Thursday, April 4, 2013

Copying innovation

The Economist's Schumpeter defends the claim that for businesses, being good at copying is at least as important as being innovative.

Let's start with the "Not invented here" syndrome:

"Some business people are willing to talk about the limitations of innovation. Kevin Rollins, a former chief executive of Dell, a computer-maker, asked, “If innovation is such a competitive weapon, why doesn't it translate into profitability?” But most remain obsessed with their own inventions. Copying is taboo. Praise and promotion do not go to employees who borrow from other firms."

How fascinating! In contrast, the entrepreneurial world, the entrepreneur is hard dependent on his predecessors failures for his own successes.  The breakthroughs of the fast moving startup company is based on its leapfrog innovation that is built on the last failure or poor execution.

"History shows that imitators often end up winners. Who now remembers Chux, the first disposable nappies, whose thunder was stolen by Pampers? Ray Kroc, who built McDonald's, copied White Castle, inventor of the fast-food burger joint. ... A study by Peter Golder and Gerard Tellis, “Pioneer Advantage: Marketing Logic or Marketing Legend”, found that innovators captured only 7% of the market for their product over time."

Excesses in any direction do not serve, though for the astute corporate, there are times to drive extremes on inventions and at times it works to simply copy.  An example is GM; it was a copy and paste platform for japanese front wheel drive cars, specifically in the 1980s and the 1990s.  They captured the revenue, though the product was poor.

Schumpeter ends with:

"Excessive copying, of course, could be bad for society as a whole. Joseph Schumpeter worried that if innovators could not get enough reward from new products because imitators were taking so much of the profit, they would spend less on developing them (hence the justification for granting inventors temporary monopolies in the form of patents). But that is not the immediate concern of corporations. Copying is here to stay; businesses may as well get good at it."

Read the complete article "Pretty profitable parrots" here.

No comments: