Stratgic imitation-Road to business growth


Published on

Strategic imitation is a low cost, low risk strategy many companies adopt to challenge pioneers and often succeed in gaining higher market share and growth than pioneers. In this paper we describe elements that strategic imitators must pursue to succeed in legitimate copy, learn and improve program.

Published in: Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Stratgic imitation-Road to business growth

  1. 1. Browne & Mohan Board & CEO Advisors, Management Consultants“Strategic Imitation” road to business growth It is smart to take an existing idea and enhance it beautifully - Steve Jobs
  2. 2. Browne & Mohan Board & CEO Advisors, Management ConsultantsIn a recent book titled “Copycats: How Smart Imitation is not new. Many US pharmaceuticalCompanies Use Imitation to Gain a Strategic companies known for their patents and IPEdge” Prof. Shenkar states that 98.7% of the owe their technical knowledge to thevalue of the innovations is usurped by generous lifting of product knowledge fromimitators. Not a very surprising insight to German companies (Chandler, 2005). Inbusiness thinkers and managers, except the automotive industry too Copycats thrive.accuracy of findings. Business leaders have Toyota’s Lexus (LS 400) is similar inalways recognized the dichotomy in the appearance to the Mercedes ‘S-class’ sedan.undue emphasis on innovation and high Hyundai Sonata is a replica of the Jaguarreturns on imitation in real world. By model. Ford’s many models including Taurusimitation we do not refer to stealing of some are heavily drawn from Japanese, Germanscompany’s IP, but engineering a better and Swedes in terms of design and aestheticsproduct based on available product (Chatterjee, 1998). Coco cola imitated dietinformation. Most species and organizations cola from RC Cola, Marriott Internationaladvance through observation and imitation of bases its loyalty program based on frequentother successful entities (Niosi, 2012). flier program of airlines including Pan AmImitation is a preferred strategy by companies (Schnaars, 1994). Lego, the famous childrenwhen R&D outcome is uncertain, start-up toy company was greatly inspired bycosts are high and returns are uncertain, Kiddicraft. Lego borrowed heavily thetechnology requires significant upfront concepts and and other expenses to inform,educate and goad the customer to buy and In some industries, imitation is certainly lessfinally the competitive pressures are high. risky and profitable. For example, in the case of pharmaceutical industry, a new drugImitation can be in many forms. It can be a development process spanning 12 to 14 years,pirated copy, a clone or me-too, improved is highly risky – only 20 in 5000 compoundsproduct or process inspired by pioneer, that are screened enter pre-clinical testing,improvisations of design copies, and and then only one in five drugs in clinical trialsadaptation of an idea from one setting to receive FDA approval. Development costs areanother, simplification of original product or high, on average about $800 million per newrepositioning the product to another segment chemical entity, and cost of failures or delays(Valdani & Arbore, 2007). In this paper, we has enormous impact on market value. Inare looking at legitimate imitation strategies contrast, an imitation molecule has a shortsuch as improved product design, gestation process – 1 to 2 years associatedsimplification, and adaptation from another with low R&D costs, about $2 million tosetting or repositioning for another segment. demonstrate bio-equivalence of the drugIn all these imitation projects, there is a (Dimasi, Hansen and Grabowski, 2003).considerable level of market planning,technological knowledge and organizational Despite the negative connotation and biasefforts required to reengineer the product, against imitation, even in glamorousmake functional or structural changes and industries such as software or biotechnologyimprove and extend the pioneer product or or Pharmaceuticals, most successful productsprocess. are simply re-interpretation of existing products and or their extensions. Wordstar
  3. 3. Browne & Mohan Board & CEO Advisors, Management Consultantswas the first word processor, but the Darshini, the first self-help eatery thatWordperfect and Word overtook the pioneer emerged in Basavanagudi, Bangalore hasby slew of improvements and price cuts. become the industry standard and there areGoogle, the market leader in search and more than 1,400 Darshini’s in Bangalore cityadvertising is a not a pioneer but a strategic alone. Many internet companies realize theimitator. Magelllan, Infoseek and Snap were opportunities to replicate or improve athe pioneers, Lycos earned popularity just as successful service business from anotherNetscape was launching its internet browser. geography to their local conditions.Yahoo! followed aggressively, improvising on is a good replica of,a structured index into resources on the web. emulated ebay, Makemytrip drewBoth firms expanded product offerings into inspiration from, and so on.providing e-mail and website hosting, countrylocalisation and news links. Both Lycos and Growth by strategic imitationYahoo! generated revenue from advertisers Strategic imitation does not just entail mererather than users. Enters Google which copying of another product. It requires theimprovised search algorithm from rule based late comer to take the existing product orto concept-based and over years emerges the service and reconfigure in a new and uniquelargest company in that market. Apple, the way. Strategic imitation is a highly skilled andvenerable icon always acknowledged the creative basis for strategy, requiringinspiration it drew from Xerox GUI or significant investments. All successfulBlackberry’s smartphone features or Sanyo’s imitators follow four fundamental principles.portable MP3 player or the tablets from rivalsin creating the best known products. In the 1. Scan for opportunitiesflood of e-com, many e-marketplaces that Generating ideas through environmentalsprang up, Chemdex, Promedix, Petrocosm, scanning is the starting point of organisationalMetalspectrum, Metalsite, Freightwise, imitation and competitive strategy. Market-PaperX, AshphaltExchange, BuildNet, oriented organisations learn about customers,Heavyware, Aerospan, etc were too similar competitors, and channel members in orderand had nothing to differentiate them apart. to continuously sense and act on events andBiopharmaceuticals, imitation drugs of trends in present and prospective marketsbiological products with patent protection (Slater and Narver, 1995). Companies need tolosses, are another classic case of imitation scan not just their markets but adjacentvigorously pursued by many German, markets to see what could be improved andCanadian, Israel, and Indian companies. refurbished as new in their markets. ImitationImitation is also a much practiced model in opportunities come in many forms.service industries. Ryanair, which was under Firstly, opportunity arises when a dominantthe verge of financial distress, pulled itself out incumbent has not passed on price changesof misery by copying Southwest airlines. Car and technological changes to its clients.rental companies have for long aped the Cochlear implant market where the marketbusiness model of Zipcar. Retail stores have leader Cochlear sells its implants for abovealways copied from the larger mom-and pop $30,000 has made lots of enemies. While thestores and restaurants have copied a costs of electronics including computer chipssuccessful model to stay in business. Upahara dropped by huge margins, the incumbent did
  4. 4. Browne & Mohan Board & CEO Advisors, Management Consultantsnot pass on any of these benefits to the India’s third-largest mobile phone vendorcustomers. Hangzhou Nurotron Biotechnology after Samsung and Nokia according toa Chinese company seized the opportunity research firm IDC.and offers similar product at less than$15,000. Rockland, an Indian hospital group is Thirdly, opportunity arises when the IP isconducting trails and estimates the implants getting expired or IP regime is stretched. Recent Supreme Court ruling against Novartiswould costs less than $3000. Gilvec indicates how imitation can be used as Secondly, opportunities arise when customer a legitimate strategy against repetitivepain areas are unaddressed and imitator fills patents of minor tweaks of existing drug.the gap. Micromax, the dominant Indian Cipla, the Indian generic drug manufacturermobile phone and tablet manufacturer which which produces the drug for 1/10 of theis successfully competing with Nokia, LG and original drug’s selling price choose theothers grew out of its ability to keep a keen opportunity to grow on a blockbuster.eye on the customer pain areas and deliveringsolutions addressing the need. The company 2. Improvise on product, pricing orentered the market in 2009, a late comer into experiencethe crowded mobile market, had no major Succeeding in imitation requires companies toR&D set up, access to markets, brand recall or reshape their offering (Bradley and Nolan,access to capital. They realized a need to 1998). Research deeper, understand whyquickly create and own product categories pioneers have failed and seek out areas tothat would address customer pain areas and improve. Companies must extend the featuresbring value. With Nokia commanding a of the incumbent product, and capture newwhopping 60% market share, they were value propositions. RCA was the pioneer whofeatures, niches and categories that could be invented the television with standardisedintelligently carved by late entrant. Their first technology during the early part of thephone, X1i, emerged out of the realization twentieth century. But it was Sony, a latethat many Indian villages and cities get less comer in 1959 which by employing micro-than 4 hours of quality power, not enough to electronics technology to introduce ‘Trinitron’even recharge a phone daily. Micromax televisions later in market, emerged as theincreased the size of the battery to 1800 mAh technology and market leader. In recentoffering a 30 days standby time, at an times, the other late comers Samsung and LGaffordable price of Rs 2100. Their dual SIM a are emerging as strong market makers byfull-keyboard (QWERTY) Q3 model, has introducing small incremental changesemerged from customer need to keep a including high emission display screens, etc.constant “incoming number” to receive call, Zynga’s games are heavily borrowed fromwhile another “outgoing number” can be others and they refine the games a lot basedchosen based on the operators tariff plans. on prior failures and make them go viral.Universal remote controls were available from2008 onwards, and Micromax working with its D Mart, the Mumbai based retail chain haschip vendors like Mediatek realized the systematically chosen low store locations andbenefits of reinforcing the value at affordable best value for money customer experience toprice by introducing the Universal remote gain retail market share. It has bargained hardcontrol mobile phone. Micromax is now with low occupancy malls closer to highly
  5. 5. Browne & Mohan Board & CEO Advisors, Management Consultantsdense middle-income families. To keep its they focus on taxi drivers and travel heavycosts low, it has shunned the high window customers with affordable meal and largeground floor main-street locations to portions. Once the property starts gettingconvenient and accessible tertiary locations. It recognized and branded, the portions becomehas struck chord with value conscious middle- smaller, presentation more exquisite and theclass who prefer its modestly sized stores with prices are increased to attract rich clientele.better discounts and higher variety to high Taxi drivers and other earlier patron do have aend malls. Since it pays its vendors within a good recall for the great times they had andweek and stocks less, the vendors pass-on recommend the place to any new comers intobetter discounts to D-Mart, which in turn ties town. Many successful imitators acrossthe customers. Dillard, an Arkansas based industries do seem to adopt the sameretailer recognized the white space between strategy. Success of Tianya, the king ofMacy’s, Kohl’s and Nordstrom. It has targeted Shanzhai (domestic mobile manufacturer)upscale higher income groups with a tighter captured significant market share with basiccontrol on quality and inventory. It has product competing against Nokia and otherintroduced several in-store brands, reduced branded phone makers. Its target was theshelf-life and significantly improved customer secondary cities of China and by keepingservice. about $20 difference on pricing, Tianya has managed to build significant market share andVPAs like Siri, Rearden, Dothomes, Pageonce, branding in volume segment.emyBantu or Desti, learnt from the failure ofpioneers like General Magic, E-Speak (HP) and Chinese medical equipment manufacturersHailstorm (Microsoft) and have pursued like Mindray, Micorport, Lepu havefocused customer experience to keep their aggressively pursued pricing and segmentproduct simple and functional. They have expansion. These domestic companies whichevolved into simple recommendatory systems used to produce Class 1 and Class 2 devices(ex: Get Friday, hi Task, etc), or morphed into have graduated to product Class 3 devices andspecialized vertical focused search and offer their products at much lower price thansupport engines building on the information international companies. Mindray whichof all other actors in the business ( for started operations table, surgical lights andexample Rearden, Dothomes,) or smart, other products moved quickly to multi-history embedded programs like Siri, parameter, Telemetry and ultrasound machines. Its products are 50% cheaper thanmyBantu, Hunch, etc.While Couchsurfing and VRBO were the early similar machines produced by Europeanentrants into accommodation market, AirBnB companies like Siemens and Philips.outpaced them with simple changes to design 4. Bring agility into business, transformand improve the process to alleviate user distributionworries. To succeed in strategic imitation, it is not3. Enter Bottom up and move to other good enough to identify customer pain areas, segments but also have an ability to appropriately swing the supply chain. Karbonn, another mobileA popular technique purportedly used by phone manufacturing company innovated onChinese restaurants in US is first few weeks the distribution channel. Instead of regional
  6. 6. Browne & Mohan Board & CEO Advisors, Management Consultantsdistributors who manage couple of districts partnership agreements with Pearson,they went ahead with a district level Everonn, Vriti for content, with Bigflix (fordistributional model. This ensured higher preloaded entertainment) and with Hungama,availability at district and towns within each Indiagames, Zenga for gaming. Alliances candistrict, coupled with right sales and sometime provide credibility (for example andistribution incentives, the channels helped to improved product developed in associationreach out and close more sales. Distribution with a respected university or a R&Dis another area where Micromax improvised. company). They help in market reachIt adopted different distribution models for (governments and large consumers open upvarious products. For Smartphones and LED markets for strategic followers with improvedthe company has adopted a 2-tier model, performance and affordable pricing).while for phones and tablets it has adopted a Alliances can also increase the pace ofthree tier distribution model. More than adoption and make follower products as “de1,30,000 retail stores and 85 independent facto” standards.large partners distribute the phones andtablets. A major advantage is effective Bibliographymanagement of inventory, and higher Bolton, M.K. (1993) ‘Imitation versusavailability. innovation: lessons to be learned from theChinese mobile handset maker, Ningo Bird Japanese’, Organizational Dynamics, Vol. 21,which was a late entrant in the market No. 3, pp. 30–45dominated by MNC such as Nokia, Siemens,Motorola and Sony, quickly realized none of Boyer, R., E. Charron, U. Jürgens and S.the offerings were customized to Chinese Tolliday (eds.)(1998): Between Imitation andtastes, colours were global standard and did Innovation, the transfer and hybridization ofnot offer clam shell design allowing for productive models in the internationalpersonalization. Distribution channels, automobile industry, New York, Oxfordespecially tier 3 and retailers did not have any University Press.incentives to drive sales. Chandler, A. D. (2005): Shaping the Industrial Century. The remarkable story of the5. Build on alliances, engulf market evolution of the modern chemical and pharmaceutical industries, Cambridge:To succeed in strategic imitation companies Harvard University Press.must learn to exploit the ecosystem. Imitationis not just about a product or service, but Chatterjee, S. (1998) ‘Delivering desiredassessing how the business model could be outcomes efficiently: the creative key toimproved, how revenue streams can be made competitive strategy’, California Managementmore attractive and predictable and how the Review, Vol. 40, No. 2, pp.78–95.risks of the pioneer can be eliminated byreconfiguring the product chain. Whether it is Cusumano, M., Mylonadis, Y. andthe OEM or a sales partner, they are good Rosenbloom, R. (1992) ‘Strategic maneuveringlevers to reduce investments in your set-up and mass-market dynamics: the triumph ofand increase market coverage, delivery and VHS over beta’, Business History Review, support. Micromax has 66, pp.51–94.
  7. 7. Browne & Mohan Board & CEO Advisors, Management ConsultantsDiMasi, J. A. and H. Grabowski (2007): “The Kim, L. (1998) ‘Crisis construction andcost of biopharmaceutical R&D: is biotech organizational learning: capability building indifferent?” Managerial and Decision catching-up at Hyundai Motor’, OrganizationEconomics, 28: 469-79. Science, Vol. 9, No. 4, pp.506–521.Dimasi, J.A, Hansen, R.W. and Grabowski, H. Levitt, T. (1996): ”Innovative imitation”,(2003) ‘The price of innovation: new Harvard Business Review, 44: 63-70.estimates of drug development costs’, Journalof Health Economics, Vol. 22, No.2, pp.151– Lieberman, M. B. and D. B. Montgomery185. (1988): “First mover advantages”, Strategic Management Journal, 9: 41-58.Dougherty, D. (1992) ‘Interpretative barriersto successful product innovation in large Luo, Y., J. Sun and S. Le Wung (2011):firms’, Organization Science, Vol. 3, No. 2, “Emerging economy copycats”, Academy ofpp.179–202. management perspectives, 25 (2): 37-56. May.Haunschild, P. and A. Miner (1997): “Modes ofinter-organizational imitation: the effects of Ordanini, A., G. Rubera and R. DeFilippioutcome salience and uncertainty”, (2008): “The many moods of organizationalAdministrative Science Quarterly, 42: 472- imitation: a critical review”, International500. Journal of Management Reviews, 10 (4): 375- 398.Henderson, R. M. and K. B. Clark (1990):“Architectural innovation: the reconfiguration Radjou, N., J. Prabhu, S. Ahuja and N. Robertsof existing product technologies and the (2012): Frugal Innovation, Boston, Harvardfailure of established firms”, Administrative Business School Press.Science Quarterly, 35 (1): 9-30. 10 Schnaars, S. (1994) Managing ImitationHuang, J-H, T.-C. Chou and G.-G. Le (2010): Strategies: How Later Entrants Seize Markets“Imitative innovation strategies: From Pioneers, Free Press, New York.understanding resource management forcompetent followers”, Management Decision, Sheen, M.R. and Macbryde, J.C. (1995) ‘The48- (6): 952-975. importance of complementary assets in the development of smart technology’,Katz, M. L. and C. Shapiro (1987): “R&D rivalry Technovation, Vol. 15, No. 2, pp.99–109.with licensing and imitation”, AmericanEconomic Review, 77 (3): 402-2420. Shenkar, O. (2010)Copycats: How Smart Companies Use Imitation to Gain a StrategicKay, N. (1988): “The R&D function: corporate Edge, Harvard Business Review Press,strategy and structure”, in G. Dosi et al (Eds.): Massachusetts.Technical Change and Economic Theory,London, Pinter, pp. 282-294. Ulhøi, J. P. (2012): “Modes and orders of market entry: revisiting innovation and
  8. 8. Browne & Mohan Board & CEO Advisors, Management Consultantsimitation strategies“, Technology Analysis and Browne & Mohan insight are general in nature and does notStrategic Management, 24 (1): 37-50. represent any specific individuals or entities. While all efforts are made to ensure the information and status of entities in the insights is accurate, there can be no guarantee for freshness ofValdani, E. and A. Arbore (2007): ”Strategies information. Browne & Mohan insights are for information andof imitation: an insight”, Problems and knowledge update purpose only. Information contained in the report has been obtained from sources deemed reliable and noPerspectives in Management, 5 (3): 198-206. representation is made as to the accuracy thereof. Neither Browne & Mohan nor its affiliates, officers, directors, employees, owners, representatives nor any of its data or content providers shall beWestney, E. (1987) Imitation and Innovation: liable for any errors or for any actions taken in reliance thereon.the Transfer of Western OrganizationalPatterns in Meiji Japan, Harvard UniversityPress, Cambridge. © Browne & Mohan, 2013. All rights reserved Printed in India