In my last post – Leaders, learners and laggards in banking – I talked of banking leaders who describe their approach to innovation as being a ‘fast follower’, and how my typical retort is that they are half-right. Most of them are definitely followers, but there usually isn’t anything fast about their approach.
This has spurred some great discussion on social media, including some comments from people who defended the fast follower approach as a sound strategy. So it appears some clarification is needed on my overarching point. A fast follower approach in terms of making big public bets on new products is absolutely a proven strategy.
A great strategy when well executed
Apple is often cited as one of the world’s most innovative companies, but it’s not known as a bleeding-edge pioneer of new technologies. The Apple computer wasn’t the first personal computer, the iPod wasn’t the first digital music player, and the iPad wasn’t the first tablet computer. The iPhone wasn’t the first smartphone, but it controls 92% of the profits of the global smartphone market.
The Apple Watch isn’t the first smartwatch either, as any Android fan will be quick to point out, but within the first quarter of its release it reduced Samsung’s global market share of smartwatches from 74% down to 8%. Within the first quarter of its release. Within a year, Apple became the second largest watch manufacturer in the world. (For more detail on how Apple, Amazon, Google and Facebook are taking over the world, watch Scott Galloway’s breathless take from the DLD conference at the foot of this article.)
The ‘first mover advantage’ theory established in the early days of high tech in the 1980s was pretty much dismantled by Peter Golder and Gerard Tellis at USC in 1993. They found that almost half of product pioneers failed, and even those that didn’t fail had lower average market share than later market entrants. Countless stories abound of product pioneers being quickly supplanted by upstart rivals.
The fast follower strategy is viable, but the operative word is fast, at least in relative terms. And this is what’s missing from most financial institutions, who measure speed by the decade.
Where’s my jetpack?
As a child of the 1960s, I was promised a jetpack and vacations on the moon. Those were scaled back to a hoverboard and a time-traveling DeLorean in the 1980s, but the future destination of Back to the Future has come and gone with no such improvements in my daily life. However, I do carry around in my pocket the equivalent of a 1970s supercomputer, I regularly video chat with friends and colleagues all over the world on it, and I can now summon my self-driving car from my watch.
The Gartner Hype Curve is a useful construct to visualize how exaggerated expectations come down to earth in the short run. Some ideas die off, and others are iterated upon and adapted, thus their lifespan is extended. Sometimes, the passage of time can also help the market catch up to those that were initially ahead of their time.
Ideas don’t exist in a vacuum – they catch on (or not) in a society of humans through a fairly predictable pattern that Everett Rogers called the Diffusion of Innovation curve. This bell curve shows how early or late segments of the population adopt new ideas. Innovators flock to new ideas, followed quickly by the Early Adopters. Over time, some of these ideas are picked up by the Early Majority, followed by the Late Majority, and eventually even the Laggards.
Trailblazers, traditionalists, and the chasm between
In 1993, Geoffrey Moore introduced to Rogers’ curve the concept of the ‘chasm’ that exists between the Innovators and Early Adopters, and the rest of the segments on the curve. Left of the chasm, people live to explore new ideas and they’re willing to take a reasonable amount of risk in order to reap the benefits of being early. They are the first buyers of new products; those waiting in line overnight for the pride of owning version 1.0. Right of the chasm is where phrases such as ‘nobody ever got fired for hiring IBM’ come from. They want to take zero-to-very-little risk, and they’re willing to accept a relatively limited upside in exchange for this reduced risk.
These two broad groups – the left and right sides of the chasm – align closely with the groups I have highlighted before as trailblazers and traditionalists. Trailblazers want to explore the unknown and establish next practices, while traditionalists want to master the known knowns and enforce best practices. The picture becomes even clearer when you plot the two curves together. Ideas must cross the chasm to have commercial viability.
This highlights the challenges of truly being fast when you’re a follower. The kinds of companies full of trailblazers that come up with groundbreaking new ideas often don’t have the very different skills of scaling up those ideas for mass market adoption. This goes a long way to explaining why the first movers often fail to maintain commanding market share over the long run.
Likewise, mature organizations in mature industries full of traditionalist employees, like, say, financial institutions, often don’t have the skills (or inclination) to develop and incubate new ideas, hence the launch of new bank innovation teams and labs in recent years.
The key to the fast follower approach
The danger is in waiting too long so that the new idea – once groundbreaking and with the potential to set your institution apart from the pack – is now mainstream. Before long, mainstream becomes table stakes. The longer you wait, the wider the customer experience gap becomes; the gap between what your customers have come to expect as a minimum and what you actually provide them.
As Innosight’s Scott Anthony puts it in Harvard Business Review: “Make sure that when you say that you want to be a fast follower you aren’t really saying, ‘Can’t I just go back to running my core business?’ Too often people find that when it is a strategic imperative to respond, it is too late.”
A fast follower approach can be a wise one, providing you’re actually fast enough to capture an idea on the upside of a growth curve. Otherwise, it’s a riskier strategy than you realize.