Pretty profitable parrots

[Van!]

http://www.economist.com/node/21554500

Pretty profitable parrots

Pretty profitable parrots

For businesses, being good at copying is at least as important as being innovative

May 12th 2012 | from the print edition

EVERY year Les Wexner, the owner of Victoria’s Secret, a lingerie retailer, takes a month off to travel the world looking for other companies’ ideas to adopt. Limited Brands, his clothing group, seeks lawful inspiration from firms ranging from airlines to consumer-goods manufacturers. Mr Wexner’s philosophy is that business should celebrate imitation.

That is almost a heresy. Politicians and countless awards ceremonies extol innovation’s role in economic growth. Businesses are told to innovate or die. Imitators are cast as the bad guys: “The corporation that is first…has an opportunity to manufacture with the highest frequency and in the most desirable markets,” proclaims the boss of Burkett & Randle in “Duplicity”, a 2009 corporate thriller starring Julia Roberts. The firm duly triumphs over the evil rival which tries to copy its supposed cure for baldness.

In the real world, companies copy and succeed. The iPod was not the first digital-music player; nor was the iPhone the first smartphone or the iPad the first tablet. Apple imitated others’ products but made them far more appealing. The pharmaceutical industry is split between inventors and imitators. Some innovators, such as Pfizer, have joined the copycats, starting generic-drugs businesses themselves. The multi-billion-dollar category of supermarket own-label products is based on copying well-known brands, sometimes down to details of the packaging. Fast-fashion firms have built empires copying innovations from the catwalk.

The pace and intensity of legal imitation has quickened in recent years, argues Oded Shenkar, a management professor at Ohio State University, in a provocative book, “Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge”. Among social-gaming firms copying, and accusations of copying, are rife. One boss is said to have told his employees: “I don’t fucking want innovation. Just copy what they do and do it until you get their numbers.” Germany’s Samwer brothers, Alexander, Oliver and Marc, have made a fortune replicating American internet models in other markets, sparking outrage in an industry which prides itself on invention. One of their recent efforts is Pinspire, an online pinboard with a similar layout, colour scheme and features to those of Pinterest, the latest craze in social media.

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. Even Playboy magazine was just an imitator, noted Ted Levitt, one of the earliest management gurus to acknowledge the role of imitation. Copying is not only far commoner than innovation in business, wrote Levitt in the 1960s, but a surer route to growth and profits. According to “Copycats”, studies show that imitators do at least as well and often better from any new product than innovators do. Followers have lower research-and-development costs, and less risk of failure because the product has already been market-tested. 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.

Firms seldom admit to being copycats. First, it is bad for bosses’ egos. Second, it can be legally risky. Apple is suing Samsung for “slavishly” imitating its products with its Galaxy smartphones and tablets; and Samsung is suing Apple back. (According to Mr Shenkar, Samsung is also eagerly awaiting a Korean-language version of “Copycats” to distribute to its executives.) This week a jury found that Google had copied Oracle’s intellectual property related to bits of its Java infrastructure.

But there is usually plenty of scope to imitate safely. Jean-Paul Gaillard, a former chief of Nespresso, a coffee-making system which has made billions for Nestlé, a Swiss food giant, decided to take on his old firm. His new venture makes coffee capsules which exactly fit Nespresso machines, to compete with Nespresso pods. Nestlé has been unable to stop him. Copying may be safer still when the imitator is not grabbing the innovator’s customers: Southwest Airlines, an American discount carrier, made no objection when Ireland’s Ryanair cloned its business model.

Not invented here

Some businesspeople 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.

As a result, firms pay insufficient attention to the art of copying. Levitt examined a group of companies whose sales depended on regularly launching new products. None of them, he found, had either a formal or informal policy on how to respond to other firms’ innovations. So they were often far too slow to imitate rivals’ successes, and missed out on profits. Not much has changed since Levitt’s day. Though copying is fairly common, lots of companies fail to do it effectively. American firms in particular are too obsessed with innovation, argues Mr Shenkar. By contrast, Asian companies—such as Panasonic, whose former parent, Matsushita, was nicknamed maneshita denki, “electronics that have been copied”—have excelled at legal imitation.

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.

[Thor]

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