MARKET DOMINATION
BLUE OCEAN OR FAST-SECOND INNOVATION? A FOUR-BREAKTHROUGH MODEL TO EXPLAIN
SUCCESSFUL MARKET DOMINATION
BERNARD BUISSON
Institut d’Administration des Entreprises Universit�e Paris I Panth�eon-Sorbonne 21 rue Broca 75005 Paris, France
Orange Consulting, 114 rue Marcadet 75018 Paris, France [email protected]
PHILIPPE SILBERZAHN
Vlerick Leuven Gent Management School Vlamingenstraat 83, Leuven 3000, Belgium
Ecole Polytechnique, Management Research Center, ENSTA/PREG 32 Boulevard Victor 75015 Paris, France
Innovation is widely recognized as a major driver of long-term corporate growth. Suc- cessful innovators who manage to dominate new markets enjoy Schumpeterian rents for their inventions. How then can a firm dominate a new market? Two streams of literature have proposed opposite answers to this question.
The First Mover approach indicates that by setting up a strong differentiation strategy, companies are supposed to create a new area where profits abound. This approach is supported especially by Kim and Mauborgne (2004) who coined the term Blue Ocean to describe it.
The Fast Second approach, defended by Markides and Geroski (2005), contends, on the contrary, that companies should not try to become pioneers, but should target the newly created market in second position, and colonize it.
But neither Blue Ocean nor Fast Second are able to convincingly explain successful market domination. Our study of 24 innovation cases suggests that innovation which leads to market domination is instead achieved by using four kinds of breakthroughs, separately of simultaneously.
Keywords: Breakthroughs; strategy; First Mover; Fast Second; pioneer; colonisator.
International Journal of Innovation Management Vol. 14, No. 3 (June 2010) pp. 359–378 © Imperial College Press DOI: 10.1142/S1363919610002684
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Introduction
Innovation, defined as the successful introduction of new goods, services and processes to the market, is widely recognized as a major driver of long-term corporate growth. Successful innovators who manage to dominate new markets enjoy Schumpeterian rents for their inventions (Ahuja and Lampert, 2001) as exemplified by such diverse firms as Ikea, Microsoft, Polaroid or Club Médi- terranée.
How then can a firm dominate a new market? Two streams of literature have proposed rather opposite answers to this question in considering the order of entry to a new market:
. The First Mover approach: By entering first into a new market and setting up a strong differentiation strategy, firms can create and dominate a new area where profits abound. This approach has recently gained popularity among the managerial audience thanks to Kim and Mauborgne’s (2004) work on so-called Blue Ocean strategy.
. The Fast Second approach: Almost simultaneously, and also in the managerial field, Markides and Geroski (2005) contends, on the contrary, that companies should not try to become pioneers, but should rather target the newly created market in second position, and colonize it.
There obviously is a real opposition between the two approaches. The fact that Fast Second received less popular attention than Blue Ocean should not mask the fact that the argument between the two approaches is not settled from the academic point of view. Can these two approaches be reconciled? More generally, is this opposition relevant, or should we look for a different framework to explain suc- cessful new market domination? To answer these questions is the purpose of the present article.
We start by summarizing and discussing extant theory on the advantage, or lack thereof, for the first mover in achieving new market domination. To answer these questions, we first discuss the theories which preceded the ones brought by Kim and Mauborgne on one side, Markides and Geroski on the other side. We then discuss these theories and show that they raise questions. To reach a better understanding of Blue Ocean and Fast Second, we studied 24 cases of successes and failures (see list in exhibit 1), in different industries, at different times. We started to map Blue Ocean and Fast Second strategies according to submarket creation and submarket domination, using some of these cases. We then asked the following question: If being first of being second isn’t the key, what explains the
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success of dominant products? This question led us to progressively identify four generic breakthroughs which are behind all these cases. Relying on the “family tree of products” approach and the study of the 24 cases mentioned above, we propose an explanation of successful innovation: the “four breakthroughs” rule. We finally consider the implications regarding the conduct of innovation attempts in the corporate world, and the possible research developments.
Theoretical Framework
For the purpose of this article, we define success as the clear domination of a given market for a significant period of time (probably minimum five years). Domination is broadly defined in terms of significantly higher market share than one’s closest competitor associated with high profitability over a long period. Domination is for instance the leadership of Nespresso in the portion coffee submarket which Nestlé invented in the 1970s (Miller and Kashani, 2003); or of Ford in the mass market car industry from 1908 until the 1920s (Evans, 2004); or, to take a longer period, of Ikea in the ready-to-build furniture submarket since the 1950s (Barlett and Nanda, 1996).
By proposing a typology of four possible strategies regarding market entry, Ansoff and Stewart (1967) are among the first authors to introduce the concept of first-mover advantage. They distinguish between four strategies: “first to market”, “follow the leader”, “application engineering” and “me-too”. Several types of first- mover advantages are distinguished in the literature: technological leadership, preemption of scarce assets, switching costs (Lieberman and Montgomery, 1988), political connections (Frynas et al., 2006).
Among the first and strongest advocates of the first-mover advantage in the managerial literature, Foster (1986) shows how traditional technology companies were swept by new entrants, such as sailing ship builders against steamship builders at the beginning of the 20th century, Lever Brothers and their natural detergents against Procter & Gamble’s Tide and their phosphate detergents in 1947, or NCR as producer of electromechanical cash registers against manu- facturers of electronic cash registers in 1971.
Utterback (1994) makes another determinant contribution. His view is that each new market goes through three phases over time: the fluid phase, the transitional phase, and the specific phase. Each phase has specific attributes, such as the fluid phase being a time of major product innovations and being characterized by the arrival of many new entrants, while the transitional phase is the time of the emer- gence of dominant design and of process innovation. The argument is that the emergence of a dominant design reduces the possibilities of new entrance in the market, which supports the idea of an early entrance. Subsequent research disputes
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this conclusion and suggests that later entrants that switched to the dominant design enjoyed high survival rates and market positions (Tegarden et al., 1999).
Studying the hard disk industry, Christensen (1997) extends the work of Foster (1986) and coins the term “innovator’s dilemma” to describe how incum- bent companies succeed with incremental innovation, but struggle with radical innovations, often ceding industry control to new entrants.
