Overcoming Causal Ambiguity

Firms that employ a strategy of causal ambiguity make it difficult for outsiders to decipher and comprehend their product, process, or model. If the defense is robust, access to information will not make much difference. J. H. Gittell cites a customer service manager at Continental Airlines who was baffled by the access granted by Southwest Airlines, saying, “Southwest invited our people into their little world. Mr. Kelleher said, ‘Come on in, ask anything you want.’ I don’t understand why.”² Sherwin-Williams’s Chris Connor tells of phone calls he receives from store employees who watch with horror as visitors show up in their stores armed with cameras, recorders, and tape measures. “They’re all trying to figure out how to run a dedicated paint store,” he says, but “knowing what it looks like, and knowing how to do it, are two different things.”³

All this is true, but only to a point. The founders of Wal-Mart and E-Mart used store visits to gather valuable information, which, combined with other data and subjected to painstaking analysis, provided crucial lessons for borrowing and implementation. In the hands of a capable imitator with deep-diving capabilities, the complex puzzle that makes up a business model can be reconstituted and causal ambiguity deciphered.

As difficult as this task may be, it is not insurmountable. Masking internal processes is difficult for innovating firms that cherish open communication, and firms can hide only so much before hampering their own internal coordination or incurring a stiff cost. Japanese firms often use a bottleneck strategy, wherein key knowledge and competence links can be accessed only by a few trusted employees, but this strategy involves ferrying expensive staff whenever service or maintenance is required; and, if the bottleneck protection is broken, the entire system is vulnerable. Even culture, which Southwest describes as an insurmountable deterrent, can be substituted by another culture supportive of a model or by codified elements that represent such a culture.

The strategy literature is adamant that it is difficult to replicate tacit, complex, and systemwide knowledge; however, history shows that this is exactly what happens repeatedly, from the windmills and rotary querns (hand mills) of the ancient world to the hydraulic rock drill in modern times.⁴ Imitators accomplish this feat by carefully assembling various knowledge elements and by building the absorptive capacity that business scholarship reserves to the innovators. Imitators that develop architectural knowledge can acquire inputs from providers that have the capacity, and an imitator with deep-diving capacities can identify substitute elements with which to fill the missing spots. Or they can simply go after visible and structured elements, as many Southwest imitators have done, building working replicas that are doing as well as, if not better than, the original.

Finally, many innovators open up on the belief that they can stay ahead of the game. Kodak opened its plants and processes to its Chinese partners on the assumption that it could always stay one step ahead. GE made the same argument when providing blueprints of its turbines to customers that insisted on the disclosure, it, too, claiming that there was no need for alarm because it was already working on next-generation technology. P&G has stayed ahead of the game by rapidly rolling product improvements and extensions; for instance, it made no fewer than seventy improvements to Tide between its 1956 debut and 1999, keeping imitators at bay.⁵ “Innovate like crazy,” advises Cardinal Health’s chairman and CEO, R. Kerry Clark, when he talks about mitigating imitation efforts by competitors.⁶

Imitators can stay competitive by offering a product with mature but proven technology at a lower price, a value proposition that is enticing to many customers. Imitators then use the entry as a stepping-stone from which to develop newer technologies or combine existing technologies in a novel package. A customer happy with current offerings may stay with the provider as it climbs the ladder because of the same brand loyalty or switching costs that are supposed to protect innovators.

Overcoming Relationship Networks

An elaborate network of internal and external relationships is supposed to make it difficult for others to penetrate or replicate a value chain even if the chain is visible and well understood. In addition to Southwest, Lincoln Electric and McDonald’s have been reported to use close relationships with suppliers and other key constituencies as an add-on to a unique operating system to create models that cannot be reliably imitated.⁷ This is consistent with the Levin study, which found that effective sales and service was the best vehicle for mitigating imitation. Sherwin-Williams’s Connor says that “it is hard to be a good imitator across the entire spectrum of the relationship you’ve got with the customer.”⁸ Cardinal Health’s Clark says his company locks in relationships by controlling “the last hundred yards,” where medical distribution connects directly with the patient and the medical care team.⁹

The flip side, notes Ashland’s James J. O’Brien, is that a breakdown of a key relationship provides competitors with an opening, so imitators should monitor innovators for any sign of fraying relations (such as terminated alliances).¹⁰ The relationship protection is not always available, or its cost may be prohibitive, so it works for firms that have sunk investment in distribution (e.g., Sherwin-Williams) or additional strategic reasoning to get close to the customer but not necessarily for others. Nor is it foolproof. Note that Southwest’s relationships with employees and other stakeholders did not prevent successful imitation either by imitators focusing on the codified elements of its model or by imitators establishing substitute networks to achieve similar outcomes.

Overcoming Signaling and Switching Deterrents

A favorite strategic deterrent is signaling, in which a pioneer or innovator demonstrates superiority so as to convince would-be imitators not to contest the original. Imitators do well to bypass the signal; for instance, quality signals can be countered with lower pricing or with differentiating features.

Signaling by building overcapacity—a practice that supposedly tells potential imitators that the innovator will go to great lengths to defend its turf and will hoard the resources without which an imitator would not be able to enter the market—is even more open to imitators’ attacks. Building overcapacity is costly and risky if demand does not rise to meet capacity or if customer taste or technology changes, so the strategy will play into the hands of a capable imitator, especially one that is able to produce improvements or substitutes.

Certain forms of overcapacity—for instance, filling shelf space so that competing products are not admitted—can be challenged on legal grounds, and imitators may find alternative channels, as H. J. Heinz did in the condensed soup market. Imitators can even leverage a pioneer’s overcapacity: Volkswagen’s new minivan, the Routan, is based on the Chrysler platform and is built in a Chrysler plant, but it is differentiated by the firm’s strong brand reputation and by a novel marketing effort, offering a $1,500 tuition incentive for U.S. buyers.¹¹

We are often told that pioneers are protected by switching cost: the cost for customers of shifting from a familiar technology in which they have already invested to one for which infrastructure and capabilities still need to be developed. Note, however, that proponents of pioneer advantage provide examples in which switching costs are substantial, as in the case of a computer game console that accommodates only one type of game.¹² Imitators can choose products for which switching costs are minimal—say, autos (Ford bought a Canadian driving school on the mistaken assumption that new drivers would buy the car they learned to drive on) or personal computers (almost all of which, including Apple, are now “PC compatible”). Further, shifting to a new product entails its own switching costs, so an imitation that is compatible with existing equipment and usage might be even more enticing than an original. Also, a no-frills version will bring in customers who are currently priced out of the market and hence incur no switching costs.

Overcoming Complementary Assets

Complementary assets such as specialized manufacturing, exclusive supplies, and distribution channels work as deterrents as long as the imitator has no access to the same assets or substitutes. It is often forgotten that at least some imitators have scale and infrastructure that are on par with (or better than) those of innovators. IBM used its business customer base to upstage the pioneer, Remington Rand, in mainframe computers, but as a leader in the PC segment, IBM misjudged the deterrence of its intellectual property, which created extra cost to imitators but not enough to offset their lower overhead. Another example is Israel’s Teva, the global leader in generics, which entered biogenerics because, among other reasons, it knew that only a few competitors could afford the costly investment involved. Complementary assets can also be accessed via making alliances or by locating suppliers that provide missing inputs.

Only a few innovators bother to split their supply base in a way that will deter imitation the way P&G does with Gillette razors, and, with producers less vertically integrated and less likely to sign exclusive supply agreements, imitators are able to acquire the same inputs from the same OEMs. Nor can pioneers and innovators count on monopolizing the best retail locations or distribution channels: with cities developing multiple business centers and with sprawling new malls, imitators can substitute novel and attractive locations.

Further, distribution, especially in the United States, is increasingly controlled by large retailers that hold bargaining power and determine what will get on the shelf. Such retailers are as likely to go with an imitator as with a brand owner, often selling under their private label umbrella. Shifting to the high end will leave a large piece of the pie for imitators, which have an incentive to climb up the ladder: once produced, the marginal cost of information is almost zero, and this means that it is actually less costly to imitate goods with a higher portion of R&D costs.¹³

Overcoming Marketing Deterrence

The most common marketing barrier—the brand—can be overcome through private label sales, the acquisition of an established brand, tie-ins with reputable entities, or the offering of a superior warranty. Still, brand is a key barrier, especially when trademarks are strong, when product loyalty is high, and when it is combined with control of the distribution access.

Sherwin-Williams’s Connor is confident that imitators cannot match his company’s wide store presence. However, imitators can capture alternative locations, especially in rapidly growing locals.¹⁴ The rapid expansion of Starbuck’s (for which it probably paid a price in deteriorating quality and control) did not prevent the rise of copycats nor the entry of competitors, such as McDonald’s, from related domains. The distribution barrier works when scale or volume advantage is substantial and when channels are finite or locked in. When this is not the case, an imitator has no problem challenging an innovator.

Marketing scholars also argue that consumers will favor the first product on the market, because it is a known quantity that will become a standard benchmark against which newcomers will be judged. This does not prevent an imitator from launching something better, cheaper, or deemed to offer a superior value. Although some consumers may prefer the tried and true, others may fancy a novel version, especially if it outperforms the original on important features. Truly, many consumers are risk averse—reluctant to learn how to operate a new product or resistant to the obsolescence of an existing product; by sticking with the pioneer, they supposedly reduce the cost of searching for an alternative and resolve uncertainty about how the substitute will perform.¹⁵ But search costs are low in the Internet age, with many intermediaries (e.g., Consumer Reports or J.D. Powers) doing the legwork. With product and process inputs increasingly shared by end-product firms, it is almost as easy for imitators to differentiate themselves as it is for innovators.

Also, innovators are advised to reposition a product, practice, or business model away from a crowded segment into a space where few imitators are present or are likely to emerge. This deterrence is at best a temporary fix as imitators flock to areas that show promise and as their capabilities grow. Furthermore, going after the high end implies forfeiting scale advantages as well as the vast market lying beneath premium. In the consumer products market, notes P&G’s G. Gilbert Cloyd, the high end represents no more than 30 to 35 percent.¹⁶ Imitators will be happy to go after that territory. Imovators may also shift a product across domains, as Apple did when it moved the iPod from the intensely imitated domain of music players to a complex space that few imitators can duplicate.

Finally, many firms believe that superior execution will shield them from imitation. For example, Lionel Nowell says PepsiCo can usually “outexecute” imitators: “We used to joke and say even if I gave them the same playbook, they don’t have the people or the resources to execute as well as we could.”¹⁷

Yet even though superior execution may have blocked the imitators of Sherwin-Williams, it did not stymie those of Dell. Asked about competitors copying the Dell business model, then CEO Kevin Rollins argued at the time that “the key to our success is years and years of DNA development within our teams that is not replicable outside the company. Other companies just can’t execute as well as we do.”¹⁸ This was not to be the case. Competitors found substitutes, sourcing production to cost-efficient and capable Asian producers and improving operational and supply chain capabilities. Imitators with superb implementation capabilities can actually turn execution to their advantage by having a smoothly working product or model while the innovator is still struggling with teething problems.

The bottom line: imitators should learn how to overcome imitation deterrents at the same time they themselves use such deterrents to prevent or delay the entry of other would-be imitators. Imovators are capable of handling the apparent contradiction between the free flow of information necessary for innovation and the intelligence mind-set necessary to deter others. P&G, for instance, uses a multiprong approach. In addition to legal means such as patents, and trademark registration, usually in combination, the company also uses assembler defense, wherein each vendor or supplier gets to do and see only part of the whole, with P&G alone having access to the complete puzzle. The company uses proprietary technology and production systems; for instance, Gillette shaving blades are produced in-house using P&G-designed and -built machinery, which in turn is backed by a “need to know” compartmentalization; only a few P&G staffers know how the technology works and especially how the pieces fit together.

P&G’s Cloyd acknowledges that business models are the most difficult to protect, and here P&G leverages its strong understanding of consumer behavior and needs to cement and reinforce its strong relationships with retailers, a strategy he also associates with eBay.¹⁹ This works especially vis-à-vis less capable players or less knowledgeable players, although it is somewhat less effective against across-the-range imitators, such as SC Johnson, that have the scale and the imitation capabilities to neutralize multiple defenses. Most importantly, P&G does all this while maintaining an open innovation system that actively seeks learning and commercialization opportunities.

Don’t Reinvent the Wheel

The world is full of examples of people and companies that have spent untold resources and effort inventing something that was already there or that had little if any application, let alone one that would return something beyond the original investment. Recall that most major inventions have happened only once or twice and that the only way for individuals, societies, and companies not to fall behind is to imitate what has been invented elsewhere.

In other words, there are many wheels already out there, and you should not try to invent them anew but rather invent a better or cheaper version, combine them with other technologies to create a useful model or device, or put them into a new and promising application such as a wind turbine. Your challenge is to replace prevailing “not invented here” antagonism with “found with pride” or, better yet, take a “find and apply” approach that takes account of potentially variable circumstances.

Put the Buzz in Imitation

As PepsiCo’s Nowell succinctly summarized, “Innovation is the buzz, imitation happens.”²² Your challenge is to put the buzz in imitation. This means removing the stigma attached to imitation and making it not only acceptable but also as exciting and fashionable as innovation.

Recognizing and rewarding imitation will go a long way toward attaining this goal, but to create a real buzz you need to drive a cultural transformation that will occur only with guidance and enthusiasm projected from above. Approaching imitation in a strategic manner initiated and overseen by the uppermost echelons of your organization will not only lead to better results but will also engender a supportive climate where people actively seek imitation opportunities and work to leverage and implement them to the benefit of the organization.

Ape the Competition

Imitation capabilities enable physically disadvantaged apes to survive and prosper in a tough environment. Things are not very different in the business jungle, where the “innovate or die” battle cries drown out the promise of imitation and mask the success of imitators in fields ranging from biology to the arts.

Rather than lament the failure of the most advanced species to grasp the sophisticated nature of the activity, take advantage of the lack of appreciation of imitation and its underlying capabilities by your competitors to develop the corporate mirror neurons that lie behind imitation skills. Deploy imitation strategies effectively and creatively to outrun the competition.

Don’t Round Up the Usual Suspects

In an era awash with benchmarking and best practices, it is easy to lose sight of sometimes obvious opportunities that require a global rather than a local search. Looking beyond your own territory, including in other regions of the world, seeking small and unnoticed firms as well as failed ones, and learning from distant rather than recent events—all these practices will help you expand your inventory of commercialization models and enhance your learning outcome. It is especially important to reference imitators as well as innovators: remember that for every innovator there is an imitator (and usually more than one) and that both are making a good living. Looking at both is essential if you are to become a successful imovator.

Put Things in Context

We are all captives of the environment in which we live, strategize, and operate, so we need to be constantly reminded that what works in one environment may not necessarily work in another. At the same time, it is our responsibility to explain to outsiders—suppliers, bankers, venture capitalists, or other constituencies—what may set our environment apart from theirs and what it might imply for the relevance and applicability of a particular model. Imitation without the injection of context is akin to flying without a map and navigation tools: assuming good visibility you will eventually see the runway, but by then it might be too late to make the approach, and your tank could run empty before you circle around.

Match the Pieces

Humans may well be the most sophisticated species, but we are constantly tempted to reduce our information load by oversimplifying issues of substantial complexity. Running correlations, for example, may give us the illusion of systematic analysis, but it falls far short of the causal explanation needed for true imitation.

To avoid the trap, conduct a thorough analysis that attends to the role of each individual component in both the original and the copy, while remaining mindful of the combinative architecture underlying system relationships. Only in this way, and by remembering the dynamic role of context, will you be able to posit, and then solve, the correspondence problem. This is true even for the borrowing of a single element, let alone when you are imitating a comprehensive business system.

Remember That Timing Is Not Everything

Timing is a critical variable in imitation, but it is not the only question you need to answer. Where, what, who, and how are equally relevant questions that must be answered if imitation is to be approached in a strategic fashion. As with imitation capabilities, the fact that almost all your competitors still deal with imitation in what Levitt called “a random, accidental and reactive” manner will put you at a competitive advantage, provided that you break with the pack. Start by recognizing that imitation can be distinctive even if it relies on existing elements, and then proceed to strategize precisely how to create a unique package that will not only achieve correspondence but also produce value.

Build a More Valuable Mousetrap

Because we often demonize imitators for free riding on our talents and investments, we tend to forget that imitation carries its own costs and risks. It is not sufficient for imitators to offer a cheaper or better mousetrap; the question is also whether they can do it in a risk-adjusted, cost-effective fashion. Imitation capabilities may significantly reduce costs and risks because they offer the infrastructure in which to conduct imitation more efficiently and effectively, but in and of themselves such capabilities do not eliminate either cost or risk. In this respect, it is important to assess the repercussions of the various imitation strategies; for instance, the acceleration of imitation embedded in a fast-second strategy carries a considerable cost and increases the risk of failing to target market preferences that are still being formed.

Play Offense and Defense

Success in the imitation game requires both the successful imitation of appropriate models (sometimes yourself) and the effective deterrence of others from imitating your innovations or successful imitations. Most firms are focused on how to deter imitation, but by learning how to overcome imitation defenses you will become not only a better imitator but also a more effective defender. Yes, this sounds like hiring a convicted hacker to handle computer security, but this is only because of the negative connotation imitation wrongly carries. The fact is that in imitation, as in other business activities, offense and defense are inseparable.

Innovate, Imitate, Imovate

As you have seen, many of the major imitation models have themselves been imitations, borrowing and combining inputs from multiple others. These firms have been imitated by others mostly because they have produced visible positive outcomes, but those outcomes could often be attributed to borrowing from others and then placed in a distinct, cost–beneficial, and continuously improved package.

It has taken a while for those imovators to fuse imitation and innovation to create competitive advantage, so you should not expect to see results overnight. The change we are talking about is difficult and transformative but is one you will be unable to escape: the days of forsaking a critical technology because it runs counter to the prevailing culture and the interests of a social class are gone and are not coming back. This is all the more reason to start right now.