Why do Imitators have an advantage over Innovators?

First mover advantage has been a managerial concept that is held high in the eyes of any manager. Doubting the validity of this concept would be considered a sin, but since here we are in acceptance of the fact that we do not know many things about management, it seems to be the correct place to question and break this concept down to analyze it. History has been a spectator to the fact that the first movers in innovation have not been able to capitalize on the value created by their innovations and majority of the value has been transferred to the imitators and second movers. Teece (Teece, 2003) points out that the same has been observed by nations who have observed that technological progress does not directly translate into a better standard of living for the people of the nation. The explanation of this phenomena is usually attributed to the lack of managerial prowess and incapability of the company to create a strategy to leverage the benefits of the innovation. However, this phenomenon is not a one-time thing, it has been happening repeatedly and in a multitude of industries. Is there is a lack of transfer of learning from one period to another, or are there other factors at play?

Many researchers argue that the first-mover advantage is highly circumstantial in nature, and nothing can be said for sure about the gains. The first-mover advantage depends on the pace of the technology as well as the market for the technology (Suarez & Lanzolla, 2014). Many of the researchers in this field focus on the company capabilities when talking about how an organization can achieve a first-mover advantage but what they fail to take into consideration is the market structure and dynamics. A first-mover advantage can easily be capitalized when the market and the technology that are being created are relatively slow in development. Even if there are late entrants to the market, they can create differentiation for themselves, but the first mover can easily integrate those changes in their design because of the tacit knowledge that they have gained over the development cycle of the product. A slow market could also result in giving the company sufficient time to learn from its mistakes and improve its products before the competitor even realizes that there is a potential in that sector. In the case when the market is moving at a fast pace as compared to the technology, it is the internal capabilities that decide the capitalization of the innovation. If the firm has strong resources in the form of brand, R&D, human resources, technological prowess, etc., then it can have a long-term advantage in this position, but if that is lacking, then it might result in only a short-term advantage. In the case where the technology is moving faster than the market, it is not easy to sustain a position not only for the first mover but also for others coming after them. The reason being, in the initial years the technology growth would fragment the market, but there would be no takers for this market resulting in a long waiting time for the company that would result in high losses in the initial curve of the adoption cycle. Companies which lack the risk-taking ability or the financial strength to sustain in this market would eventually drop out, resulting in the richest man standing in the ring at the end.

Moreover, finally, in a situation where technology and markets are moving at a fast pace simultaneously (chip development), only a firm that can innovate and develop itself continuously can sustain. This is a market that can be ruled by a single player only if they realize the concept of increasing returns as described by Brain Arthur (Nelson, 2010). If the companies are investing a high amount as compared to their competitors and can set the standards in the industry they are in, only then would they be able to rule the market.

In his research Oded Shankar (Shenkar, 2014) makes a bold claim that the best way for an organization is to imitate and he describes imitation, not as a mere act of copying but actively seeking out opportunities to copy and make it better than the actual product. The imitator model works on the principle of disrupting the disruptor. Shankar argues that only because of social norms does this model fail to be embraced, but many large conglomerates like Walmart, McDonald’s, and Apples of the world have copied at some point or the other in their lives. Nevertheless, there is a subtle differentiation to this practice; imitators cannot simply copy the product; they need to copy the underlying processes as well. The key to success lies in copying the DNA of an organization. However, if this model is implemented by all the firms, what would happen to the innovations?

Does value truly exist for any firm to innovate? The answer lies in analyzing the market and the technology but more importantly, in analyzing how fast can an imitator capture the value of the innovation. Hence, it becomes important for a firm to design a structure that supports innovation and only then can it increase the appropriability of the innovation to itself.

References

Nelson, M. (2010). European Affairs. Retrieved November 24, 2020, from https://www.europeaninstitute.org/index.php/archive/sort-by-date-2/98-april-may-2010/993-w-brian-arthurs-qthe-nature-of-technology-what-it-is-and-how-it-evolvesq

Shenkar, O. (2014, August 01). Defend Your Research: Imitation Is More Valuable Than Innovation. Retrieved November 24, 2020, from https://hbr.org/2010/04/defend-your-research-imitation-is-more-valuable-than-innovation

Suarez, F., & Lanzolla, G. (2014, August 01). The Half-Truth of First-Mover Advantage. Retrieved November 24, 2020, from https://hbr.org/2005/04/the-half-truth-of-first-mover-advantage

Teece, D. (2003). Market Entry Strategies for Innovators: Avoiding Pyrrhic Victories. In Managing Intellectual Capital (pp. 91-113). -, -: Oxford University Press. doi:10.1093/0198295421.001.0001