The Thin Red Line of Success
When
competing in an innovative new market the benefits of an early lead can’t be
over-estimated.
When
August Dvorak patented a simplified keyboard in 1936 tests proved its design
was faster, and less prone to mistakes than the original QWERTY model. Despite
these superior characteristics it was a commercial failure. Betamax video
recorder had a similar fate when it competed for custom against the VHS model
as did CP/M when up against MS/DOS.
Why
do some innovative products come to dominate an industry while superior
products fail?
When
similar innovative products are released at the same time, chance events and
social information processing have a role in making or breaking a product’s
success. Early path leaders get the advantage as consumers copy the decisions
of others before them and critical mass gives them a commercial advantage in
making the related goods cheaper.
The
situation is slightly more complex in business where corporate leaders must
look at how well an innovation operates as well as its business characteristics
when making a decision. Still, choices are often based as much on the decisions
of competitors as technical merits.
Not
surprisingly these diffusion processes do not reliably spread the best
innovations and the superior product can be overlooked.
The battle of the “twins”
A
good example is the comparison of two very similar early model wide-bodied jets
produced in the 1970s: the McDonnell Douglas DC-10 and Lockheed L-1011,
two aircraft similar enough in commercial applications and engineering aspects
to be thought of as “twins”. Component delays slowed the L-1011's entry
into the market by a year, giving the DC-10 the early advantage leading to a
gap in sales of about 250 aircraft.
Two
major crashes caused by design flaws in the DC-10 and its temporary grounding
by the Federal Aviation Administration did little to dull airlines’ preference
for this aircraft and in business terms the DC-10 was considered a relative
success . Not so the L-1011 which had no follow-up model and caused its
manufacturer Lockheed to exit from the civilian aircraft market entirely.
The thin red line
In
seeking to understand why the DC-10 succeeded and the L-1011 failed my
research, The Thin Red Line between Success and Failure:
Path Dependence in the Diffusion of Innovative Production Technologies, co-authored with Marc-David L. Seidel ,
Associate Professor of Organizational Behaviour and Human Resources at
Sauder School of Business, found evidence to support the hypothesis that,
contrary to classical assumptions, the diffusion process of successful
and failed innovations is similar and the fate of innovative new products is
largely affected by random components and heavily influenced by social
information processing.
The
study found that in their rush to get the competitive advantage from the
introduction of these new wide-bodied jets, airlines paid perhaps too much
attention to social sources rather than trusting their own judgments of the
technical merits of the new aircraft. When updating their fleet,
decision-makers relied heavily on the adoption choices of their competitors ̶ particularly those with a similar size, market, route or strategic niche ̶ and made the
inference that any information
competitors had about the design must have been positive.
Using
the same logic, decision-makers were influenced by rivals’ abandonments –
aircraft models which were sold and replaced. In doing so they found themselves
at a competitive disadvantage.
Using
the same logic, decision-makers were influenced by rivals’ abandonments –
aircraft models which were sold and replaced. In doing so they found themselves
at a competitive disadvantage.
Boeing vs Airbus
There
is potential for history to repeat itself as Boeing's 787 Dreamliner and its
rival the Airbus A350 head to market today. Early groundings and production
delays of the Dreamliner resulted in airlines snapping up more of the rival
Airbus before it had even completed flight testing or carried passengers.
Whether the right choice has been made is still to be seen.
In
any case, there are lessons for to be learned for both the producers and
consumers of innovative technology and processes.
For
the producers, it’s a race to get ahead: a race that is very intense from the
start. The success or failure of an innovation stems back to a short period of
time around its launch. Once a firm has the lead, the attractiveness of its
product increases exponentially as it becomes more popular and production costs
reduce due to economies of scale. If companies fall behind at this stage they
are likely to lose the competition, due solely to the social processing of
information.
To
benefit from this social information processing, companies need to avoid delays
in early production and have the ability to spread products quickly without
skimping on quality. Customers are just as aware of abandonments of new
technology among their competitors as they are of adoptions.
For
companies investing in new technology or processes, the research is a warning
to pay less attention to what others are doing. Too much reliance on social
information processing and the amplification of small initial differences
(which may have little or no impact on a firm’s operations) could result in the
purchase of an inferior product affecting the company’s own ability to compete.
Path dependence: More random than we think
The
importance of path dependence and initial conditions for the evolution of
technologies, strategies and market competition has often been noted but is not
sufficiently appreciated in research or practice. Competition among the makers
of innovative production assets and the users of these assets is a highly
uncertain world. Early events introduce significant “noise” into the diffusion
process which can cause inferior products to spread more quickly suggesting the
path dependence which sees one product succeed while another fails is perhaps
more random than we may expect.
Henrich Greve, INSEAD Professor of Entrepreneurship
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