Business analysis: ‘Is business success really all about innovation? Imitation can be just as important’

Innovation, we are constantly told, is the lifeblood of business. Would-be entrepreneurs, in particular, are seen as innovators – seeking to gain an advantage over established players through coming up with new ideas for products or services, or at least new ways of producing or providing them.

Such attitudes are reinforced by investors, policy makers and, above all, business schools, where there is an emphasis in the teaching and writings of academics on the importance of the new. The phrase “innovate or die” – prominent in the title of more than one business book of recent years – is very much the rallying cry.

But is business success really all about innovation? Oded Shenkar, himself a management professor, suggests not. In his book Copycats (Harvard Business Press, £19.99) he argues that in business, just as in such areas as biology and philosophy,imitation can be at least as important as innovation. He cites Jared Diamond, the academic and author of such books as Guns, Germs and Steel, as pointing out that human development would not have been possible without imitation. In all but the most isolated societies most new technologies were not developed locally by were borrowed from other societies. Concentrating on the world of business, Shenkar points to research indicating that most value creation in businesses in the US over a 30-year period could be traced to just four ideas: power retailing (“big box stores” like Home Depot), mega branding (umbrella branding by Disney and others), focus/simplify/standardise (as in McDonald’s process simplification), and value chain bypass (eliminating the middleman, the Amazon model).

Shenkar acknowledges that a love of innovation fits with the American psyche and the importance attached to individualism. After all, it is claimed that eight of the 10 leading innovations of the 20th century originated in the United States. But this has not always proved enough to guarantee success. Towards the end of the last century, when American economic power faltered, much of the strength of Japan’s economy could be attributed to Japanese companies’ skills at imitating – and improving – all sorts of things, from cars to consumer electronics products. These days, it’s the Chinese who are taking a similar approach.

Yet throughout this period, Americans have not been ignoring imitation. Indeed, it is often accepted in Europe that when it comes to research and development, American companies are better at the “D” part – commercialisation of the idea – than their counterparts in Britain and Europe. It’s just, argues Shenkar, that innovation has come to be seen as the Holy Grail. And what is seen as important in the US is apt to be adopted in Britain, if less so in the rest of Europe.

The argument might be surprising. But it should be encouraging for would-be entrepreneurs and investors who are feeling frustrated by their inability to come up with a completely fresh idea. Shenkar provides plenty of instances of companies that have copied their approach from others.

A notable example is Ryanair, which freely acknowledges its debt to the US budget carrier Southwest Airlines. The book cites Michael O’Leary, current chief executive of Ryanair, as saying: “All we’ve done is copy Herb Kelleher’s successful model. In fact, we’re maybe the only people to take it beyond where Southwest has gone with it.”

The part about taking it further is the key. As Shenkar makes clear, it is not enough to just copy. Plenty of people have tried that with low-cost airlines and failed. What sets apart the successes is the ability to add innovation to the imitation. In other words, you may not have to have an original idea (in fact, not being the first to market can save a lot of time and effort in creating a market), but to prosper you need to have a plan for improving on the original. And if you have that you may just do better than if you had the original idea.

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