Imitation

Finding meaning and purpose in your work is not only beneficial for your well-being, but also for your performance, creativity and innovation. Here are some insights from 51�Թ�� Business School experts on how to achieve this goal.

1. Make the most of your time in the office

Whether hybrid working is new to you or something you’ve been doing for years, it can be a challenge to feel like you’re getting the most out of the home/office split, and not just spending parts of your week in different places. Dr Omar Merlo, Associate Dean (External Relations), explains how time in the office can be used to strengthen your business’s customer focus, while avoiding the pitfalls of remote communication.

2. Learn from Japanese philosophy

But don’t you feel like you should be getting something out of your work too? Customer-centricity is great, but it can’t be your sole source of joy and satisfaction. If you recognise that feeling, you might want to learn about ikigai, a Japanese philosophy that can help you achieve personal and professional fulfilment. Frank Brueck, Leadership Lab Lead at 51�Թ�� Business School’s Leonardo Centre on Business for Society, explains how to apply it to your own career and organisation, so you can connect your passion and skills with market needs.

3. Learn from sport

For all that sporting metaphors can be a business cliché, sport can genuinely offer some lessons on how to find meaning and purpose in your work. In this article, Dr Jan-Michael Ross, Associate Professor of Strategy, shows how to use sports data effectively and rigorously to develop and test new management theories. He also highlights the opportunities and challenges of using sport as a research context, and the potential benefits for academics and practitioners alike.

4. Develop general skills

Innovation is a key driver of economic growth, but it also involves significant risks and uncertainties. According to Dr Cláudia Custódio, Associate Professor of Finance, CEOs with more general and transferable skills are likelier to invest in innovation and take advantage of new opportunities, as they have more outside options and are less scared of failure. She has also looked at the implications of this for the labour market for executives and the design of CEO contracts.

5. Recognise when you’re most creative

Creativity is an asset for any organisation, but it can be hard to foster and manage. In this article, Professor Paola Criscuolo and Dr Anne ter Wal explain the phenomenon of bootlegging, or underground innovation, where employees work on their own ideas without official approval or support. They argue that bootlegging can be a source of radical innovation, as it allows employees to pursue novel and risky ideas without fear of criticism or reprisal.

If you want to dive deeper into these topics, or explore other areas of interest, keep up to date with IB Knowledge, the site that features the latest research and thought leadership from 51�Թ�� Business School experts. You’ll find a wealth of content on topics such as finance, entrepreneurship, sustainability, health and more. Click here to find out more.

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Imitation: the new key to business success

Jan-Michael Ross — Thu, 16 Mar 2023 11:56:39 +0000

Imitation: the new key to business success

Jan-Michael Ross Thu, 16/03/2023 - 11:56

20 March 2023

In the business world, as elsewhere in life, copying is frowned upon. Yet, in some cases, it has been responsible for inspiring business leaders, creating new markets and, most surprisingly, driving innovation

"Copycat" is a term loaded with judgement and businesses tend to look down on any kind of imitation as a weak and limiting strategy. According to received wisdom, an imitator can only be as good as, never better than, the real thing – just as a tribute band is bound to peddle the same old material without the original spark.

Our research attempts to set the record straight on this blinkered and outdated view. Imitation is rife throughout commerce – and has been applied widely – from floor mops through to consumer technology and services. Used deftly, imitation can speed up the pace of change, spark innovation and leverage creativity.

Back in 1966, Harvard economist Professor Theodore Levitt pointed out that we “often mistake innovation for what is really imitation”. More than 40 years later, the equally revered Stanford Professor James G. March observed “imitation probably represents the majority of what is normally called innovation”.

Big companies stay ahead by imitating smaller rivals; startups fast track their experience by looking at competitors’ strategies, sometimes sharing insights and successes. Investors prefer startups that borrow from tried and tested technology and experience rather than putting their cash into riskier novel ventures.

But imitation as a business strategy doesn’t inspire; LinkedIn isn't awash with entrepreneurs declaring themselves to be leading imitators in their field. We idolise what is new and creative without acknowledging the debt owed to existing business. But if leaders can recognise the importance of imitation, they can limit blind spots and get the upper hand.

Imitation is more than simply copying: it might mean emulating products and processes, a firm’s technologies and resources, or even structures and strategies.

Used deftly, imitation can speed up the pace of change, spark innovation and leverage creativity.

Take the fashion chain Zara, which pioneered the extremely successful business model of swiftly copying designer brands for a fraction of the price, and putting clothes on sale at carefully selected locations. Enter challenger Shein, which has stolen the rug from under brands like Zara by producing on-trend clothes available online in under a week at rock bottom prices. This has resulted both in meteoric growth and flurries of copyright complaints. But, in turn, new challengers from China are poised to oust Shein with superior offers. Whatever your view of fast fashion, in this case imitation has created a new market.

There are at least three main misconceptions about imitation that are worth challenging:

1. Imitation is weak

Mightier firms often compete with, and draw upon, the experiences of smaller players. They’re often successful because their superior muscle power allows them to exploit innovations. Take P&G’s "breakthrough" quick mop, the "Swiffer", which was an instant hit when it launched in 1999, and has since generated millions of dollars. A similar product was already sold in Japan, which P&G says it tweaked and improved.

There are other instances of corporate giants introducing products or features bearing a resemblance to competitors’ earlier efforts: at its launch in 2001, the Apple iPod bore a close physical resemblance to the Diamond Rio, the world’s first digital audio player launched four years earlier. More recently, Meta launched Facebook products resembling Snapchat and TikTok features.

In the right climate, imitation benefits even the heftiest players. Imitation can be an effective defensive strategy for a leader, as illustrated by our analogies with competitive sailing in earlier research.

2. There’s only one way to imitate

We tend to assume that imitation is a binary choice, a simple "yes or no" decision, but choosing when, how, what and who to imitate requires skill and judgement. Sometimes it pays to integrate disparate elements to create something new – and then imitation becomes creative. Timing can be critical too: is it better to wait until a new product or service has bedded in or move swiftly? Speed can influence how competitors respond and creates its own market dynamic.

3. Imitation is easy

Business leaders fall into the trap of believing that imitation is a simple cut and paste option, which doesn’t do justice to its complexity. Technologies and services might be opaque or secretive and, as a result, difficult to copy. To imitate well, a company might require superior resources such as supply and distribution networks. Or, it may not be obvious which element gives a brand its competitive edge.

For example, consumers might be choosing a beer for its flavour over its packaging, but if rival firms don’t understand what’s driving consumer preferences, they might imitate the wrong thing. And then there are occasions when it suits businesses to encourage imitation by others – it might boost customer numbers, help establish and legitimise goods or services, or even help firms keep an eye on the opposition and limit risk.

While these assumptions may be true in some instances, they don’t do justice to the more complicated reality. To underestimate the power of imitation is a business opportunity missed and, as a business tool and tactic, imitation risks being overlooked. With a deeper understanding of how imitation helps businesses and sectors evolve – as seen in fast fashion, personal computing and more – it can become a source of inspiration, as well as nudge companies to push boundaries and speed up the pace of innovation.

This article draws on findings from "Reconceptualizing Imitation: Implications for Dynamic Capabilities, Innovation and Competitive Advantage" by Hart E. Posen (University of Wisconsin-Madison), Jan-Michael Ross (51�Թ�� London), Brian Wu (University of Michigan), Stefano Benigni (51�Թ�� London) and Zhi Cao (University of Nevada, Las Vegas).

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Can managers really learn anything from sport?

Jan-Michael Ross — Fri, 23 Sep 2022 08:19:31 +0000

Can managers really learn anything from sport?

Jan-Michael Ross Fri, 23/09/2022 - 08:19

26 September 2022

Sporting metaphors are everywhere in business but aren't always liked. Dr Jan-Michael Ross joins the game to show such language is not down and out, if you keep your eye on the ball

The business world has long been fascinated by sport, inspired by a common currency of enthusiasm, leadership, competition and money. Business speak is famously peppered with sporting idioms: old hands “know the ropes”, teams start in “pole position” or are thrown “curveballs”.

And managers are increasingly intrigued by what sports can reveal about leadership, rivalry, teamwork, diversity, motivation and more. What does a sudden fall of rain on a high-speed racetrack reveal about risk-taking among individual competitors? How can university chants at sporting events help socialise newcomers and stoke rivalry? What can the decisions of bridge players teach us about coping with uncertainty?

But not all sporting insights neatly translate into simple management lessons, and critics question the relevance of this wisdom in the boardroom. Academics stand accused of oversimplifying theories or shoehorning sporting insights into a business context where they just don’t fit.

Take the example of Canadian ice hockey star Wayne Gretzky. Gretzky’s tactics – “he skates to where the puck is going to be, not where it has been” – have repeatedly been quoted by decision makers and business leaders. But – as the pandemic and the war in Ukraine have shown – risks in the real world are unpredictable, and this analogy has limitations and requires more nuance. But there are sporting examples that do shed light on uncertainty, and we should leverage them.

Using sporting data in management

While there are many potential pitfalls in using sports information to enhance management science, we’d nonetheless do the business world a disservice to neglect such a rich source of insights. Sporting data is granular and readily available, its boundaries are clear, and it offers researchers the chance to make new links, formulate bold new theories and test existing concepts.

In collaboration with Fabio Fonti from NEOMA Business School and Paolo Aversa from Bayes Business School, we’ve reviewed 249 management research papers drawing on sporting contexts published over the last 50 years to help management researchers in their work.

This allows researchers to clear out the clutter and focus on key insights in a way that isn’t always possible in the real world

We’ve catalogued the key insights drawn from sports data to date. From areas as wide as leadership, reputation and status, through to motivation and unethical behaviour, researchers have already unpicked these sporting situations in order to apply wisdom more broadly.

We believe the sporting world provides a fresh canvas free of entrenched beliefs which allows researchers to identify new links leading to novel theories. Dmitry Sharapov (51�Թ�� London) and I have done this in our earlier work, drawing on America’s Cup data to develop theories around imitation strategies that we then aim to test in a business context. Fresh and original situations could also help academic researchers step outside well-trodden areas and find new insights which are relevant across a mix of disciplines.

Management insights (and managing insights)

One criticism levelled at leveraging insights from competition is that, in a sporting contest, there is a clear winner and loser within a finite time, while in the real world, business continues without artificial time constraints.

But as ever there are parallels: pharmaceutical companies famously raced to find a vaccine for COVID-19; sales staff might compete aggressively for promotion as a performance deadline looms – and a losing sports team might up the ante and take a few more risks towards the end of a match.

When you begin to look, there are many similar scenarios: the strategic secrecy, for instance, as seen in the the Ocean Race when yachts go into "stealth mode" to conceal their geographical position from competitors, akin to the secrecy of a consumer technology launch by the likes of Apple.

What can go wrong? We’ve compiled a variety of strategies to help researchers ensure their work with sports data will yield robust management insights. This approach will help identify which scenarios and information are suitable for which context, and help to avoid certain traps, such as strategies being overly broad-brush, or limited in scope for fear of criticism.

Sport is a laboratory for business

And new areas are opening up. Over the years, sports data has been dismissed as predominantly male, often white. As the sporting world makes efforts to become more diverse and inclusive, this unlocks rich research opportunities. Thanks to the high-profile nature of top sports, success of diversity initiatives and their mechanism and execution are highly visible – and can illustrate what works and what doesn’t.

We’ve seen the US women soccer team’s appeal for equal pay, and the success and recognition of England’s female footballers – where researchers will no doubt be investigating a lack of ethnic diversity. Even in the elite world of competitive sailing, there have been outstanding results: a female sailor with disability winning against other male and female able-bodied and para-athletes for instance.

Academics stand accused of shoehorning sporting insights into a business context where they just don’t fit

Sport is a living laboratory. It has clear rules and fine-grained data, and this allows researchers to clear out the clutter and focus on key insights in a way that isn’t always possible in the real world. In some contests, competitors even have a say in setting or shaping the rules of the game, and this merits deeper investigation.

Sport is also a universal language: vivid and more easily communicated to practitioners than the opaque language of conventional academic research. It’s a fast-moving field, which means research can take place more swiftly with information that is readily available. And data is abundant and becoming ever more so, thanks to advances in sensors and computing muscle. This is too good an opportunity to waste.

This article draws on findings from “Using Sports Data to Advance Management Research: A Review and a Guide for Future Studies” by Fabio Fonti (NEOMA Business School), Jan-Michael Ross (51�Թ�� London) and Paola Aversa (Bayes Business School).

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Why do so many products look the same?

HeeJung Jung — Thu, 26 Aug 2021 09:13:31 +0000

Why do so many products look the same?

HeeJung Jung Thu, 26/08/2021 - 09:13

31 August 2021

Is innovative product design a help or a hindrance? New research from 51�Թ�� Business School looks at how a product’s design can help consumers understand its function

Why does an electric car still have a grille if it’s no longer needed to cool a combustion engine? It’s a relic of a previous design and its purpose is more than aesthetic – it signifies the “car-ishness” of the new model. It makes us trust that an electric car is still a car, by referencing the look and feel of the recent past.

But in the realm of design, we also value originality and creativity. As social animals, we like to express ourselves through clothes and consumer products. As a rule, we don’t want to turn up to a party in the same clothes as each other or show off the same tattoo; when too many people possess the same design, or something becomes a fad, its value diminishes.

Design, as years of research have shown, is pivotal for commercial success. The look of a product affects consumers’ choices. Corporate design budgets are vast, and design awards are coveted – design is now a strategic resource.

A product can be at once similar to the past and different from the contemporary – and items which possess both these qualities will be deemed more valuable

And products jostle for our attention: go into any large store or look online, and you’ll see a huge range of functionally similar but aesthetically distinct products on show – from toasters to chairs to garden tools. There is a bewildering choice.

Every designer wants to create a beautiful functional product that consumers and the market will value. But here’s the dilemma: should designers go for creativity and newness, or echo the look and feel of previous models? What exactly do consumers want and how do they value new products? Academics have come up with conflicting theories about the importance of similarity, i.e. how much new designs should resemble what’s gone before and how much new designs should be different from what’s on the street now.

Corporate design: innovation versus familiarity

We want to better understand how consumers are informed by a new product’s design, where is the balance between standing out from the crowd and familiarity? Our research seeks to show how corporate design can aim for the best of both worlds.

To find this out, we looked at what happens in the real world, as well as conducting our own experiments. And after examining thousands of design patents granted in the US over more than three decades (from 1977 to 2009) and carrying out our own experiment, we spotted a couple of interesting trends.

We asked 400 consumers to look at a selection of lawnmowers and assess their designs according to their originality or similarity to the recent past. By observing design similarities and differences – and crucially, how the market reacted to them – we learned consumers like products that stand out from other contemporary product designs on the market and those that resemble models and designs from the recent past.

The more expressive and less functional a product is, the more it’s a disadvantage for it to resemble current designs

From our examination of design patents, we found that the more functional a product the more consumers value similarity to recent products. It gives them a reference, an understanding of what the product is for, and boosts their trust in the design. If there’s no reference to the past look and feel, it might make people uncertain how to use it, and diminish trust in the product.

But the more a product is visible, the more consumers appreciate the fact that it’s not the same as other contemporary designs.

In fact, the more expressive and less functional a product is – fashion for instance – the more it’s a disadvantage for it to resemble current designs. If you walk down the road in a particular dress, then seeing people wearing similar dresses will make you feel less individual and special. In this instance, consumers value what is novel and unique – it allows them to express their individuality.

Anchored differentiation

This provides an important pointer for firms and their designers: it helps them understand better from whom and how it’s good to be different – and thus how to stand out in the market. Similarities are more effective if designs resemble those from the recent past rather than the present. And differences are more effective if designs stand out from other contemporary products. It doesn’t pay to resemble contemporary designs and follow a fad – it signals a lack of originality.

A product can be at once similar to the past and different from the contemporary – and items which possess both these qualities will be deemed more valuable. In our research, we call this “anchored differentiation”.

Our work shows designs that meet these criteria are about 10 per cent more valuable in terms of market valuation than those that don’t. New designs must be carefully curated – and customer research might mislead designers in understanding what exactly the consumer wants. It doesn’t necessarily pay to fall in line with the latest trend.

This article draws on findings from “Anchored Differentiation: The Role of Temporal Distance in the Comparison and Evaluation of New Product Designs” by Tian H. Chan (Emory University), Yonghoon G. Lee (Hong Kong University of Science & Technology) and HeeJung Jung (51�Թ�� London).

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Does diversifying into a new market hurt your standing in an existing market?

Markus Perkmann — Wed, 03 Feb 2021 11:30:16 +0000

Does diversifying into a new market hurt your standing in an existing market?

Markus Perkmann Wed, 03/02/2021 - 11:30

10 May 2018

We tend to trust people like us, and while a bit of validation from those unlike us is good, too much can turn us off a product or service

People ascribe a great deal of value to the opinions and choices of those who are like them. For instance, we have higher confidence in a job candidate when they come with recommendations from our peers, colleagues or friends. This “herding effect” can be perfectly rational, as individuals save time and effort when they trust the judgment of others.

But what happens when the recommendation or evaluation comes from somebody who is different from us? Will we still follow their lead in evaluating somebody if we know they have a different notion of what is valuable?

To answer this question, I, together with my co-authors Riccardo Fini and Julien Jourdan, conducted a study of how academic scientists are evaluated by their peers. The study was published in the Academy of Management Journal in 2017. Using data on 9,500 scientists, we studied how academic grant applicants were evaluated by their academic peers when those peers had information on how the applicants had previously been evaluated by another (external) audience, i.e. industry.

Consumers tend to favour products that have been reviewed by a higher number of users, even if the actual score is lower

We first confirmed the conventional herding effect: applicants who had previously received positive evaluations from academic peers (their own audience) were positively regarded by peer reviewers. However, previous positive evaluations from industry were not always receivedpositively. In fact, we found a threshold effect: up to a certain point, being well regarded in industry helped academics to be positively evaluated by their academic peers. This is because an academic evaluator of a grant applicant believes positive regard from industry means the applicant can manage projects, produce impactful science, and productively deal with multiple stakeholders.

However, the small minority of academic grant applicants who had very high levels of industry appreciation were less favourably regarded by the academic reviewers. We believe this is because of an identity mismatch: when somebody exceedingly conforms to the expectations of an external audience, a peer evaluator may start doubting they still possess what the peer audience expects. In other words, those who are too highly regarded by an external audience are seen to be at variance with the values of the evaluator, and therefore as unsuitable recipients of research funding.

What are the implications for business?

There are wider implications for business from these results. Chiefly, bringing in a new audience risks alienating a traditional audience, who may feel they do not share their values with the new audience. For instance, launching or positioning a product for a new customer segment may mean your traditional customer segment feels – rightly or wrongly – it no longer caters for them.

A bit of external evaluation is good, but too much has a potentially negative effect

Perhaps this might be the root of a recent spate of branch closures by US chain restaurant Applebee’s, whose attempts to win over millennials have widely been held up as a failure, that alienated their traditional audience in the process. JC Penney was guilty of a similar misstep a few years ago, while, in the UK, the declining fortunes of the clothing arm of Marks & Spencer are commonly ascribed to core customer base alienation.

These results may also be applicable to online reviews. Carry out a simple Google search for a product or service, and you will be inundated with constellations of star ratings, encyclopaedias of text reviews, and resources aggregating and breaking them down in formulations to suit every taste, requirement and profile. We often rely on such evaluations when deciding, for instance, which seller we purchase from on Amazon. A Harvard Business Review study found each star in the standard five-star rating system utilised by Yelp was worth five to nine per cent additional revenue to restaurants. A study published in Psychological Science, meanwhile, showed consumers tend to favour products that have been reviewed by a higher number of users, even if the actual score is lower.

Many of these evaluations are provided by our “peers” while others are provided by “experts”. This is where the results from our study become relevant. It is likely we give more credence to evaluations from people like “us”, while aggregated reviews and evaluations may tend to the threshold effect we identified: a bit of external evaluation is good, but too much has a potentially negative effect.

Bringing in a new audience risks alienating a traditional audience, who may feel they do not share their values with the new audience

For instance, public relations firm Weber Shandwick found online customer reviews were ascribed a higher level of importance than professional critic reviews by 77 per cent of consumers. SEO agency BrightLocal found 91 per cent of consumers called upon online reviews on a regular basis, with 85 per cent of consumers trusting such reviews as much as they would a personal recommendation. Several other such surveys exist, all strongly indicating the strength of consumer peer reviews.

But is there value in diverse assessments?

There are potential dangers for the assessor or customer relying entirely on the opinion of their own peer group: herd mentality can lead to poor consumer decisions. This mind-set is also evident in the academic context, where those who have received positive evaluations in the past enjoy a disproportionate advantage.

There are numerous scenarios in which a plurality of opinions can be beneficial in creating a well-balanced and educated decision-making process. For consumers and academics alike, looking beyond the choices of one’s peers can allow better decisions, based on less partial information.

For organisations with diverse ranges of stakeholders, evaluations from different perspectives can afford a more balanced, objective and nuanced understanding that can keep investors, customers and staff on side.

There is value, therefore, to looking at non-conforming valuations. But we must also acknowledge the sensitivity of evaluators to non-conforming assessments. In order to perform well with any given demographic, it is essential to be a bit like them.

This article draws on findings from the paper “Social Valuation Across Multiple Audiences: The Interplay of Ability and Identity Judgements”, published in the Academy of Management Journal, and co-authored by Ricardo Fini (University of Bologna and 51�Թ�� Business School), Markus Perkmann (51�Թ�� Business School) and Julien Jourdan (Université Paris Dauphine).

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Boom and gloom: what hotels can teach investors

Renáta Kosová — Wed, 27 Jan 2021 10:52:59 +0000

Boom and gloom: what hotels can teach investors

Renáta Kosová Wed, 27/01/2021 - 10:52

13 July 2017

Dr Renáta Kosová, Associate Professor of Economics at 51�Թ�� Business School, explains how decisions made about where and when to open hotels reflect the wider tendency of investors to follow the herd

What drives investment during the good times? Is it astute financial advice? A deep understanding of the market? Confidence that a certain product is right and timely? Or – as many people suspect – are investors carried away by a rush of money and vulnerable to so-called “herding” – imitating the decisions or actions of the others? And if so, how do such investments made in the good times subsequently perform?

In the US, a hotel room earns about $53 a night. Using data on hotel revenues and other detailed insights into the US hotel market, we’ve shed light on the wider phenomenon of herding. In other words, do investors tend to copy other investors’ business decisions during economic booms?

Why did we look at hotels? The available information has several benefits: unlike commonly used financial databases that typically offer only information aggregated at company level, our data give(s) specific details about revenues and characteristics of every single hotel. But there’s another significant advantage: the information covers more than 30,000 branded hotels in the US as well as independent facilities, so the results show prevailing behavioural trends, rather than the good or bad decisions of a few companies.

In addition, we have detailed information about each hotel, from location, to when the investment was made, through to who owns it, and whether it’s economy, luxury or somewhere in the middle. This, combined with reports on how well these hotels perform sometimes decades after they were built, allowed us to drill down to an extraordinary level of detail that just isn’t possible in other sectors, where information isn’t always available at such a granular level.

Investors do make rash decisions and follow the herd when times are good, without taking into account a clear business case for their choice

Herding behaviour

Many commentators, as well as finance specialists, have long suspected investors tend to follow the herd when making decisions. Our research, using large scale data analyses, proves this. Hotels built when the economy is booming consistently underperform in the market for years after the investment was made: on average earnings are around six percent worse. There’s a strong tally between the precise time the investment was made and its performance: the closer to the boom it was built, the worse it fares. And this is true of hotels whether they are high end or budget, or whether they are owned by independent investors or form part of a chain.

There’s also a strong correlation between poor performance and the local rather than national economic conditions. In fact we discovered expansion and investment decisions made in a buoyant local climate actually underperform for far longer than any investments made in a national upturn. This is probably because the difference between the local and national economic performance is more pronounced. Sometimes these hotels can still be poor earners even 30 years after they were built.

So are these results consistent with herding or is something else at play? In our research, we’ve accounted for many other factors that could explain differences in performance, such as hotel location, different types of hotels, and overall market characteristics. We were also careful to eliminate various alternative explanations. We’ve allowed, for instance, for a glut of hotels in the same spot, as competition, especially among the hotels of the same quality, can play a part.

But it still doesn’t explain why hotels built in a boom and across different segments perform worse than the others. Given the context of the hotel industry, we’ve also eliminated potential “imitative thinking” or the herding that often occurs among professional investment analysts. They tend not to stick their necks out too far in their analyses, whereas hoteliers generally aren’t worried how their investment decisions affect others.

Our research clearly shows that investors do make rash decisions and follow the herd when times are good, without taking into account a clear business case for their choice.

Expansion and investment decisions made in a buoyant local climate actually underperform for far longer than any investments made in a national upturn

Imitation and underperformance

Why do such investments consistently underperform? It may be that investors have done their due diligence, but have then not heeded advice, and pushed ahead anyway, encouraged by a rush of money around them. It may be that a certain type of hotel – budget or five star – just isn’t right for a certain type of market, no matter how buoyant the market appears. Or it may be that investors don’t understand very specific conditions – is a hotel on the right side of a street for instance, or close enough to local facilities? Are there enough potential qualified staff on hand?

You can apply these results more broadly to many other business decisions. Overall, our research implies that repeating whatever others are doing, just because they are doing it, generally doesn’t pay off. It’s important not to be swayed by what’s going on around you, whether it’s new hotels springing up, new products launched, or expansion into different markets. Critically, you might not have all of the right information to hand. And in this case, imitation, or following the pack, isn’t automatically the right course. A new product or venture needs to be right for the market and for the company itself. Businesses need to be careful of following each other into new markets – technology or renewables for instance – without doing their due diligence.

Companies and investors need better reasons to throw their money in the pot than simply that others are investing and expanding in the field. They may have misinterpreted the reasons for pushing ahead – at their peril. But the good news is that, if businesses are aware of the risks, hopefully they will always keep their business focus and strategic thinking on – and thus be less likely to make risky investments.

This article is based on the following research: Boom and Gloom. 2016. Paul Povel, Giorgo Sertsios, Renata Kosova and Praveen Kumar. Journal of Finance, 71(5): 2287–2332.

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The highest form of flattery? What imitation in the America's Cup can teach business

Jan-Michael Ross — Thu, 16 Jul 2020 14:47:56 +0000

The highest form of flattery? What imitation in the America's Cup can teach business Jan-Michael Ross Thu, 16/07/2020 - 14:47

25 May 2017

Decision-making in business has some unlikely parallels in competitive sailing

Perched on the side of a racing yacht, Dr Jan-Michael Ross had a revelation: he’s been sailing since the age of five, and it struck him that there were clear parallels between some decisions made in both competitive sailing and in business

He and his colleague Dr Dmitry Sharapov have been investigating what businesses can learn from head-to-head sailing competitions, such as the prestigious and technologically advanced America’s Cup.

Decisions you make as a sailor racing in shifting and unpredictable conditions can help cast light on how businesses can deal with competition and uncertainty.

When you are winning in a head-to-head sailing race, you can choose your own path, regardless of what the other boat is doing. This may give you the chance to extend your lead, but it could allow your rival to catch up with you if he or she sails in a different direction and the wind changes in the rival’s favour. An alternative approach is to cover, or “imitate”, your opponent’s every move. Regardless of how the wind blows, you will then both benefit or suffer equally, and you will have a good chance to retain the lead.

Imitation as a strategy is often looked down upon in business, but our research shows that in certain situations, it can help to keep you ahead of your rivals. Sometimes it can pay to launch “copycat” features or match a rival’s moves into different product categories or geographical markets.

We try to challenge the common wisdom that it’s only the laggards, the also-rans, who imitate leaders, and show the conditions under which leaders can use imitation to their advantage.

So why sailing? Of course other sports such as Formula One offer some similar parallels. But sailing has the extra ingredient – pervasive, unpredictable changes in wind direction. Competitors have to sail through a number of gates in a given order without leaving the course boundaries, but they pick their own paths between the gates, based on their beliefs about how the wind may change and what their competitor is doing. The relative freedom of the racecourse matches the freedom of a business environment.

Just as sailors must deal with changes in the wind, businesses also have to cope with unknowns – unpredictable shifts in consumer preferences, governmental regulations, exchange rates and technologies.

We’ve studied the competitive interactions from head-to-head races in the 2011 to 2012 America’s Cup World Series – the contest that selects a challenger to take on the defender of the America’s Cup itself. Fine-grained data from the yachts, whose every move is measured many times a second, has allowed us to examine the performance implications of imitation strategies by the leader.

When a helmsman in the lead sees the opponent making a move, there’s no time to evaluate what the effect may be, and in any case, a change in wind direction may make any current evaluation irrelevant. He or she “follows” the follower in order to stay ahead, regardless of the outcome of the opponent’s move.

Likewise, the speed of decision-making in business is hotting up, as is the degree of uncertainty in our increasingly interdependent world. Decision makers in companies are using business analytics to get real-time updates about sales, customer reactions, and rivals’ moves through big data generated by smart, connected systems.

Business cycles are growing ever shorter and competition seems more intense. When an airline, say, introduces new routes, or cuts fares, rivals need to judge almost immediately whether to match this. While technological development requires some lead time, price or promotion reactions can occur in real time.

One big takeaway from our research is that there are certain conditions in which it’s useful for a leader to be a copycat. We want to remove the negative stigma from discussions of imitation in the boardroom, and show that in some circumstances, it’s the best option

Technology companies often make a big song and dance about innovation, but on many occasions, what they are really doing is imitating rather than innovating. When Samsung released a phone with a larger screen, Apple swiftly followed suit, even though Steve Jobs had previously stated that larger-screened phones would never sell.

So what conditions lend themselves to imitation – an undeniably defensive strategy? When there is uncertainty, it benefits a leading rival to watch a competitor just below, and match a move to retain the advantage. There’s always plenty of uncertainty in a sailing race – when the wind shifts direction or drops, for example.

Ultimately, it is a judgement call. You could say this has parallels in today’s business environment; there’s plenty of uncertainty about what Brexit will mean for businesses. But there are other uncertainties; think how regulatory change might affect financial or pharmaceutical sectors for instance.

Sometimes the timing of events might affect a need to imitate a rival. Look at a politician ahead in the polls just before an election. He or she won’t want to do anything risky to jeopardise the lead, but it certainly makes sense to keep track of a rival’s actions.

Or take Blockbuster. Disruptive digital technologies created a highly uncertain environment for the home entertainment industry. Would the company have gone bankrupt if it had embraced Netflix’ approach, or at least copied it sooner?

Of course imitation in a sailing race can only work if the leader is not significantly slower on the water. Likewise a company has to be able to execute the rival moves that it chooses to imitate if it is to stay ahead. So if a rival introduces a product into a new geographical market, a company could respond quickly, providing it has the right distribution networks in place.

But if, say, absolute, rather than relative, performance is the goal, or if there are reputational risks involved, imitation may not be an appropriate strategy. So far we’ve concentrated on one-to-one racing. But sailing races often involve a whole fleet of boats – where there’s not just one but a multitude of rivals. Our next steps are to try to understand whether imitation makes sense when many competitors are vying for leadership. Who then should a leader choose to imitate, and when will imitation be effective.

This article draws on findings from "When the Leader Follows: Avoiding Dethronement through Imitation" by Jan-Michael Ross and Dmitry Sharapov.

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