What is emulation in business?
Think about the following statement: “Innovation is great for organizations which, through the creation of ingenious products and services, get to originate and capture entirely new markets and enjoy long-term pioneer benefits which helps them stay ahead of their competition.”
That may sound like something you hear and read every day, right? However, it’s far from being true. In reality, early pioneers, the people who invent stuff, almost never get to conquer the markets they originated with their innovation.
GE didn’t invent the CT scanner and Amazon didn’t invent online sales in the same way that Apple didn’t invent tablets nor Facebook invent social networks, yet they all ended up dominating those markets and making more money in them than whomever came up with the idea in the first place.
There’s nothing new here. Time after time and industry after industry we see that latecomers can come to dominate entire markets originated from somebody else’s ideas.
What if I told you that more than 80 percent of self-made billionaires made their fortune in already established and “non-tech” industries?
The truth is, there’s a big difference between creating a product and creating a business, and nowhere is that difference more prominent than in the dynamics around market pioneers and fast late movers.
Kodak invented the digital camera in 1975 and four decades later was disrupted by it. It just couldn’t make a good business out of it, even though it was the pioneer in the technology.
In a sense, emulators bypass early experimentation stages and skip ahead to the end after the product has proven to work (in a technical sense) and most importantly after it has proven to sell.
Being a fast second mover doesn’t mean being a follower. Good emulators improve value and reduce
In a way, good emulators “innovate” the innovation – they make a good business out of a product.
Music service Pandora (NYSE: P), the pioneer in online digital radio, created an entire market with its innovative service, but it has been left behind by fast second movers like Spotify (NYSE: SPOT) and Apple’s Music which quickly introduced innovative features and controls making Pandora look like grandpa’s old radio station.
At the end of 2015, Pandora had almost five million more active users worldwide than Spotify, and by the end of 2018 it was around 100 million users behind.
A fast second mover strategy means taking ideas that pop up in the market as innovations and using your company’s own capabilities to improve those ideas and beat the innovators themselves at their own game.
Software companies have been doing this for years. When Microsoft launched Excel, its spreadsheet application, it was emulating Lotus 1-2-3, and Lotus was emulating VisiCorp’s VisiCalc, the first spreadsheet program, launched in 1979 for the Apple II.
In fast-paced industries, as in smartphones for example, continual emulation is needed just to keep up with the pace of advancements in the market and in customer preferences.
If you are in such an industry, you should probably plan to be a pioneer in some things and a fast second in others. That’s how the game must be played when products continually change.
A fast second mover strategy works best when the original innovators can’t get tight legal protection of their invention. Since they can’t appropriate the innovation, they will try to bring it to market as fast as possible using speed as the main advantage over potential competitors. But savvy seconds can quickly catch up and use their value chains to get ahead in the game with an innovative business.
Finally, to become a fast second mover, your organization must develop Absorptive Capacity, i.e. an internal ability to identify, assimilate, transform, and apply complex knowledge generated outside the organization into the development of new products and services.
Think about all the research and knowledge that is created outside your organization that can be exploited by anyone with the appropriate tools and skills. To develop absorptive capacity, we must develop the internal resources (people, assets and processes) to understand and decode that information in a way that can be put to work in the development of new things.
Emulation is one of the most powerful alternatives to in-house innovation, but only those who can wrap products into innovative businesses can benefit from it.
Wu, Sun. Strategy for Executives, this book can now be downloaded for free here.
Sviokla, John; Cohen, Mitch. The Self-made Billionaire Effect Deluxe: How Extreme Producers Create Massive Value. Penguin Publishing Group. Kindle Edition.