those of us that think of ourselves as the industry leader can’t constantly innovate every part of our business.” Ironically, although the capabilities to imitate share a lot with the capacity to innovate, innovators do not adopt them because of the stigma associated with imitation and the conviction that one has to compete and lead by innovation. This attitude has prevented many innovative firms from becoming what I refer to as imovators, that is, companies that are able to fuse innovation and imitation into a winning formula.
How to become an imovator
To become an imovator, a firm needs to approach imitation in a strategic fashion, devoting as much time as it does to the development of strategies for innovation. These imitation strategies can be formulated and reviewed using a simple inventory of questions, including where, what, who, when and how. The questions should be able to resolve the “correspondence problem” in a way that will not jeopardize the value proposition. Firms will also have to learn to overcome imitation deterrents, while at the same time use such deterrents to protect both their innovations and their imitations from subsequent entrants.
The first step towards imovation is to build on the platforms that are common to imitation and innovation. As PepsiCo’s Lionel Nowell acknowledges, and as we have noticed in this article, the two are not as far apart as the case may seem. If building an innovating / imitating system seems contradictory, it is worthwhile to recall that many of the capabilities required of a good imitator are shared by effective innovators.
In many ways, the sources of innovation and imitation are similar. Like innovators, imitators improve their capabilities ‘by doing’ and through other channels such as R&D, buying, training, hiring, reverse engineering and other forms of search…both find that a considerable amount of economically useful knowledge remains tacit and difficult to absorb…and both face uncertainty…Also, like innovators, imitators struggle to mesh know-how acquired externally with their own history, capabilities and operational procedures, thereby engaging in processes of search and discovery unique to their experience.13
Innovating firms are able to internalize routines that facilitate variation (e.g., improvisation), have combinative capabilities (e.g., are capable of decomposing and recombining different types of knowledge), and can reflect, update, select, assimilate and integrate superior routines and capabilities. They develop routines for exchanging information with suppliers and for appropriating spillovers (which implies imitating activity).14 Good imitators possess much of the same: They are able to improvise as they go about adapting an imported element or system to their needs and requirements, they can combine different knowledge bases that reside both within and outside their boundaries, and they are capable of identifying and leveraging “spillovers.”
Effective imitators know how to “parse” and decipher complex systems, sort amongst a vast array of information and data points, and integrate bits and pieces of relevant knowledge. They can also develop the entrepreneurial qualities that, combined with the proper routines, allow them to identify imitation opportunities and rapidly assess and implement a suitable replication. Both innovators and imitators must learn to avoid deceivingly simple modeling of complex realties, figure ways to “parse” a multifaceted puzzle into recognizable parts without losing sight of their “combinatory architecture”, and pursue in-depth understanding of cause and effect within a relevant business context. Both should be able to work from multiple models, and vary, select and sort the more promising options and combinations among them, as well as improvise, as they navigate a rapidly changing environment. Both benefit from cluster agglomerations and from the existence of supportive and complementary skills and industries, though they must still find a way to differentiate from other cluster members.
That imitators cast a wider search net is a key advantage to innovators as well. The same is true for the ability of effective imitators to identify and analyze moves made by unrelated firms as well as competitors, and do so almost in real time. Because they need to monitor and assess vast amounts of information, the ability to scan, search and sort relevant data is essential to imitators, as is the ability to put things in context so as not to be duped by a deceivingly simple formula or be tempted to bring in a model “as is,” without examining whether the key requirements for its viability are present. The same challenge faces the innovators who seek to turn their inventions into business innovations. Imitating firms also necessitate superior implementation skills since they do not have the luxury of working at their own pace and must often catch up and react swiftly to new challenges and opportunities as they arise. This too is critical to innovators at a time when innovation can sprout anywhere, anytime, often trumping what they have been working on internally. Imitators also tend to be better tuned to the correspondence problem underlying the transplantation of an import in a new environment, which is also of importance to inventors and pioneers who are often so captivated by their creation that they neglect the practicalities of the initiative and the context in which it is to be planted.
At the same time, imitators must learn to tap the potential for creativity and imagination that are commonly expected and demanded of innovators. Just as Roman scholars honed the skill of “inspired imitation,” and just like European entrepreneurs have found a way to marry Chinese porcelain to modern production techniques, innovators come up with new and better mousetraps that are devised on the back of those already out there, yet offer something better, cheaper, or more fitting to the target environment. Finally, and for both innovators and imitators, denying imitation opportunities to competitors is of major importance, but it too requires skills that are rare and can contribute to competitive advantage. Innovators are better at producing effective barriers to imitation as much as imitators are experts at finding ways to overcome those barriers. Combining those two sets of skills will likely produce a much more effective wall of deterrence to would-be imitators as well as a wider and more effective repertoire of strategies and skills with which to circumvent and diffuse imitation defenses put in place by competitors.
- Schwartz, M.A. 1978. The imitation and diffusion of industrial innovations. Ann Arbor, MI: University of Michigan Press; Mansfield, E., Schwartz, M. and Wagner, S. 1981. Imitation costs and patents: an empirical study. The Economic Journal, 91 (December), 907-918; Levin, R. et al. 1986. Survey research on R&D appropriability and technological opportunity. Yale University.
- Bain and Company. 2007. White Paper, Knowledge@Wharton
- Bayus, B.L., Erickson, G. and Jacobson, R. 2003. The financial rewards of new product introductions in the personal computer industry, Management Science, 49, 2, 197-210.
- See Lieberman, M.B. and Montgomery, D.B. 1988. First mover advantages. Strategic Management Journal, 9, 41-58.
- Glazer, A. 1985. The advantages of being first. The American Economic Review, 75, 3, 473-480.
- Bryman, A. 1997. Animating the pioneer versus late entrant debate: An historical case study. Journal of Management Studies, 34, 3, 415-438.
- Mansfield, E., Rapoport, J., Schnee, J., Wagner, S. and Hamburger, M. 1971. Research and innovation in the modern corporation. NY: Norton.
- For a summary, see Golder, P.N. and Tellis, G. 1993. Pioneer advantage: marketing logic or marketing legend? Journal of Marketing Research, 30, 158-170
- Chang, S.J., Sony vs. Samsung: The inside story of the electronics giants’ battle for global supremacy. Hoboken, NJ: Wiley.
- Cho, D.S., Kim, D.J., and Rhee, D.K. 1998. Latecomer strategies: evidence from the semiconductor industry in Japan and Korea. Organization Science, 9, 4, 489-505.
- Bryman, A. 1997. Animating the pioneer versus late entrant debate: An historical case study. Journal of Management Studies, 34, 3, 415-438.
- Levitt, T. 1966. Innovative imitation. Harvard Business Review, September – October 1966, 63-70 (direct cite on p. 65).
- McKendrick, D. 1994. Building the capabilities to imitate: product and managerial know-how in Indonesian banking. Industrial and Corporate Change, 3, 513-535.
- Lewin, A.Y. and Massini, S. 2003. Knowledge creation and organizational capabilities of innovating and imitating firms, paper presented at the DRUID Summer Conference on Creating, Sharing and Transferring Knowledge, June 12-14, 2003.