Work: Firms Imitate
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Article Review: Why do firms imitate each other?
Introduction
This review will analyse Lieberman and Asaba’s paper, ‘Why do firms imitate each other?’ from 2006. The discussion will be divided into four sections. The first section will outline the article’s purpose. The second part will examine the article’s position within the wider business and academic literature. The third part will identify some of the assumptions which the authors base their findings on. The fourth part will provide an assessment of the author’s work.
Part One: The Article’s Purpose
The author’s purpose is to show that imitative behaviour can be relevant in helping a firm to achieve competitive advantage. The authors argue that because ‘imitation’ is used frequently by business then it needs to be better understood. It would be useful to know why it occurs and when it can have harmful implications for society (Lieberman and Asaba 2006:366). One of the author’s purposes is to “emphasize the role of environmental uncertainty” (Lieberman and Asaba 2006:366). It is interesting to consider that this can be an important factor which explains why firms imitate.
The paper explains how imitation is a relevant factor in “the competitive process” and how this can affect society. For example Lieberman and Asaba discuss Schumpeter’s theory of “creative destruction” (2006:367). This outlines how new innovations can radically affect industries. For example, Amazon’s model of selling traditional books, and increasingly e-books over the internet has adversely impacted traditional bookshops. Amazon’s model has been imitated by competitors, such as the Book Depository. This shows how imitation can contribute to the process of changing competition within an industry.
The “diffusion of innovations” was also discussed in the paper (Lieberman and Asaba (2006:367). The paper highlights how imitation can lead to expensive and innovative products being spread cost-effectively across different groups in society. Innovations, such as Dyson’s vacuum cleaners, can be spread throughout society. This is the case as such innovative products can be imitated for a wider benefit. Another purpose of the paper is to argue that “first mover advantages” from companies, such as Dyson, are rarely able to “prevent entry by imitative followers” (Lieberman and Asaba (2006:367). Imitation can reduce innovators profitability while providing wider gains for society as prices fall (Lieberman and Asaba (2006:367).
The article provides an analysis that could be used to forecast the outcomes of particular business situations. It is suggested that firms will imitate others. This is due to the perceived need to emulate rivals strategies or to reproduce the information (or intellectual property) which other companies possess. For the reasons provided earlier it is likely that companies, such as Dyson, will have their products copied (Lieberman and Asaba (2006:367).
The paper serves a useful purpose as it helps make predictions particularly where there are stable markets. In a stable oligopolistic market, such as the UK supermarket industry, then the paper can be used to make forecasts. In this case, there are a small number of large businesses who do not want to damage the industry as a whole, as this would damage their own prospects (Sloman 2007:136). Large price cuts by one supermarket, would force the other supermarkets to cut their prices too. Lieberman and Asaba (2006:367) argue that “knowledge that rivals will respond in kind, lowers the incentive for any individual firm to act aggressively in an effort to gain competitive advantage. It is useful to understand that “imitation can help ... to preserve the status quo among competitors that follow each other, even in industries where strong rivalry is maintained” (Lieberman and Asaba (2006:367). The authors predict that imitation of rivals actions can lead to tacit collusion (Lieberman and Asaba (2006:366). Such imitation is a useful explanation of price competition in the supermarket in the UK supermarket industry (Sloman 2007:136).
The paper also aims to explain how imitation can be harmful and how such damage could be avoided. It is implied that companies need to be careful when there is significant environmental uncertainty. For example, the internet or dot.com bubble of 2000 demonstrated the problems associated with imitation. Companies followed each other into uncertain markets and overly optimistic forecasts of profitability could not be sustained. This was because there was a speculative bubble which led to a waste of resources with duplicative investments being made (Lieberman and Asaba (2006:367).
Part Two: The Paper in a Wider Context
The authors explain how different academic disciplines, such as economics and sociology, can influence why firms imitate. The paper aimed to integrate many theories so that many ‘common threads’ were drawn together (Lieberman and Asaba 2006:366). The paper is significantly based on the strategic management or business policy literature. The authors discuss imitation in the context of “rivalry-based theories, where firms imitate others to maintain competitive parity or limit rivalry” (Lieberman and Asaba 2006:366). It is logical for firms to want to make sure that they do not fall behind (Lieberman and Asaba 2006: 366).
The UK supermarket example outlined in part one was based on the wider strategic management literature; particularly that of Michael Porter. It was suggested that imitation could be justified as a generic strategy to avoid problems with divergent strategies. “Divergent strategies reduce the ability of the oligopolists to coordinate their actions tacitly . . . reducing average industry profitability”. In other words, firms within the same strategic group may adopt similar behaviour to constrain competition and maintain tacit collusion” (Lieberman and Asaba 2006: 374). “Firms imitate others in an effort to maintain their relative position or to neutralize the aggressive actions of rivals” (Lieberman and Asaba 2006: 374). This is an interesting point but offers little extra from business strategy textbooks.
A recurrent theme of the paper is that imitation is to a large extent rational (Lieberman and Asaba (2006:367). It is useful or can be justified on the basis that it maintains or improves profitability. The examples used in part one show that it can be commercially pragmatic.
The authors appear to reject the views of organizational sociologists who have studied “who imitates whom” (Lieberman and Asaba (2006:372). They do not agree “that imitation is a purely ritualistic phenomenon” (Lieberman and Asaba (2006:367). They do not dismiss imitation they see it as pragmatic.
Imitation can be seen as realistic. It can be seen as a method of helping to produce a satisfactory, or ‘satisficing’, decision (Cyert and March, 1963). It can be seen as less costly and less time consuming than attempting to develop a significant innovation through costly experimentation (Lieberman and Asaba (2006:373). Also, an organisation which is modelled or based on another could be seen as “legitimate or successful”. Imitative behaviour can be rational because “it economises on search costs (searching for the right strategy) which reduces the level of uncertainty that an organisation faces” (Lieberman and Asaba 2006:371).
The core theme is that the authors provide justifications for imitation. They see it as rational. They suggest that it can be pragmatic for say smaller firms to imitate larger firms. This is because smaller firms may “follow others that are perceived as having superior information” (Lieberman and Asaba2006:366).
In a wider financial context imitation can be justified. In practical terms companies are not overly concerned with being criticized for being imitators. They may just want to be perceived as legitimate. Lieberman and Asaba (2006:372) suggest that “copying more prestigious firms” can send out a positive signal about a smaller firm’s legitimacy. Arguably, imitative strategies were useful financially as they helped small internet companies to raise finance during the internet or dot.com bubble (Lieberman and Asaba 2006:372). In terms of raising finance for expansion imitation can be seen as rational behaviour.
Part Three: The Paper’s Contribution to the Subject Area
This section develops previous themes. Firstly, that the paper is useful in terms of making prediction within the subject area. Secondly, that imitation needs to be seen as rational within the subject discipline of management.
The paper helps to inform the subject area. For example, the forecast that imitation can lead to an intensification of competition which can lower profitability (Lieberman and Asaba 2006: 380). This can clearly have an adverse affect on business but can be beneficial to consumers if prices fall (Lieberman and Asaba 2006:380). The authors provide an example of this phenomenon based on the electronic calculator industry. “Casio and Sharp responded to each other by introducing many new product features and cost reductions, leading to market growth and gains for consumers” (Lieberman and Asaba 2006:380). The authors argued that companies, such as Casio, benefitted from American companies who had developed the technology. However, they see this as acceptable because they argue that this imitation process was socially beneficial in terms of widening the availability of the technology and making it affordable (Lieberman and Asaba 2006:380).
Again, one of the main contributions, to the subject area, is the argument that imitation can be rational. In turbulent business environments managers may rationally use imitation to signal to other stakeholders about the quality of their firm (Lieberman and Asaba 2006: 368). The paper is useful for showing how imitation can contribute to the business environment”. The rise of a company such as Amazon has helped to legitimise other simil.ar and imitating firms who have sought to establish a presence on the web. (Lieberman and Asaba 2006:371). The Book Depository would be an example a smaller company learning from a larger rival.
However, it is interesting that the paper argues that what may be understood as imitation could be explained through other forces that may be at work. Therefore the authors contribute to the subject area by constructing a balanced argument. For example, a decision to make workers redundant could be based on imitating the behaviour of other firms in the industry. However, it could also be the case that a firm has made an independent response to a problem in the external environment. In an economic recession, firms could lay off part of their workforce based on “forecasts of future sales” (Lieberman and Asaba 2006:377).
Part Four: The Findings and Conclusions based on the article.
The paper usefully provides many justifications for innovation. It suggests that there is frequently a bias in favour of imitation. Firms feel obliged to imitate. One important finding is that companies have to financially perform, relative to other companies in the market. Companies that overlook the consensus could be criticised by financial analysts and suffer from reputation damage. Firms may feel obliged that they have to develop new technologies, such as those related to the internet (Lieberman and Asaba 2006:371).
The paper is a study of an interesting topic. However, its conclusions are perhaps not that new. That the imitation of useful innovations can lead to improvements to products and services is not a ground-breaking assessment. Nor is the view that imitation can have negative implications such as the squandering of resources through “wasteful (and) duplicative investments” (Lieberman and Asaba 2006:378). A more useful insight is quite how damaging wasteful imitation can be both to business and society. The author’s example of “imitative investments in optical fibre cables during the internet boom (which) led to a glut of telecommunications capacity” is a useful one (Lieberman and Asaba 2006:378-9). As stated on page 1, the authors do usefully highlight the problems which imitation can cause for society. The authors perceptively argue that “the initial rush (to develop internet firms) was unnecessary and (that this) contributed to the magnitude of the (internet bubble) collapse”. The authors suggest that “had more firms waited until major uncertainties were resolved, (then) many losses could have been avoided (Lieberman and Asaba 2006:378-9). This is one of the most useful contributions that the authors make to the subject area. They emphasise that rapid imitation can lead to a huge societal failure. Intriguingly this is a problem that does not seem to be resolved through the passage of time. Overly rapid imitation was a problem with the expansion of the railways in Britain in the 19th century as it was with the internet bubble in 2000.
The paper does provide a useful summary of some of the main advantages and disadvantages associated with imitation. It does attempt a balanced discussion of some of the main costs and benefits of imitation. It argued that imitation “speeds (up) the adoption of innovations” and “can intensify pressures for firms to improve their products”. In negative terms it can also lead to destructive competition through overinvestment and increased financial risk (Lieberman and Asaba 2006:381 / 382)
One of the main weaknesses of the paper is that although the authors justify business imitation in terms of its logic; a concern could be raised that greater criticism of imitation should have been made of imitation. More conventional thinking would perhaps criticise imitation. This is because it has led to problems such as over intellectual property rights. James Dyson has been critical over imitation which he perceives as piracy (Collins 2011). There appears to be an alternative literature which suggests that innovation should be protected. For example, Teece (2010:192) argues that innovations should be non-imitable through being difficult to reproduce or “by being unpalatable for competitors to replicate”.
The danger is that the paper could have led to other commentators believing that imitation is acceptable. For example, Shenker (2012) argues that first mover (innovative) advantage has lost its status as a strategy and that imitation which was once stigmatized is now acceptable. To conclude the paper’s main contribution is that it has provided academic legitimacy to business polices of imitation. Perhaps other writers are now following the authors lead in terms of promoting ‘imitation’ as a business concept. This will be of concern to entrepreneurs such as James Dyson.
References
Collins, N. (2011), Sir James Dyson attacks China over designs 'theft'
Cyert, R., and March, J. (1963), A behavioural theory of the firm. Englewood Cliffs, NJ: Prentice-Hall
Lieberman, M, and Asaba, S., (2006), Why do firms imitate each other? Academy of Management Review, vol. 31 (2), pp. 366-385
Shenker, O., (2012), JUST IMITATE IT! A COPYCAT PATH TO STRATEGIC AGILITY, Innovation | May / June 2012
Sloman, J., (2007), Essentials of Economics: Fourth Edition, Prentice Hall: Harlow
Teece, D. (2010), Business Models, Business Strategy and Innovation, Long Range Planning, Vol. 43 (2010), P. 172- 194