Mostly, firms look at successful others – companies that seem to be outperforming the pack, who are admired in the business press, at conferences and business schools, and by investors in the stock market. Often the process of imitation is formalised through “bench-marking” and the adoption of “best practices”.
Research has provided ample evidence of strategic imitation, studying choices around plant locations, market entry, process management system adoption, product diversification, acquisitions, governance systems and more. But imitating successful competitors can be surprisingly misleading and ineffective, for three reasons.
1. You’re confusing cause and effect
Successful firms’ practices and decisions are often consequences of their success rather than its causes. A simple example is firm size. Size is often given as a rationale for acquisitions: “This acquisition immediately makes us the number two company in the market.” Large firms are often successful, but imitating their size is not necessarily going to make you more successful. That’s because good performance made those firms bigger, not the other way around. Successful firms grow and become big, but making yourself bigger just for the sake of it is not necessarily going to make you better off. We call this reverse causality.
Similarly, successful firms may be entering foreign markets – because they have built a competitive advantage that can be exported and exploited abroad – but following them into these markets may not enhance your performance. Probably quite the opposite.
Many of the best practices identified in popular business books, which often start by making a list of top performing firms and then comparing what they have in common, are known to be consequences of success rather than its causes (a strong, homogeneous corporate culture, to name just one).
So beware of reverse causality when you are making strategic decisions and bear the following image in mind:
Among the aboriginals on the Micronesian island of Ponapae, what contributed to a man’s prestige was owning a very large yam. That’s because it demonstrated his skill as a farmer: good farmers grew larger yams. But anthropologists described how other people’s efforts to obtain or grow one giant yam were often detrimental, distracting time and effort away from other necessary activities. Their families often went hungry and suffered malnourishment.
Don’t be like a Ponapaen farmer trying to grow a big yam. Think through the real causes of success in your business, rather than just emulating the current characteristics of your successful peers.