ORGANIZATIONAL LEVEL

I n an imitation decision, there are additional considerations beyond those that exist at the level of the new product offering. Innovation does not occur in a vacuum, and although parsing information at the product level is vital, such information is inextricably confounded with the firm introducing the innovation. Indeed, there is arguably considerable informational value in understanding the characteristics of the innovator firm itself from the signals it sends by introducing innovative new products. Thus, while considering the innovativeness of a new product is necessary when developing an imitation strategy, it is not sufficient. We suggest therefore that prospective imitators go beyond the product level and look for insights at the organizational level of the innovator firm in crafting a prospective imitation response. Specifically, we suggest two characteristics of the innovator: its innovative history, and its market competency, as salient organizational influences on imitation decision making.

Innovative History

Innovative history refers to the innovator firm's track record of introducing successful product innovations to the market. Notice specifically the "successful" moniker in this definition. This is done purposefully since some firms may be prolific innovators but may have market success that is poor or difficult to measure. For example, 3M is well known for systemic innovation, though the market success of its products can be difficult to evaluate independently, particularly since many of the company's innovations build incrementally on existing products and the firm operates across a wide swath of industries. Conversely, Apple is not known for having a large number of innovative new product offerings (perhaps one to two per year), but those that Apple does offer tend to have strong market acceptance. When evaluating innovative history, quality of innovation, not quantity per se, is thus the critical metric. Admittedly, determining whether an innovation is successful or otherwise has impact is subjective and highly influenced by prevailing industry norms. Furthermore, in many markets it is difficult to gauge a priori the value of a given innovation, which introduces time as an element in determining innovation history as it may take considerable time for the market impact of an innovation to become clear. For example, the snowboard was invented in the early 1970s but it was not until two decades later that the product and associated sport garnered widespread acceptance in the broader skiing industry. Collectively, these challenges imply that there is no simple mechanism for accurately measuring the innovative history of a competitor. Industry norms and market histories should, however, provide ample circumstantial evidence to at least develop a picture of innovation history.

We argue that the decision to imitate an innovation of a firm with a favorable innovation history may be attractive. Although past behavior is no guarantee of future results, prospective imitators can draw comfort from correlating a competitor's past innovation successes with future innovation outcomes. A favorable innovation history lends credibility to the behavioral signals sent by the innovator firm such that past successes create a "halo effect" over new offerings and the inherent riskiness associated with competitive imitation is decreased.30 In terms of signaling theory, the firm's innovation history is part of its organizational reputation. For firms with an established track record of innovation, the signals they send will be perceived by signal recipients as being of high quality. When they engage in innovation behavior, prospective imitators are thus likely to pay attention to these behaviors and be inclined to pursue imitation. In other words, imitating a firm that has a history of successful innovations is less risky than imitating a firm that has not consistently introduced successful new products.

Market Competency

Market competency refers to the innovator firm's demonstrated fitness in a given market context as characterized by the extent to which its operations are concentrated or diffuse. For example, Wal-Mart Stores is one of the few dominant business firms (one industry representing a greater than 80% share of its revenue) in the Fortune 50, whereas GE's largest division (by revenue) accounts for slightly more than 30 percent of its total gross. Based on market competency, we would thus ascribe greater competency at the firm level to Wal-Mart's operations in the retail industry than we would to GE.31

In a manner similar to that of innovation history, a firm's market competency represents a salient component of its reputation. In this case, however, the reputational element is one of perceived knowledge superiority gained by virtue of the firm's sustained experience within a given market space. Because tacit knowledge, which is argued to be more strongly associated with competitive advantage than explicit or codified knowledge,32 is acquired largely through experience, firms with concentrated operations are presumed to possess both a higher quantity of knowledge about that particular market segment as well as knowledge of a higher quality than firms whose operations are diffuse.33 To prospective imitators, a high level of market competency also enhances signal quality by affirming perceived knowledge supremacy, thereby making imitation of such firms less risky than those with more diffuse operations. In summary, if a prospective imitator does not have an equivalent level of concentration in a market space as an innovator, and if an innovation is introduced in a market in which the innovator possesses competency, imitation may be a favorable competitive response.