What can innovation "leaders" do to sustain their early leadership position? Why are they sometimes overtaken by "fast followers"?
1.Introduction
Innovation is a successful way to commercialize new ideas (Freeman and Soete, 2012). Managers' priority is to improve efficiencies and achieve sustainable organizational competitiveness. Innovation is an effective approach for them to meet their objectives (Dodgson, Gann and Salter, 2008). In this case, the management of innovation is quite important to capture value. Based on a different phase of innovation, innovators adopt different innovation strategy with followers. It might be common to think that first movers to the market obtain a strategic benefit. However, in many cases, innovators-those companies, which are first to make a product or service commercialized in the market- lose the market gradually, and are even replaced by "fast followers". The essay aims to use a framework to identify reasons why innovators sometimes are overtaken by fast followers. Then, it explains how to sustain the leadership position for innovation leaders.
2.The phenomenon
According to Montgomery's First innovation phase, the innovator who first commercializes a product or service has superior advantage. However, the case is that it is quite difficult to capture first-mover advantages in the radically new emerging market in a real business world. Many fast followers might easily outperform than them. For example, Ford was the first company, which mass produced cars in the early 20th century in the United States. It claimed 41% share of the automobile market in 1914 (Eyewitnesshistory, 2005). General Motors then followed Fordism. In the meantime, when Ford focused on reducing costs, General Motors established a diverse product line. By 1931, GM surpassed with 31% of the market share comparing with Ford's 28% share (Blank, 2010). The reasons behind are complicated.
3.Reasons why innovation leaders are replaced by fast followers
Many innovators are only colonists rather than consolidators. Discovery and consolidation require different skills (Geroski and Markides, 2005). Many firms are naturally colonists. It is easy for them to exploring new technology owing to flexible organizational structure, willingness to take risks, enthusiastic working atmosphere and so on. However, colonizing a market does not necessarily allow innovators to consolidate the market. The fast follower-P&G outperformed Chicopee Mills, which first introduced diapers because comparing with Chicopee Mills, P&G is structured in a disciplined way to ensure that diverse skills needed to consolidate the market, such as financial control, value chain management, and marketing.
Innovation leaders adopt a different innovation strategy from fast followers. The innovation leaders obtain technological or market leading position. The strategy is proactive, while fast followers adopt an active one. In this case, first movers face higher risks due to various uncertainties (Dodgson et al, 2008). The market is fluid and volatile. When they suffer from problems, such as low acceptance of customers, fast followers can learn from their experience in a short time, and then make a responding improvement on their own products or service quickly. In this way, severe competitors emerge.
Beside uncertainties, according to Teece, there are three important factors, which determine who wins from innovation: regimes of appropriability, the dominant design paradigm, and complementary assets. Innovators fall behind fast followers due to fail to identify these factors. The first one is the appropriability regimes. There are few cases that innovators have secured patent or copyright protection, which indicates that their products and service are easy to imitate when they are in weak appropriability (Teece, 1986). For instance, although EMIs applied a patent for its brain scanner, it failed to protect important technological information. This gave GE an opportunity to imitate its scanner design. Also, if innovators want to become consolidators in the market, it requires them to win dominant design and capture a consolidated customer base. In many cases, first movers fail to provide complementary assets and adopt improper strategies in pre-paradigmatic and paradigmatic phases. Ampex initially introduced a videotape recorder with a high price tag of $50.000 in 1956 (Castonguay, 2006). The other companies followed Ampex. Since Ampex had patent its technology. The new objective is to develop a cheaper, and simple to operate model. Sony's Betamax in 1975, JVC's VHS in 1976, and the Philips V2000 in 1978 came to the market (Castonguay, 2006). In addition, companies started to try to provide interesting content. Owing to not only fail to explore distribution channels and provide specialized and cospecialized assets but also to manage learning curves to reduce costs and develop superior products, Ampex lost its place to compete for a standard design. Instead, Sony and JVC started to occupy the market. JVC eventually won with its dominant design-VHS.