Why first mover (radical innovation) doesn’t win in technology centric markets.

The Curse of the First-Mover: When Incremental Innovation Leads to Radical Change

Thierry Rayna
London Metropolitan Business School

Ludmila Striukova
University College London

International Journal of Collaborative Enterprise, Vol. 1, No. 1, pp. 4???21, 2009

Abstract:     
The literature establishes a strong link between radical innovation, first-mover advantage and market dominance. However, there are numerous examples where, despite being the first-mover and radically innovating, companies have failed to achieve a significant market share. In fact, incremental innovation can, sometimes, influence the industry in a more significant way than radical innovation. The aim of this article is to investigate the relation between radical innovation, incremental innovation and market dominance. It explains why radical innovation and first-mover advantage might fail to provide competitive advantage and weaken companies. In order to do so, the article examines the key determinants of why first-movers may face a disadvantage in comparison to followers. These theoretical results are supported by the case study of four products released by Apple, two of which correspond to radical innovations and to others to incremental innovation.

Keywords: incremental innovation, radical innovation, first-mover advantage, digital audio player, Apple, iPod, iMac, Lisa, Newton

Some excellent insights and well worth browsing. Fits many of my observations too.
(originally via http://www.jpb.com/report103/archives.php)

Prospect theory applied to corporate innovation – interesting

Lessons to Be Learned from Prospect Theory

Prospect theory, when applied to innovation, suggests that managers in profitable companies are likely to be risk averse and therefore are psychologically likely to reject potentially innovative ideas, particularly new product and service ideas that offer an opportunity to increase income. However, potentially innovative ideas which reduce loss, are more likely to be implemented. Thus, in an established firm, process efficiency ideas, which reduce costs, are more attractive to the typical human than are product ideas. And this is true in my experience, anyway.

Likewise, loss making companies such as new start-ups or companies facing economic difficulties are more likely to embrace new product and service ideas as they offer the opportunity to reduce loss. However, start-ups with a young not-yet-defined corporate culture would seem more likely to innovate effectively than established companies that are suddenly losing money and need to innovate themselves out of trouble.

I really enjoyed Jeffrey Baumgartner’s thought experiment linking prospect theory (imbalance of risk assessment for gains versus losses) with corporate interest in innovation (more at http://www.jpb.com/report103/archive.php?issue_no=20090519). Not the whole story, but certainly an insightful generalization.

Other important related ideas include the ‘Innovators Dilemma’ (http://en.wikipedia.org/wiki/Disruptive_technology) and the notion of punctuated equilibrium applied to social institutions http://en.wikipedia.org/wiki/Punctuated_equilibrium_in_social_theory

More on this to come over time.