Why the last shall be first and the first shall fade away


Being the first to innovate is rarely the road to riches many presume. Business history is paved with industries dominated by followers.

Do you remember Berkey or Ampex? Gablinger or Chux? Perhaps you should, because each of them occupies an important place in the history of product innovation. Berkey produced the first hand-held electronic calculators, Ampex the first video recorders, Gablinger developed the first low alcohol lagers, Chux sold the first disposable nappies.

Or perhaps you should not, because none of these companies made a commercial success of their innovations. Today the calculators we use are probably made by Casio, our video recorder comes from Matsushita: our low alcohol beer is Miller Lite, our diapers are made by Procter and Gamble. In each of these markets, the innovator was swept away.

As the future of EMI hangs in the balance, it is a good moment to recall that this company has one of the most remarkable records in innovation of any in the world. EMI was a pioneer in television, in computers, and its CAT scanner transformed radiography. It has not made any of these products for many years. Our televisions come from Sony, our computers from IBM or Dell, and GE is market leader in scanners.

Xerox looks like an exception to this sorry catalogue. The company was first into the photocopier market, and even if its dominance was ultimately challenged by Canon it remains a large and successful company today. But Xerox was also a pioneer in fax machines and personal computers. Each of these products eventually proved to be a major success – but not for the Xerox Corporation.

As we all know, it was to be Apple which developed the personal computer market (although the first computer I bought, back in 1982, came from Sirius, an Exxon subsidiary. Where are they now?) But Apple’s leadership quickly disappeared when IBM came on the scene. Still, Apple then jumped ahead by introducing the graphical user interface. Their windows and mice brought personal computing within the reach of anyone. But it is Microsoft who do this for us now.

The business world is not very kind to pioneers. Contrast EMI’s experience with that of Britain’s most successful company of the last two decades – Glaxo. Each had, in the 1970’s, a product which would ultimately take the US health care market by storm. Both the CAT scanner and anti-ulcerants were to win Nobel prizes for the British scientists who invented them.

But there the similarities end. EMI were proud to employ Geoffrey Houndsfield, who invented the scanner. They established a US distribution network and manufacturing facility to exploit his innovation. And were quickly crushed by the superior political, marketing and technical skills of GE.

James Black, who developed anti-ulcerants, did not work for Glaxo, but for Smith Kline. Glaxo’s Zantac was an imitative product, second to market. US distribution was initially contracted out to Hoffman la Roche, the only foreign-owned drug company previously to have engaged major success in US distribution. The superior marketing skills of Glaxo and its partners enabled Zantac to overtake Smith Kline’s Tagamet and became the world’s best selling drug. Glaxo’s achievement was based not on the speed or quality of their innovation but on their commercial skills in exploiting it.

What is true of technical innovation is also true of innovation in business process. Direct Line is inevitably and predictably losing market share to johnny-come-lately established insurers. American Express may have pioneered plastic money, but it was to be Citibank, Bank of America and even Sears Roebuck who were to capture the market with Mastercard, Visa and Discover. Next and Ratners identified unexploited market niches – fashionable clothing for older women and jewellery cheaper than you imagined buying – only to find that established retailers could do the same job at least as well.

And what we see as a first mover advantage is often only that because we now think of the successful innovator as the first mover. Many spreadsheet programmes were developed in he 1980’s, and Lotus succeeded not because it was the first or the best but because it was the product available at the moment the market was ready to take off. Even if you know how a market will develop, timing is a matter of luck – or of quite exceptional skill.

There are two closely related lessons. One is that being first is not often very important. The other is that innovation is rarely a source of competitive advantage on its own. Individuals, and small firms, can make a great deal of money out of good new ideas. The success of large established corporations – Matsushita, Philip Morris, IBM or General Electric – is generally based on other things: their distribution capability, their depth of technical expertise, then marketing stalls. And time and again these characteristics enable them to develop the innovative concept far more effectively than the innovators themselves.

This is not to say that there is no role in business for the great innovator. After all, General Electric was built on the extraordinary fecundity of Thomas Edison’s mind, the Ford Motor company on the abilities of its eponymous founder. The imagination of Walt Disney created a company which is still without parallel or rival. Perhaps Akito Monta of Sony occupies a similar place in the annals of modern business. However, while many chief executives may see themselves as Edisons, or Fords, Disneys or Moritas, not many actually are. Genius is indeed a source of competitive advantage, but necessarily a rare one. So when you are told that the key to the future business success is to see the future more quickly or more clearly than other people, ask which established cases in business history illustrate the point. And try to remember Berkey and Ampex, Gablinger and Chux.

Print Friendly, PDF & Email