Be an innovative "late mover"

Constantinos Markides, a world-renowned expert in strategy and international management, has drawn an important conclusion after years of research: successful innovation not only includes creating new products or mining new ideas, but also includes realizing new products or The mass production of new ideas makes them widely available.

What the "fast-second" players excel at is the ability to scale production, and they are also mass-market players.

Analyzing the First Mover Advantage

In Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets, you propose a new market Few of 's early pioneers were the ones that eventually scaled production and captured the market, and explores why. That being the case, why do people put so much emphasis on the so-called "first mover advantage"?

This is an interesting question. Let me start by pointing out that there are indeed first-mover advantages in certain markets that are primarily demand-driven. However, what Paul Geroski and I discuss in this book is the development of entirely new markets, that is, unprecedented markets created primarily through new technologies or by combining existing technologies. In such markets, the first mover advantage does not apply. The first mover advantage does exist in a market where a product already exists and others are simply improving it or adding new content to it, that is, a new market created by changing an existing market. Also, first movers are well-positioned in a few markets with increasing returns, such as online auctions. Once companies like eBay start to grow and successfully capture a portion of the market, they have a first-mover advantage that no other company can match.

Businesses that claim to have pioneered new products or services also trumpet the myth of first-mover advantage in order to appeal to the mass market. Take disposable diapers as an example. Everyone would think that P&G was the first to create disposable diapers. But in fact, the first disposable diaper, called Chux, was invented in 1932 by a small company called Chicopee Mills. The company was later acquired by Johnson & Johnson. The diaper market has remained a niche market for the next 35 years, and it wasn't until the 1970s that P&G successfully developed and launched a cheap Pampers mass market.

There is no doubt that P&G is the creator of the mass market of disposable diapers, but not the inventor of the product itself, just like IBM cannot claim to be the creator of the personal computer. But IBM did create a mass market for personal computers, which had previously been a niche market. IBM's entry into the market simplified computer manufacturing and brought prices down to reasonable levels.

All in all, in some, but not all, markets, first movers do have an advantage. This, coupled with the company's assertion of innovation, has resulted in an emphasis on first-mover advantage. Consumers have short memories, and the original innovators are generally dead. Instead of enjoying the fame and glory of their inventions, they were replaced by latecomers who created the mass market.

When did you realize that innovation is the first mover, or what you call "pioneer", while the ones who build and develop new markets and really enjoy the first mover advantage are imitators, or "integrators" or Interested in the "late comer" paradox?

This was five or six years ago. I became interested in this phenomenon in part because of the books "The Innovator's Dilemma" and "The Innovator's Answer" by Harvard professor Clay Christensen. I agree with most of his theoretical analysis in these two books, but for his advice to companies that to grow must create entirely new disruptive markets (and he also gives specific advice on how to create such markets), I beg to differ.

While reading the book, I realized that many businesses I know have not grown by creating entirely new disruptive markets, but have been late movers and acted as market integrators. I have found Christensen's writings to be very influential, but some of his views are far from wrong. I think this phenomenon deserves a systematic study to emphasize the facts rather than what we think companies should be doing.

Many types of businesses fall short of Christensen's model. Take Microsoft as an example, what did it create? The answer is basically nothing. What Microsoft does is take the innovations of others and build mass-markets through mass production. The same is true for the development of Internet search engines. The pioneer of the search engine was not Microsoft, but Netscape. Microsoft entered the search engine space a few years after Netscape, but it stole the market.

It's like a handheld computer again. Who created the handheld computer? Some believe the world's first handheld computer was Psion's Organizer in 1984, while others believe it was Apple's Newton in the 1990s. Whoever it is, the truth is that neither company is picking up mass-market victories. After the initial product launch, Palm and HP created the mass market and won.

It is because of countless examples like this that we decided to write this book. It is important that we, especially in the West, generally think of innovation as creating something new. But I think innovation consists of two parts: creation and, more importantly, commercialization and mass production of innovations.

Many great products die soon after they hit the market because they don't scale successfully. For example, in 1962 AT&T had a self-answering voice recorder with a camera that could see who you were talking to, but why didn't you see such a device on the market until recently? The reason is that the product has not achieved mass production. Innovation, therefore, not only refers to the innovation of a product or idea, but also to the mass production of a product so that it can last and be enjoyed by all of us.

Trailblazers vs Integrators

Are there any exceptions where a company acts as both a trailblazer and an integrator in the same market?

Yes, there are always exceptions. We cannot assert that innovators, or "pioneers" as this book calls them, cannot be "integrators," and vice versa. What we can be sure of is that it is not easy to play both roles at the same time, but there are always exceptions. The most prominent of these should be 3M. 3M successfully created and commercialized the sticky note. Sony's Walkman and HP's inkjet laser printer are also good examples.

These exceptional success stories also reveal an interesting phenomenon: these large corporations, which usually act as integrators or market-scale producers rather than innovators, often develop innovations through their separate divisions. These large corporations realize that the skills and mindset required of an integrator cannot coexist with the skills and mindset required of a trailblazer, and have adopted solutions that isolate innovation.

You write in your book that the skills, mindset, and organizational structure required for innovation and development are not only fundamentally different, but even conflict with the skills, mindset, and organizational structure required for integration and commercialization. . Can you give some examples?

The Lotus 1-2-3 of the 1980s is a case in point. Lotus was an independent company before it was acquired by IBM. Its invention of the Lotus 1-2-3 spreadsheet software was a huge success in the market, and the otherwise obscure company made huge profits and rose to fame. However, five years later, company executives began to worry that the success and growth of the company was leading to a loss of entrepreneurial spirit. To test whether this concern was warranted, they picked out the resumes of the first 50 employees Lotus hired in the early 1980s, and mixed their names with the profiles of many job seekers. As a result, none of the 50 people received an interview notice. This shows that these entrepreneurs, industry pioneers, and even revolutionaries are no longer "fit" for the new culture.

McDonald's is another example of this conflict. McDonald's was established in California in the 1950s and was very successful. But when Ray Kroc approached the McDonald brothers and suggested they go nationally, they had no interest. These examples prove that some people prefer a quiet life, while others prefer a bang. It is difficult to get these two groups of people with very different personalities to coexist peacefully.

You further provide reasons why big, established companies are unlikely to be the creators of new markets, noting that these companies should not expect to be creators of new markets. Can you explain this specifically?

Incumbents should not expect to be creators of new markets for three reasons.

First of all, there is evidence that even if they succeed in creating an entirely new market, there is a very high probability that someone else will break into that market and take their market.

Second, often these large companies don't have the skills needed to create new markets, they have the ability to integrate.

The third reason is that most of the profits come from integration rather than creation, because it is the integrators who create the mass market.

So, my advice to big established companies is to get other people with the right skills to innovate, then come in at the right time, acquire innovations, and scale production, so that they can earn higher profits. Everyone has their own skills and it's an easy choice.

Lateral VS Backward Strategy

What does a late-moving or integrated strategy include? How is it different from a backwards strategy?

In the development of a new market, there is a key event that determines the difference between latecomers and latecomers, namely the emergence of standard or dominant designs. For example, in the first 10 or 15 years of the car industry, no one knew what the car would end up being. Many people have designed various types of cars in the hope that their designs will dominate the market. Ultimately, a certain design or standard stands out.

Other products and services are no exception. The emergence of standards is a key event in the development of the industry. Any enterprise that entered the market before the standard appeared is the first mover, and the enterprise that entered after the standard appeared is the late mover. The latecomers are those who enter the market just in time for a standard or dominant design and actively help create that dominant design.

There is a big problem with the latecomer strategy, because latecomers have to be very innovative if they want to gain a foothold in the market. On the contrary, latecomers have a huge advantage.

Timing is the foundation of a late strike strategy. But how do you know when a dominant design is about to emerge? The answer to this question is undoubtedly worth millions, if not tens of millions of dollars. Knowing the answer is very difficult, which is why timing is largely a matter of luck.

However, we have listed some indicators that, by monitoring, can help determine when to act. For example, looking at the innovation rate of new product functions, when the innovation rate decreases, it means that the new innovation to the product will no longer bring any substantial difference to the product. Another indicator is the emergence and development of complementary commodities. For example, the complementary commodity of the car is the gas station—the two are indispensable to each other. In addition, enterprises should also pay attention to whether the product is recognized by the media and accepted and welcomed by consumers.

So, a late-moving strategy starts with timing, taking action at the right time to win the competition for the dominant design. Second, from emphasizing product performance to emphasizing price. The early pioneers aimed for perfection and invested heavily in technology and product features, but the mass market didn't want perfect products, but products that were reasonably priced and relatively stable in performance. Third, build market confidence in your product by building your brand and improving your reputation. Fourth, develop the necessary mass-market sales capabilities, as there may be a mass market. Fifth, develop complementary commodities.

Can you give some examples of successful late-comer companies?

There are countless examples of success of latecomers. Handheld computers are just one example. Apple's Newton was one of the first products of its kind. The Newton is a small device equipped with handwriting recognition software, introduced in the early 1990s. Since then, Benz has launched the Benz Zoomer. Benmai also tried to win with product features, so it also installed handwriting recognition software, Word processing software, Excel spreadsheets and other tools. The Zoomer retailed for $1,200, but none of them sold. The price of the Newton is also around $1,000. But then the designers of the Zoomer realized that most consumers don't need all of these features. They just want a basic digital information management tool that can sync with a computer. So, he eliminated most of Zoomer's functions and kept only the information management part. The Zoomer's simplified version of the Pentium Pilot retailed for $299 and was an instant hit.

Similar examples of late strikers abound. For example, it is widely believed that Canon invented the 35mm camera, but this is not the case. The inventor is a German company called Leica. Canon later dominated the market. Likewise, JVC took the VCR market from Sony. How many consumers know that Diet Coke was first developed in 1952 by a company called Kirsch? Pepsi, Coca-Cola and Canada's Royal Crown all entered the market in the 1960s. Auto-answering phones, spreadsheets, online bookstores, Word processing software, all of these markets are eventually occupied by latecomers.

Four things to do well in innovation

You suggest that the current market leaders tend to "lock themselves up" in the existing market, which makes it difficult for them to truly innovate. What is the workaround for this?

They can do four things. They represent four effects on human behavior. The first is the corporate culture; the second is the corporate structure; the third is the incentive mechanism; and finally, the talent and management.

First, culturally, businesses need to create a sense of urgency internally. Set goals for employees, both personal and corporate, that they need to work very hard to achieve; ensure they are fully committed to achieving those goals through education. In addition, businesses need to create a culture that encourages employees to experiment, even though we are all too aware that some of these attempts are doomed to fail. There is no innovation without failure, and there is no innovation without trying. In terms of talents and ways of thinking, enterprises need to bring in fresh blood from outside - old employees cannot stay in the enterprise forever, and foreign personnel can also inject new vitality into the thinking and behavior of enterprises. However, old and new must be balanced to avoid loss of efficiency, experience and knowledge of older employees.

Secondly, in terms of structure, build a structure that is conducive to the survival and development of new growth businesses. In mature companies, nascent businesses cannot be constrained by the bureaucracy of big companies and need to be nurtured carefully. Some of the aforementioned giants, such as 3M, Sony, and Hewlett-Packard, have successfully acted as both trailblazers and integrators by creating separate innovation divisions. HSBC created First Direct, Royal Bank of Scotland created Direct Line (leader in the UK private car insurance market and financial services over the phone), and IBM is far from The same strategy was used when the PC division was established in Florida, where it was headquartered. In order to avoid self-immobilization in the existing market, large enterprises must, structurally, continue to establish independent "sub" departments in areas far from their main business, giving these departments the necessary protection and the resources they need to experiment.

Third, the so-called incentive mechanism refers to a mechanism that encourages employees to try boldly and allows employees to make mistakes. Businesses should reward ideas, not profits made at the end of the year. Businesses must give employees time to launch new products. Investments must be paid back within 3 years. Such requirements are not conducive to the development of enterprises. In a nascent market, it can take 10 years for a new product to really start producing returns. The 3-year must-return mandate only stifles innovation.

The last is about leadership. Success is impossible without leadership. By leadership, senior business leaders must have the courage to try some of these things—and many people say more and do less.

Extracted with permission from Sarah Powell's An interview with Constantinos Markides on Management First (www.managementfirst.com). Copyright 2006 by Emerald Group Publishing Limited. Translated by Hu Lingque.