INNOVATION

First Mover or Fast Follower?

by Scott D. Anthony
JUNE 14, 2012

Transformational developments are swirling around the banking industry — as they are in nearly
every industry. Companies like Citigroup are reimagining bank branches. Startups like Simple are
suggesting that it’s time to get rid of branches altogether. Square, Swiff, Silver, and PayPal want to
bring payments processing to smaller merchants. Mobile phone companies are getting into
financial services. Microlending has exploded. Companies like Facebook and Tencent make
hundreds of millions through microtransactions. The mobile wallet is coming, with Apple and
Google lurking in the background.

Many of these trends seem to fit historical patterns of transformation, which means banks need
to up their innovation game. Yet, here are some of the questions that audience members asked
me at a talk I gave at a recent banking conference (courtesy of Pigeonhole, one of my favorite
Singaporean startups):

“There are often education costs and risks of losing business among the technology laggards.
Are the majority of our banking customers ready for change?”
“The first innovators in the market are often too early in the technology curve. Do the panelists
agree?”
“How do you pace yourself?”
All good questions. Here’s one of the biggest that would-be innovators should ask: Should I
lead or follow? Does the “early bird catch the worm” or can you “identify the pioneers — they
have arrows in their back”? Is the advantage to the “first mover” or should you be a “fast
follower”?

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There certainly is circumstantial evidence supporting both camps. After all, Apple wasn’t the
first mover in the digital music, smartphone, or tablet computing categories, but it’s done
alright. A recent column in The Economist cited a research report that found that “that
innovators captured only 7% of the market for their product over time.” Yet there are plenty of
examples of successful early birds. For example, Amazon’s efforts as an early mover in
electronic books and cloud computing have turned out fine for them.

Here’s the important thing to remember: ultimately, no one remembers who leads a race at the
half-way point. They care about who crosses the finish line. So don’t ask “Should I go first?”
Instead, ask “How do I accelerate the path to a breakthrough idea?”

If you are what Professor Steven Spear calls a “high-velocity organization” that is always
learning and improving, there are real benefits to moving first. After all, when someone copies
what you have in the market, they are copying the artifact of your past effort. As you keep
innovating, you create further space between you and the market. And competition has its
advantages. One leader at a consumer company told me that their data suggests that the ideal
market share is about 60%. It’s enough to capture more than the fair share of profits in the
category, but it also means that other people are spending significant promotional dollars in
advertising to boost the overall category.

That doesn’t mean that if you were slow to leave the starting line, you should give up hope. You
have the benefit of learning from your rival’s in-market experiments. You can potentially avoid
some of their mistakes and leap-frog over their solution.

But 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. Sometimes the resources aren’t there. Sometimes
the corporate innovation muscles just aren’t strong enough to respond appropriately. The need
to respond can force a “Hail Mary” acquisition that has little chance of sticking.

So, put on some good armor, and be prepared to take your arrows. It’s innovation time!

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 Scott D. Anthony (@ScottDAnthony) is a senior partner of the growth strategy consulting
firm Innosight and co-author of Dual Transformation: How to Reposition Today’s Business While
Creating the Future.

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