When a competitor adopts a new innovation, others in the market have two ways to respond: They can also adopt the technology to directly compete (imitation) or they can choose to differentiate themselves by investing elsewhere (differentiation). What a new study published in Strategic Management Journal found is that an organization’s reaction to a first-mover is influenced by the type and difficulty of problems the organization handles for its customers.
The researchers, led by Shirish Sundaresan, an assistant professor at Georgia State University, found that organizations serving more difficult customer needs tend to defer investment in response to a competitor’s technology adoption, while those who address less difficult problems are likely to accelerate adoption of that same technology.
The authors — who also included Andrew Boysen and Atul Nerkar of the University of North Carolina — focused their study on the adoption of robotic surgery among U.S. hospitals. What’s unique about studying the healthcare industry is that its case mix index — a novel measure of task requirements — can be used to quantify the demand that each individual organization faces. And in this space in particular, organizations would be well-served to stay on top of competitor moves and customer needs: Bain & Company released a report in February that found the global surgical robotics market grew from $800 million in 2015 to between $3 and $3.5 billion today.
Competitive behaviors such as knowledge spillovers — when recipient firms exploit knowledge that has been originally developed by another firm — and opportunity costs can vary greatly among organizations, and they’re based on the organizations’ customers and the tasks that they have to solve, the study found.
Sundaresan points to one particular example for how other company leaders might evaluate their own reactions to a first-mover: A particular hospital had a competitor that invested heavily in cardiology services. In deciding whether to directly compete with the first-mover, the competing hospital determined the opportunity costs were quite high, and that they could focus the same effort and money into a different area and that would instead differentiate them and make them a market leader elsewhere. And, importantly, a cardiology investment didn’t make sense for the competing hospital’s customers’ needs.
“There’s a lot of angst in trying to decide what is the right strategy and it’s unclear a lot of the time what approach individual organizations should take,” Sundaresan says. “But fundamentally, it comes back to the idea that the strategy of an organization really should be focused on the customers, the tasks, or demand side that they’re facing, rather than what other competitors are doing in the market.”
Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for the highest quality research on a diverse mix of topics relevant to strategic management.