Overview
This lecture explores the ongoing debate between first movers and fast followers in technology innovation, focusing on risk, reward, and business strategy implications.
First Movers vs. Fast Followers
- First movers adopt new innovations early, accepting higher risks and expecting higher returns.
- Fast followers wait for early issues to be resolved before investing, aiming for lower risk and cost.
- Neither approach is risk-free, as digital transformation has shown in recent years.
Risk and Return Analysis
- First movers face greater uncertainty and higher potential failure rates but may achieve outsized rewards.
- Fast followers hope to catch up quickly with less risk, but may need to invest more substantially later.
- Portfolio theory suggests higher risks are only justified by higher expected rewards.
Strategic Mindsets and Growth Expectations
- Innovators generally have higher risk tolerance and higher growth expectations.
- Laggards or followers typically accept lower risk due to lower growth expectations.
- To truly be a "fast follower," a company must grow faster than the innovation leader.
Challenges Facing Fast Followers
- The lower failure rate for fast followers is often irrelevant if catching up costs more.
- Latecomers might need to invest huge amounts to match the progress of first movers.
- Attracting and retaining strategic innovation talent can be difficult for laggards.
Varying Risk Tolerance Within Organizations
- Companies may be innovators in some business units and laggards in others.
- Different divisions tolerate different kinds and levels of innovation risk.
- For example, oil and gas may risk more in exploration than in digital finance initiatives.
Key Terms & Definitions
- First Mover — A company that adopts new technologies or innovations early.
- Fast Follower — A company that waits to adopt innovations until initial risks are addressed.
- Risk Tolerance — The degree of risk a business is willing to accept for potential rewards.
- Portfolio Theory — The concept that higher risk investments should yield higher returns.
- Digital Transformation — The process of integrating digital technology into business operations.
Action Items / Next Steps
- Consider the organization's risk tolerance and growth expectations when choosing an innovation strategy.
- Reflect on business units' readiness for innovation versus following.
- Review upcoming case studies on first movers and fast followers.