INTERACTION OF PRODUCT- AND ORGANIZATIONAL-LEVEL SIGNALS
Ultimately, the decision to imitate is not predicated solely on signal interpretation at the product or organizational level because as mentioned previously, the innovation itself is linked inextricably to the firm that introduced it to the market. As such, parsing innovation signals is multilevel in nature, requiring the prospective imitator to evaluate the signals sent by the offering in the context of the reputational elements of the innovator firm. For imitation decisions where the signals at the product and organizational level are congruent, multilevel signal interpretation is straightforward. For example, an incremental innovation introduced by a firm with high market competency represents a strong imitation signal combination. Incremental innovations are likely to be consistent with market expectations (favoring imitation), and concentrated firms are perceived to have substantial and high-quality market knowledge (also favoring imitation). Similarly, a highly innovative product introduced by a firm without a demonstrable record of successful innovation introduction is not likely to lend itself to imitation. Highly innovative products are not only risky (depressing imitation), but the firm's reputation provides no credibility to enhance the quality of the signal (also depressing imitation).
The challenge in imitation decision making is when signals sent at the product-level conflict with signals sent at the organizational level. There are four specific cases when imitation signals at the product and organizational levels would be contradictory: low innovativeness/low innovation history, low innovativeness/low market competency, high innovativeness/high innovation history, and high innovativeness/high market competency. Based on past research, we offer the following prescriptive suggestions for signal interpretation in these situations with the caveat that generally speaking, signals sent at the organizational level are more pertinent when crafting an imitation response than signals sent at the product level, with one notable exception.34
Under low levels of product innovativeness, the generic risk of competitive imitation is demonstrably low. As discussed previously, incremental innovations signal a high level of congruence between the market knowledge possessed by the innovator firm and by the prospective imitator. Imitation in this scenario represents a logical advancement of the prospective imitator's product line, since adopting the incremental innovation is likely to represent strategic consistency with the firm's knowledge stock. However, an incremental innovation introduced by a firm without a history of successful innovation results in the likelihood of imitation going down (i.e., positive product-level imitation signal, stronger, negative organizational-level signal). Although the incremental innovation is of low risk, it is also of correspondingly low value.35 Introducing even an incremental innovation requires the expenditure of time and resources. However, there is no positive organizational signal to indicate that the innovator firm has introduced an innovation of material value to the market such that the prospective gains from imitation outweigh its costs. In other words, there is likely to be a higher opportunity cost from imitating an incremental innovation than there would be from devoting organizational resources to potentially higher-value internally generated innovation.
Similarly, we would argue that an incremental innovation introduced by a firm lacking demonstrable market competency as recognized by competitors (e.g., the perennially struggling K-Mart's introduction of a layaway option for purchases), or the introduction of an incremental innovation outside of the firm's market competency (e.g., Starbucks' introduction of hot breakfast sandwiches), trumps positive imitation signals at the product level. Without the high quantity/quality of market knowledge characteristic of market competency, both radical and incremental innovations are inherently risky. At the extreme, such innovations may be little more than a guess of current market expectations. The lack of market competency thus lowers the quality of the product-level signal, making the value of imitation questionable.
Under high levels of product innovativeness (effectively a negative imitation signal), parsing positive organizational-level signals becomes more nuanced. Because imitation of a highly innovative product carries substantial risk, the question becomes whether signal quality is enhanced enough either by innovation history or market competency to overcome the inherent downward imitation pressure. We argue that in the case of innovation history, even when an innovator firm possesses a track record of successful innovation introductions, concern over whether they will be able to replicate past successes with a highly innovative new offering should deter imitation. Although a positive innovation history provides some legitimacy to a highly innovative offering, the correlation between successful prior radical innovation and future success with similar offerings is tenuous at best. Harley-Davidson Motor Company is a case in point. Throughout its history, Harley-Davidson has oscillated dramatically between periods of significant leaps forward in motorcycle design and long periods of stagnation. Significantly, research has found empirical support for this assertion, indicating that although the imitation of highly innovative new products of firms with a strong history of innovative was more positive than that of firms without such a history, the likelihood of imitation remained negative.36
We argue the opposite position, however, with respect to the imitation of radical innovations offered by firms with demonstrable market competency. We suggest that market competency is more powerful than past performance as a reputational signal and is able to overcome the riskiness associated with the imitation of highly innovative products. This is because, as Van de Ven noted, innovation represents the physical manifestation of organizational knowledge. It encapsulates what is known, and assumed to be known, by the innovator firm about market expecta-tions.37 It therefore follows that firms with high quantity/quality of market knowledge are more likely to introduce innovations, both incremental and radical, that are congruent with the needs of the market than those that do not. Such a competency signals that uncertainty surrounding radical innovation is sufficiently mitigated to encourage imitation.
Research has also found empirical support for the imitation of highly innovative offerings of firms with high market competency.38 Such imitation may be akin to lemming-like behavior in that prospective imitators are likely to copy both incremental and radical innovations of firms that they perceive to possess high quantity/quality market knowledge. From the perspective of competitive strategy, the imitation of firms with demonstrable market competency, irrespective of the innovativeness of their offerings, may prove to be attractive if for no other reason than to maintain competitive parity. This will be particularly so if the prospective imitator is willing to concede information superiority to the innovator.
There may be other pertinent product and organizational-level phenomenon that can serve as appropriate signal mechanisms. For example, the scope of the innovation, that is, the breadth of potential markets the innovation is tapping, may be positively associated with the propensity to imitate.39 Furthermore, there may be a three-way interaction effect between product innovativeness, innovation history, and market competency that may suggest more fine-grained imitation decisions. Thus, although a highly innovative offering made by a firm with a strong innovation history should deter imitation, if the firm also has demonstrable market competency, the joint consideration of the reputational elements may be sufficient to overcome the riskiness inherent in imitating radical innovations. These assertions are, however, empirical questions that remain to be explored.