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Innovators and Imitators in
Novelty-intensive Markets: A
Research Agenda
Todd Dewett and Scott David Williams
The phenomenon of demand for novelty is defined and explored as a unique and underexamined aspect of certain markets. Demand for novelty is the portion of demand not
explained by practical utility or marketing effects – it is the demand for the new and unique.
We explore markets characterized by high demand for novelty and how they differ from
typical markets. Primarily, this involves the central role of novelty in the product or service
value proposition as well as rapid growth rates and product or service obsolescence. Within
this context, we consider the dynamics of innovating and imitating and suggest several ways
that first mover competition is unique in markets with high demand for novelty. From the
perspective of the knowledge-based theory of the firm, we consider the implications of organizational learning and knowledge and decision making as they relate to new product development routines, improvisation, and top management team decision making. We conclude by
considering several avenues for future empirical research.
Introduction
T
he comparative advantages of pioneering
and following have been studied in a
variety of contexts including the introduction
of new brands (e.g., Neidrich & Swain, 2003)
and brand extensions (e.g., Sullivan, 1992),
expansion into new international markets (e.g.,
Cui & Lui, 2005), acquisitions (e.g., Carow,
Heron & Saxton, 2004), and more than anywhere else, introducing new products and
product categories (e.g., Golder & Tellis, 1993;
Srinivasan, Lilien & Rangaswamy, 2004).
Research in this area spans numerous industries, firm characteristics, and firm behaviours,
especially the timing of moves (e.g., Lee,
Smith, Grimm & Schomburg, 2000; Robinson,
Fornell & Sullivan, 1992). Excellent reviews
have been provided by Lieberman and Montgomery (1998) and Kalyanaram, Robinson &
Urban (1995).
However, the extant research has not provided many widely generalizable findings.
This is at least partially explained by the fact
that pioneering is an outcome of the strategic
decision-making process, and empirical
research demonstrates that the strategy
process should be studied on an industry-by-
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industry, context-specific basis (Frederickson,
1984; Huff, 1982; Judge & Miller, 1991; Vanderwerf & Mahon, 1997). Nonetheless, prior
work does demonstrate several noteworthy
findings. Most prevalent is the finding that
pioneering creates a long-term market share
advantage. In fact, in the marketing literature
this has been referred to as an empirical generalization (Kalyanaram et al., 1995), though it
is generally agreed that advantages diminish
over time (Lieberman & Montgomery, 1998).
Interestingly, additional research suggests that
pioneering may be so difficult or ambiguous
an activity as to be disadvantageous, which is
supported by research demonstrating the ‘latemover advantage’ (e.g. Schnaars, 1994; Berndt,
Bui, Reiley & Urban, 1995; Zhang & Markman,
1998). In short, while much has been learned, it
is clear more research is needed (Lieberman &
Montgomery, 1998).
One clear challenge has been the definition
of pioneering. Much of the early research suffered from a survivor bias (Mitchell, 1991;
VanderWerf & Mahon, 1997). By broadening
the analysis to include pioneers that did not
survive long enough to be followed, Glazer
(1985) found that pioneers’ fates were much
less favourable than previously suggested.
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INNOVATORS AND IMITATORS IN NOVELTY-INTENSIVE MARKETS
Golder and Tellis (1993) contend that, whether
followed by a competitor or not, a market
pioneer is the first to enter a new market.
Schmalensee (1982) defines market pioneer as
one that creates a distinctively new product
category. This conceptual definition is consistent with operational definitions that consider
pioneers those who bring products to market
that are sufficiently innovative to be the
impetus for the creation of new Standard
Industry Classification (SIC) codes (Lee et al.,
2000). Different conceptualizations abound,
suggesting that it is not completely clear where
pioneering ends and following begins. As a
result, we choose to refer interchangeably to
organizations making moves into new product
categories or product markets as innovators,
pioneers, or first movers and those who make
subsequent moves as imitators or followers.
Though new product category introductions dominate this line of research, our survey
of the literature suggests that perhaps the most
common and potentially dramatic first-mover
advantages have been relatively neglected.
Specifically, there is reason to believe that firstmover advantages are particularly acute in
markets characterized by intense demand for
novelty. Though markets have been conceptualized as varying in munificence (e.g. Park &
Mezias, 2005), dynamism (e.g. Dess & Beard,
1984), and many other dimensions, little attention has been paid to demand for novelty – a
unique and important market characteristic.
We define demand for novelty as the extent
to which products and services are purchased
not only due to the practical utility of the
product or service characteristics (real or perceived due to marketing activities), but also
due to the attractiveness of the novelty of the
offering itself. Examples of markets with high
demand for novelty include markets for music
CDs, television programmes, games, toys,
books, fashion and motion pictures. While
scant research has addressed ‘hit-driven
industries’ (e.g. Eisenmann & Bower, 2000),
markets for fashion (e.g. Djelic & Ainamo,
1999), and the sale of entertainment-oriented
goods (Sun & Chung Wing, 2005), a systematic
treatment of how these markets differ from
other markets has not been undertaken nor
has pioneering been examined in this context.
Understanding these types of markets is
increasingly important given the proportion of
the global economy they represent (e.g., $9
billion annual US box office receipts in the
movie industry; Hernandez, 2006).
We are interested primarily in the following
research questions. What is demand for
novelty? How are markets with high demand
for novelty systematically different from other
markets? How are the dynamics of first moves
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
81
and following different in markets dominated
by a high demand for novelty? What key firm
resources and capabilities need to be examined
in this context? In general, we suspect that for
firms with the proper resources and capabilities, the benefits from innovating may be
quite high in markets with intense demand
for novelty. In addition, we suspect that profitable fast following, and imitation in general,
is more difficult in markets with high demand for novelty than is typically assumed
elsewhere.
The remainder of the paper is organized as
follows. First, we define novelty and demand
for novelty. Next, we describe key ways that
markets with intense demand for novelty
differ from typical markets. This is followed
by an examination of pioneering and following in the context of high demand for novelty.
Finally, we propose several firm resources
and capabilities likely related to competitive
success in these markets, which can provide a
foundation for future empirical research.
Throughout, we make several assertions that
run counter to common thinking in the first
mover and product innovation literatures.
Novelty and Demand for Novelty
Novelty has been studied in a variety of contexts across several disciplines. In the creativity literature novelty is a core part of the
process of creativity whereby individuals (e.g.
Amabile, 1996) and groups (e.g., McGlynn,
McGurk, Sprague Effland, Johll & Harding,
2004) endeavour to generate new ideas and
options in pursuit of eventual solutions. As
part of an outcome, novelty has been even
more widely examined as a vital aspect of
ideas, processes or products (e.g., Shalley,
Zhou & Oldham, 2004). In fact, novelty as a
desired part of outcomes is the primary focus
of research streams on R&D, advertising, new
product development and innovation in
general.
As an attribute of products and services,
novelty typically refers to uniqueness or originality – to this we add newness as a characteristic of novelty. Prescott and Visscher (1977)
note that in markets where products are differentiated, offerings may differ along many
dimensions, and factors such as economies of
scale limit the extent of product variety. Consequently, competing firms can identify gaps
in the product characteristic space, and locate
their product offering in a gap. The most novel
products create new product categories, new
genres (Labio, 1998). However, uniqueness is a
necessary but insufficient requirement for
novelty; novel products are also new. They
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may occupy unique market space for an
extended period of time, but novelty erodes
as extended presence in the market breeds
familiarity.
Significant research tacitly acknowledges
the importance of novelty as a special form of
demand. For example, building on Porter’s
work (1980, 1985) product differentiation
(offering novel variations) has long been
viewed as a key competitive strategy. In the
marketing literature, vast research on product
life cycles recognizes segments of consumers
prone to early adoption who are often the
targets for initial marketing efforts (Mahajan &
Muller, 1998; Rogers, 1996). However, in both
areas of research the focus is not on the
demand for novelty per se, but rather on how
novel products create benefits for firms and
how certain consumers may be predisposed
towards novel offerings. In neither case is
there recognition of the fact that markets may
systematically vary in terms of the demand for
novelty.
We view demand for novelty as the portion
of demand for a product or service that is contingent on its perceived newness and distance
from other products in product characteristic
space. Aside from ‘novelty’ products, goods
and services are not typically demanded solely
for novelty. Novelty is coupled with other
valued attributes that satisfy multiple wants
and needs (Becker, 1999; Fishburn, 1984). Thus
novel products are typically demanded for
their functional characteristics as well as
novelty – unique lamps must still illuminate a
room, original cell phones must still send and
receive calls. Nevertheless, demand for
novelty is particularly intense in so-called ‘hitdriven’ industries; fine arts, games, movies,
music, television, theme parks, toys, etc.
(Eisenmann & Bower, 2000; Marr, 2005;
Menger 1999). Novelty may be a more important attribute in consumer product markets,
but it likely accounts for a portion of the
demand for products offered to business and
governmental organizations as well. For
instance, authors, trainers and consultants
often capitalize on new or trendy management
philosophies and interventions (Abrahamson
& Fairchild, 1999; Carson, Lanier, Carson &
Guidry, 2000).
Demand for novelty originates with consumers’ desire to be distinctive, boost status,
and satiate the need for ‘new’ things. For
instance, gifts that are novel and surprising
engender arousal in the form of delight
(Durgee & Sego, 2001; Oliver, Rust & Varki,
1997; Rust & Oliver, 2000; Wilson, Centerbar,
Kermer & Gilbert, 2005). Arousal is the result
of the contrast between the perceiver’s frame
of reference and the stimulus. However, with
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repeated exposure to the stimulus (e.g.,
playing a song repeatedly; Bianchi, 1998), the
once-novel stimulus becomes familiar and
loses its ability to create arousal. In addition,
fashion theory posits that conspicuously consuming novel products allows people to differentiate themselves, gain status, or boost the
ego (O’Cass & McEwen, 2004). As adoption of
a once-novel product diffuses in society, that
item loses its ability to support personal differentiation thereby losing its appeal.
We view markets with characteristically
strong demand for novelty as systematically
different from typical product markets in two
key ways. First, novelty figures prominently in
the value proposition as noted above. Second,
markets with strong demand for novelty are
characterized by fast growth rates and quick
product obsolescence. For example, Golder
and Tellis (2004) examined ‘leisure products’,
defined as those more likely to be seen and
discussed. Thus their conceptualization is very
similar to our discussion of products found in
markets with high demand for novelty in that
they carry status implications. Their results
indicated that leisure products (as opposed to
‘time saving products’ such as typical consumer durables) have higher growth rates and
shorter growth stages. This finding can be
explained by the fast erosion of novelty associated with the possession of a particular good
given its increased diffusion. This conceptually
differentiates novelty-intense markets from
technology-based ‘high velocity’ markets (e.g.
Henderson & Stern, 2004). Research on high
velocity markets focuses on technological discontinuities that often render prior learning
and skills obsolete (e.g. the personal computer
market; Eisenhardt, 1989), sometimes leading
firms to intentionally obsolete their own products (Magretta, 1998). In novelty-intensive
markets, firms should experience additional
ambiguity beyond technological uncertainty,
limiting their ability to time intentional
obsolescence.
With these unique characteristics in mind,
we now turn to the competitive dynamics and
tactics one would expect in these markets relative to innovating and imitating.
Innovating and Imitating in Markets
with Intense Demand for Novelty
In their review of first mover research, Lieberman and Montgomery (1998) suggested there
are three primary ways that pioneers might
gain an advantage. The first involves the idea
that being a pioneer allows a firm to establish
itself in the customer’s perceptual space. This
brings to mind issues of building product or
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INNOVATORS AND IMITATORS IN NOVELTY-INTENSIVE MARKETS
brand loyalty. Second, being first may lead customers to develop switching costs as a byproduct of gaining experience with the pioneer’s
offering. Thus, for example, a user of one hightech product (e.g. personal digital assistants
and related products) would be reluctant to
adopt a new competing product that would
require them to face a new learning curve.
Third, network externalities might establish
the pioneer’s product as a standard, such that
as increasing numbers of customers adopt the
product, the utility of use for each new adopter
increases. A classic example is the mobile
phone, which gains in practical utility as the
number of other people with mobile phones
increases. Below, we suggest that these opportunities for advantage do not neatly apply to
markets characterized by high demand for
novelty.
First, consider potential market share
advantages. Among the few fairly settled
issues in the first-mover literature is the first
mover’s market share advantage (Lieberman
& Montgomery, 1998). A wide array of
research indicates that pioneers who introduce
new products tend to have a market share lead
over later entrants of between one and two
decades (e.g., Boulding & Christen, 2003;
Golder & Tellis, 1993; Huff & Robinson, 1994;
Kennedy, 2002). Similarly, in research examining consumer packaged goods, pioneers have
been found to have an advantage in both trial
and repeat purchases (Kalyanaram & Urban,
1992).
Yet in novelty-intensive markets there are
unique dynamics. Given rapid growth rates
and shorter growth stages (Golder & Tellis,
2004), there is reason to suspect that innovators
in these markets will experience a market
share advantage in two distinct ways which
differ from what often occurs in typical
product markets. First, innovators will experience a higher market share advantage than
would typically be expected, as a result of
rapid growth rates. However, given rapid
obsolescence, the period of market share
advantage will not last a decade or more as has
been found in prior research. In essence, rapid
obsolescence suggests that opportunities to
generate repeat purchases over time are
limited. Thus we propose:
Proposition 1: In markets characterized by
intense demand for novelty, innovators gain
an average market share advantage over
imitators greater than would be expected in
typical markets, while the average duration
of this advantage is smaller than would be
expected.
From the imitator perspective, novelty as a
core part of the value proposition requires par© 2007 The Authors
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ticular attention to rapid obsolescence. We
expect that the long-run opportunities for later
entrants to catch and surpass first movers’
market share will not match those identified
from prior research. For example, Golder and
Tellis’ (1993) broad-based research found that
early market leaders tended to enter markets
13 years after pioneers, suggesting that a longterm strategy of waiting for a market and technology to mature before entering could lead to
superior long-term performance. However,
research provided by Kennedy (2002) suggests
that this finding may not generalize to noveltyintensive markets. He found that leaders in
television programming categories not only
maintained superior market share compared
to followers, but their programmes also survived longer. This suggests that the penalty for
waiting can be quite strong. Consider the
market for motion pictures as an example. The
demand for any given genre often waxes and
wanes significantly as the demand for novelty
shifts. If a studio is not the pioneer of a new or
resurgent genre, success might be found by
producing an offering within the first year or
two following identification of the opportunity. However, if a studio waited until year
three or four, they are likely to find a declining
genre, if any opportunity at all. Formally, we
predict:
Proposition 2: In markets characterized by
intense demand for novelty, the likelihood
of success for imitators will continue to
decrease as a function of the duration of
time between their market entrance and the
pioneer’s market entrance.
Now consider the case of switching costs.
When a first mover assumes a favourable position in a market, later entrants are forced to
consider less attractive segments (e.g. Carpenter & Nakamoto, 1989; Lane, 1980; Prescott &
Visscher, 1977). Consumers then face ambiguity as to the quality and suitability of later
entrants’ offerings. The effort required to
find and learn about new products combined
with ambiguity surrounding these issues are
referred to as switching costs and often act as a
barrier to entry for imitators (e.g. Schmalensee,
1982). Here is the major point of departure for
markets with intense demand for novelty –
switching costs are typically less relevant to
consumers and are generally quite low in
absolute size.
First, regardless of the magnitude of switching costs, these issues generally do not represent areas of concern for consumers. Recall
that consumers in novelty-intensive markets
commonly seek distinction, status and the
pleasure of ‘newness’ (O’Cass & McEwen,
2004). In effect, given the fundamental role of
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novelty in the value proposition, switching
costs become nearly irrelevant. For example,
if one becomes aware of a new type or style
of clothing, becoming educated about this
product is not difficult or necessarily costly,
other than a small expenditure of time. The
costs associated with actually switching to this
new type of clothing are secondary as compared with the consumer’s need to obtain the
product in order to affirm status and satiate the
need for something ‘new’. The same can be
said of music, toys, books or similar products.
The risk associated with switching are simply
of secondary concern. Thus, in stark opposition to typical markets, to the extent that competitors are aware of a low consumer emphasis
on switching costs, the likelihood of following
should increase. More specifically:
Proposition 3: In markets characterized by
intense demand for novelty, switching costs
(irrespective of size) are less significant in
the consumer’s decision making calculus,
increasing the likelihood of imitation.
Aside from the lower importance attached
to switching costs in these markets, in absolute
value they are smaller than typically expected.
As opposed to most product markets, the cost
of switching from one crime novelist to
another, one musical group’s CD to another,
or one television network to another, is quite
small. In contrast to the switching costs associated with more expensive and complex purchases such as cars or consumer durables, the
costs are negligible. Switching from one brand
of blue jeans to another or switching from one
brand of trainers to another is generally not an
expensive proposition. As a result, the risk is
low, consumers should be readily willing to
switch, and the advantages of pioneering
diminished. Thus, we suggest:
Proposition 4: In markets characterized by
intense demand for novelty, average switching costs are significantly lower as compared to typical markets, increasing the
likelihood of imitation.
Finally, consider product externalities – a
topic widely studied in economics, marketing
and management. Externalities refer to a
quality of certain goods and services that
allows them to become more valuable to a user
as the number of users increases (e.g. Mahler
& Rogers, 1999; Economides, 1991). Thus, for
example, peer-to-peer computer networks
increase in utility as new users join the networks, assuming adequate network capabilities (Asvanund, Clay, Krishnan & Smith, 2004).
However, in sharp contrast to most markets,
when demand for novelty is intense, extensive
adoption creates negative network externali-
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ties – a disincentive to purchase. This derives
from the need for exclusivity and status. As
something novel becomes more and more
adopted, it is by definition less and less novel.
This dynamic is present in many markets,
though here the point at which externalities
turn from positive to negative occurs much
more rapidly. This logically coincides with the
beginning of obsolescence following rapid
growth periods in markets with intense
demand for novelty. In terms of imitation, this
reality implies a clear challenge for later
entrants and should generally decrease the
likelihood of following. Thus, we propose:
Proposition 5: In markets characterized by
intense demand for novelty, on average,
externalities become negative faster than in
typical markets, decreasing the likelihood
of imitation.
In summary, the competitive dynamics and
performance outcomes of pioneers and followers in novelty-ntensive markets are distinctive. Thus far we have differentiated
novelty and demand for novelty, described
characteristic ways that markets with high
demand for novelty differ from typical
product markets, and discussed how innovating and imitating might differ in these
markets. In the remainder of the paper we consider several firm resources and capabilities
that may provide a foundation for an empirical
examination of innovating and imitating in
these markets.
Organizational Knowledge and
Competition in Novelty-intensive
Environments
The variables considered below include
several already present in the first-mover literature as well as several not yet examined.
However, in all cases we will suggest that in
markets with high demand for novelty these
variables will function uniquely. We focus on
factors likely to increase the success of innovating and pioneering by addressing forms of
organizational learning, knowledge and decision making. Each of these topics is central
to the knowledge-based theory of the firm
(KBV). According to the KBV, know-how,
skills and practical knowledge are integrated
within firms to form capabilities with a level of
efficiency not possible through market mechanisms (Grant, 1996). Moreover, knowledge is
the principal productive resource of the firm,
and more likely to be a source of a sustainable
competitive advantage than a market position.
Specifically, we view knowledge acquisition,
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INNOVATORS AND IMITATORS IN NOVELTY-INTENSIVE MARKETS
integration and decision making in new
product development; the knowledge and
routines required by, and new memory generated from, improvisational new product development; and, the effects of experience on the
top management team’s effectiveness as especially important. Each is addressed in turn
below.
New Product Development Capabilities
As Grant (1996) noted, much of the research
into the management issues concerning integration of knowledge has been in the context
of new product development because it
involves particularly wide-ranging integration (Nonaka, 1990; Clark & Fujimoto, 1991;
Wheelwright & Clark, 1992). Given the rapid
obsolescence of products in novelty-intensive
markets, new product development is particularly important. Many scholars have
discussed the ‘fuzzy front end’ of new
product development (Gerwin, 2004; Kessler
& Chakrabarti, 1996; Wheelwright & Clark,
1992). The front end of product development
in novelty-intensive industries is no less
fuzzy; in fact, we argue that it is significantly
more difficult to manage in markets with
high demand for novelty. The process of identifying and screening potential new product
ideas is clearly not a simple meritocracy
through which the most novel and high
quality product ideas are approved for development. Gatekeepers’ judgements are influenced by a variety of business concerns and
perceptual biases (Elsbach & Kramer, 2003).
Nevertheless, a preference for novelty is a
consistent concern. Several examples of this
process in markets with intense demand for
novelty have been documented.
In the case of trade book publishing, the first
screening of creative products is performed by
the authors’ agents (Caves, 2000). In this industry segment, publishers perform the function
of deciding whether a manuscript meets the
minimum quality standard in order to interest
a publisher and they attempt to identify the
sorts of manuscripts sought by various publishers. As another example, US broadcast
network television companies largely select
and license prime-time television programmes
from programme ideas presented by entertainment studios (Caves, 2005; Kennedy, 2002).
In this primary gatekeeping function, the
network considers not only quality but also fit
with the network’s mix of programmes.
Similar dynamics occur in the music industry
(Caves, 2000; Vogel, 2004) and the movie
industry (Elsbach & Kramer, 2003).
For the gatekeepers in these noveltyintensive markets to approve proposed prod© 2007 The Authors
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85
ucts that optimally exploit market demand in
their respective industries, they must have the
capability to evaluate how well the proposed
products match the positions in product
characteristic space that are not occupied by
incumbent product offerings and that are also
positions that will be met with demand once a
pioneer enters. That is, the gatekeepers need to
base their decisions less on knowledge of
where product characteristic space demand is,
and more on where it will be. Offering products in product characteristic space where
there is a history of demand is an imitative,
‘trendy’ approach, which can generate sales in
novelty-intensive markets, but not sales levels
equal to that of pioneering products (Kennedy,
2002). The gatekeepers must have strong
opportunity recognition capabilities – ‘the
ability to identify a good idea and transform it
into a business concept that adds value and
generates revenues’ (Lumpkin & Lichtenstein,
2005, p. 457). Opportunity recognition capabilities are developed through a commitment
to learning, structural processes that enhance
learning, a willingness to suspend assumptions, and by rapidly applying new learning
to organizational processes. Accordingly, we
propose the following:
Proposition 6: In markets characterized by
intense demand for novelty, gatekeepers’
opportunity recognition capabilities are
positively associated with the successful
execution of an innovator strategy.
Beyond opportunity recognition, prior research reveals several other key success factors
for new product development. Brown and
Eisenhardt’s (1995) comprehensive review of
new product development yielded several generalizable principles for effective new product
development. They can be summarized by
stating that internal and external communication are vital to the success of new product
development teams. This is because the more
effective the communication the more information that is available to support design, planning and team coordination. The authors note
that these findings are ‘among the most empirically robust’ (Brown & Eisenhardt, 1995, pp.
368–9). Similar findings have been offered by
several scholars (e.g. Ancona & Caldwell, 1990,
1992). Team tenure in particular influences
these communication patterns. For example,
Katz (1982) found that moderately tenured
teams tended to have the highest performance
because new teams often lack effective patterns
of information sharing and highly tenured
teams often become too inwardly focused.
Other factors promoting the success of
product development teams identified by
Brown and Eisenhardt (1995) include the
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project leader’s power and vision. Projects
were more likely to lead to success if managers
who possessed high formal authority and
occupied high-level positions in the organizational hierarchy led them. A central challenge
of new product development is aligning organizational capabilities with structure so that
new product development is led by someone
with the requisite scope of knowledge integration and formal authority. The leader’s ability
to integrate the various facets of the project
into a coherent, holistic view and effectively
convey it to others was also a key to successful
new product development. Of course, it
should also be noted that new product development is influenced by levels of management
above the project manager where senior managers may serve as ‘champions’ who guide the
process (Gomes, de Weerd-Nederhof, Pearson
& Fisscher, 2001).
Given the centrality of new product development activities to competition in ‘hitdriven’, novelty-intensive markets, we expect
the issues noted above to be particularly
important. However, we wish to note one
major point of departure from the established
literature – the value of knowledge acquired
from customers. As mentioned above in the
discussion of gatekeeper capabilities, new
product development teams need to be effective at anticipating customers’ interest in the
products proposed and under development.
Being well acquainted with tastes and competitive offerings is essential, and this knowledge
is developed through effective communication
with external parties. However, unlike the
development of products with practical utility
as their primary value, products with utilities
premised on their novelty cannot be enhanced
with customers’ direct input on product
design.
Von Hippel’s (1986) seminal work on the
use of lead users for obtaining new product
ideas has been influential in many areas, in the
new product development literature in particular (e.g. Enkel, Perez-Freije & Gassmann,
2005). Segmenting the market to identify the
customer group that has the greatest need for
innovative products and soliciting them for
new product ideas can be very useful, because
lead users experience needs today that mainstream customers will experience in the
future. Von Hipple drew upon research in
industries such as computer innovations,
chemical additives and scientific equipment.
These are high technology fields – fields that
reward innovation – but not novelty for novelty’s sake. Product innovations in these fields
are valued for their superior practical utility.
Asking customers to participate in the
design of products in novelty-intensive
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markets can actually be counterproductive.
Recall that novelty’s value proposition is often
attributable to the surprise that novel products
can engender in the user as the products
deviate from the user’s frame of reference. If
the firm’s goal is to produce products that will
surprise and thereby delight their customers,
asking the customers how to surprise them is
of little value. Voss and Voss (2000) report data
consistent with the organizational performance consequences of this conundrum. They
found that organizations in the professional
theatre industry experienced negative results
from using customer input to design their programming. Theatres committed to integrating
customer preferences into their programming
demonstrated lower subscriber ticket sales,
total income and net cash flow. Accordingly,
we propose the following:
Proposition 7: In markets characterized by
intense demand for novelty, incorporating
customer input into product design decisions is negatively associated with the
success of innovator strategies.
Improvisational New Product Development
In addition to the previously discussed generalizable principles for new product development success, the level of structured planning
interacts with the pace of environmental
change to influence outcomes (Brown & Eisenhardt, 1985). In fast-paced environments such
as those we are considering, the level of uncertainty can make extensive formal planning
counterproductive, highlighting the importance of maintaining flexibility to support
spontaneity through improvisation.
Moorman and Miner (1998a,b) outlined the
relationships among organizational knowledge and improvisational capabilities. Improvisation is the simultaneous organization and
execution of activities. Not only do dynamic
environments make improvisational capabilities necessary, the production of novel products often requires novel actions. The strength
of the firm’s declarative knowledge has a
crucial impact on the degree to which improvisation produces novel actions. Declarative
knowledge refers to memory of facts and principles. Access to a broad base of declarative
knowledge helps sustain a first-mover strategy
in fast-moving product markets. In hightechnology industries, organizations need
stable access to cutting-edge science, whether
through their own research or through links
with sources of basic science (Powell, 1998).
Similar relationships apply to noveltyintensive markets that may be low-tech but
need creative ideas – for example, manuscripts
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
INNOVATORS AND IMITATORS IN NOVELTY-INTENSIVE MARKETS
vying for a publishers’ attention. However,
higher levels of declarative knowledge will
slow down the search for relevant information
and thereby slow improvisation, ceteris paribus.
To offset this potential drawback, firms need to
balance extensive declarative knowledge with
high levels of procedural knowledge (Gronhaug & Haukedal, 1995). This knowledge of
‘how things are done’ serves to accelerate
action and improves the coherence of actions.
Organizations with occasional need for
improvisation do not always have the metalearning capabilities to increase organizational
memory from their improvisational experiences. Miner, Bassoff and Moorman (2001), in
their study of new product development at a
company producing advanced technology
products for laboratories and another company
producing food products for consumers, found
that improvisation led to learning that was collateral rather than intended. Although these
firms were competing in environments where
innovation and product differentiation were
rewarded, the primary function of the new
product development activities was to generate
products and processes, implement necessary
changes, and then return to routine production.
New product development was intermittent
rather than frequent. Therefore the findings
might have limited generalizability to firms
competing in novelty-intensive markets. In
businesses such as those studied by Miner and
colleagues (2001), failure to capture learning
experiences and embed them in memory will
have little effect on overall corporate profitability. However, in novelty-intensive markets,
where products quickly become obsolete and
must be replaced by new offerings, failure to
develop such meta-learning capabilities would
be costly. For these reasons, we propose the
following:
Proposition 8: In markets characterized by
intense demand for novelty, the success of
innovator strategies will be positively associated with the ability to generate and use
organizational memory in the service of
continuous improvisational new product
development.
Top Management Teams
Top management teams (TMTs) of firms competing in markets with high demand for
novelty face unique challenges given the
role of novelty in the value proposition and
the associated rapid growth rates and quick
obsolescence of product categories. The
organizational creativity literature frequently
acknowledges the need to judge novel ideas
for their suitability. Amabile’s (1988) model of
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
87
organizational creativity and innovation discusses the need for ‘domain-relevant skills’.
Individuals or groups generate novel ideas
pertaining to products, process or both. As we
have discussed, the ideas can originate from
within the organization or external parties,
such as lead users (Lilien, Morrison, Searls,
Sonnack & von Hippel, 2002). The ideas must
be evaluated for their suitability. Effective
evaluation of novel ideas requires possession
and correct application of knowledge bearing
on any relevant aesthetic and technical criteria.
Interestingly, research suggests that the ability
of TMTs to serve as effective idea judges may
change systematically over time.
While it is true that successful leaders draw
from highly specific knowledge when facing
innovative challenges (Gronhaug & Haukedal,
1995), several research streams show that strategic decision makers can ‘overlearn’ markets,
technologies, etc., and become ‘stale in the
saddle’ (Miller, 1991). There appears to be an
inverted U-shaped relationship between CEO
tenure and effectiveness. New CEOs experiment, learn and establish themselves before
reaching peak effectiveness, but often settle
into paradigms that fail to evolve with their
environments (Hambrick & Fukutomi, 1991;
Leonard-Barton, 1992; Miller, 1991, 1993). For
example, Wu, Levitas and Priem’s (2005)
research in the pharmaceutical industry
indicates that the greater the technology
dynamism, the earlier a CEO’s average tenure
exceeds the optimal level for firm performance. Similarly, in the motion picture
industry, Miller and Shamsie (2001) found
the inverted U-shaped relationship between
CEO tenure and the organization’s financial
performance.
These findings may be explained by understanding the difference between algorithmic
and heuristic problems. Firms pioneering
unique product characteristic space in noveltyintensive markets engage in more heuristic
problem solving than imitators and, therefore,
face greater uncertainty. Heuristic problems
are complex and ill defined (Amabile, 1996).
The more pioneering a firm attempts, the more
uncertainty it faces. Thus, the decline in firms’
performance associated with their CEO’s
tenure will occur earlier for innovators than for
imitators. In contrast, imitators face problems
that are more algorithmic than heuristic.
Recalling a known solution from memory and
applying it can solve algorithmic problems.
Imitators reduce their uncertainty by taking
cues from the pioneers. Thus, imitators will
benefit from their accumulated knowledge of
the market without the negative consequences
and, consequently, the decline in their performance associated with their CEO’s tenure will
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CREATIVITY AND INNOVATION MANAGEMENT
88
occur later for them as compared to innovators.
Formally:
Proposition 9: In markets characterized by
intense demand for novelty, strategy moderates the relationship between CEO tenure
and organizational financial performance
such that the inverted U-shaped relationship between tenure and performance
achieves its peak earlier for innovators than
for imitators.
Discussion and Directions for
Future Research
In summary, we contend that markets with
intense demand for novelty warrant additional
study pertaining to the competitive dynamics
and the capabilities required for competing
effectively. We defined demand for novelty as
the portion of demand attributable to novelty
for novelty’s sake (not due to differentiation
that provides practical utility nor due to marketing effects). Moreover, the competitive consequences of innovating and imitating in
novelty-intensive markets deviate in important ways from those generally observed in
prior research on market pioneering. Specifically, first-mover advantages are more pronounced when novelty is highly demanded,
but those advantages are not due to buyer
switching costs, nor are they due to network
externalities – indeed, network externalities
are more likely to be negative than positive as
adoption diffuses in the market. Additionally,
imitators will not have the opportunity to
wait a decade or more to enter the product
characteristic space and catch and surpass
first movers as has been identified in prior
research.
We then addressed, from the perspective of
the knowledge-based theory of the firm,
several unique strategic management challenges associated with competing in noveltyintensive markets. For instance, with the rapid
obsolescence of products, firms competing in
these environments perform continual rather
than intermittent new product development.
The new product development routines must
be less formal and more improvisational, with
any resultant learning integrated into developing new capabilities. In addition, gatekeepers’
opportunity recognition capabilities are essential to providing an adequate stream of ‘hit’
new products. Somewhat paradoxically, learning from lead users may be counterproductive.
Finally, in novelty-intensive environments, the
relationship between CEO tenure and firm
performance will reach an apex earlier for
innovator firms than imitators.
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2007
We see implications of this work for both
researchers and practitioners. For scholars, we
believe this work represents an opportunity to
begin investigating an important, yet neglected
phenomenon. Though markets of the type we
describe have long existed, there is little
research describing how they function. In
response, it may be wise for researchers to
employ grounded theory approaches. Through
observation and the identification of emergent
insights, a more detailed and defensible theory
base than has been presented here may
develop over time.
For practitioners, we see more immediate
implications. For firms operating in markets
defined by intense demand for novelty, our
work should encourage more pioneering
behaviour. However, to be successful, leaders
of new product development efforts must
build better improvisational new product
development skills. The speed of these
markets demands this approach. For firms
operating in multiple markets – some of which
are more ‘typical’ and some of which are more
driven by demand for novelty – in the noveltyintensive markets they will be wise to generate
a pipeline of new products that is larger than
they would create in other markets due to the
boom/bust nature of product categories.
Potential implications aside, our work nonetheless has several limitations worth noting.
First, since we have attempted to identify and
describe a new market characteristic, we
found it necessary to draw on a wide range of
literature to support our arguments. In doing
so, we made certain assumptions about the
generalizability of findings from one area of
inquiry to another. In addition, the dichotomy
we draw between novelty-intensive markets
and ‘typical’ markets is admittedly false. There
is no market purely defined by demand for
novelty just as there is no purely ‘typical’
market. The dichotomy simply served as a
useful convention for theory building. It is also
worth noting that our work is largely premised on North American scholarly research.
As such, future research will benefit from considering a more international perspective.
Finally, though we cite a few empirical studies
of products in markets characterized by
intense demand for novelty, we have offered
no primary data upon which to justify our
assertions. Thus, following this exploratory
effort, much additional research is warranted.
A significant need for future research on
novelty-intensive markets will be to refine the
definition and operational approach to the
phenomenon. In particular, it will be necessary to distinguish these markets from
dynamic (e.g. Dess & Beard, 1984; Wu, Levitas
& Priem, 2005), high velocity (e.g. Bourgeois
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
INNOVATORS AND IMITATORS IN NOVELTY-INTENSIVE MARKETS
& Eisenhardt, 1988, Eisenhardt, 1989) and
hypercompetitive markets (e.g. D’Aveni,
1994, 1995). We speculate that research may
well discover two different types of demand
for novelty, ‘delight me’ and ‘distinguish me’.
Kennedy (2002) found that trendy, imitative
offerings were not as successful as novel
offerings in television programming. Original, unexpected programmes can delight
viewers. Demand for novelty in apparel,
architecture, cars and furniture, on the other
hand, might serve to distinguish more than
delight. Novel products that distinguish their
buyers might require a stronger connection to
fashion trends – and thereby be somewhat
less original – than products that seek to
delight their buyers by being surprising.
Future research should examine how the
strategies and behaviours of firms successfully competing to satisfy the ‘distinguish me’
type of demand for novelty differs from the
approaches used to successfully satisfy the
‘delight me’ type of demand.
Future research is likely to find that one of
the most unique features of markets with
intense demand for novelty is their cyclicality
– products come and go as imitation ensues
and novelty wears off over time. Once the
product characteristic space has been vacated,
there is the opportunity for a competitor to
once again ‘pioneer’ that unique space. (A new
term may need to be coined to acknowledge
that the pioneer is entering territory that was
previously pioneered.) An example in the US
music industry of this type of pioneering is the
successful revival of the 1950s rockabilly
sound reintroduced to top forty radio programming during the 1980s by the band Stray
Cats (Borzillo, 1995). In contrast, technological
innovations that have been rendered passé due
to technological progress do not cycle back
into popularity. Electric typewriters and handcranked car engines will never again achieve
broad appeal. Where cyclicality of demand
in product characteristic space is identified,
future research is also needed to determine
which firm capabilities are required in order to
identify and exploit those cycles.
We have discussed several capabilities and
resources that can provide a sustainable
competitive advantage to firms competing in
novelty-intensive industries. However, some
may not measure up to the primary criteria for
sustainable competitive advantage, i.e., valuable, rare, immobile and inimitable (Barney,
1986; Peteraf, 1992). For example, some of the
knowledge and judgement capabilities reside
with key personnel – gatekeepers – and these
resources are mobile across firms within an
industry. For instance, Caves (2000) notes that
publishers have considerable mobility within
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
89
their industry. Similarly the common experiences of fashion designers that help them
develop a shared understanding of emerging
fashion trends (Gronow, 1997) fails to make
their understanding of emerging styles rare
relative to the other firms in their strategic
group. Future research is needed to examine
the distinctive competencies and unique
resource configurations of firms competing in
novelty intensive markets.
We acknowledge that we have only begun to
explore the dynamics of innovating and imitating in novelty-intensive markets. We hope that
our work will spur additional research capable
of improving both our theoretical and empirical understanding of this unique type of
market.
Acknowledgements
The authors gratefully acknowledge assistance
from Chuck Gulas, Pola Gupta and Rosemary
Ramsey.
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Volume 16
Number 1
2007
Todd Dewett, Ph.D., (todd.dewett@wright.
edu) is a tenured Associate Professor of
Management in the Raj Soin College of Business at Wright State University. He earned a
bachelor’s degree in business from the University of Memphis, an MBA from the University of Tennessee, and a Ph.D. in
Management from Texas A&M University
where he was awarded both teaching and
research awards as well as a Post Doctoral
Research Fellowship. At Wright State University he is primarily focused on delivering
courses in the MBA program and has been
honored with the Outstanding Graduate
Faculty Teaching Award as well as the Presidential Award for Faculty Excellence: Early
Career Achievement Award. His research on
employee creativity, innovation, and change
in organizations has been published in journals such as Journal of Management, Journal
of Creative Behavior, Journal of Managerial
Psychology, and Creativity Research
Journal. Before entering academics, Todd
was a management consultant with Andersen Consulting as well as Ernst & Young
focusing on process reengineering and
change management. He continues to
consult with a variety of organizations.
Scott D. Williams, Ph.D., is an Associate
Professor of Management in the Raj Soin
College of Business at Wright State University. In 2002, he received the “Award for
Teaching Excellence” from the Southwestern Ohio Council for Higher Education, and
the “40 Under 40 Award” from Dayton Business Journal. Williams is Senior Strategy
Consultant for Mound Advanced Technology Center and Strategy and Business
Development Consultant for the National
Composite Center. He has served as the vice
president of Leadership Development for
the Western Ohio Chapter of the American
Society for Training and Development. Williams has conducted research on competitive dynamics, business ethics, management
development, creativity training, outdoor
experiential training, and training evaluation. His research appears in journals such
as Competitiveness Review, Journal of Strategic Marketing, Journal of Management
Development, Personnel Review, Creativity
and Innovation Management, Human Resource Management Review, and Industrial
and Commercial Training. He earned his
bachelor’s and MBA degrees from Southern
Illinois University-Carbondale, where he
was named the “Outstanding MBA
Student” in 1993. He earned his doctorate in
management from Texas A&M University.
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing