Forget ‘Follow the Leader’ – To Stay on Top, Leaders Should ‘Follow the Challenger’

How should market leaders respond to a competitor aggressively trying to dethrone them? The traditional routes, of course, are based on the leading organizations capabilities and looking for emerging opportunities. They can be summarized as “Do your own thing and look for absolute gains”

But here’s a seemingly radical alternative: The leader should copy the follower.

In a new paper titled “When the Leader Follows: Avoiding Dethronement through Imitation,” written by Imperial College of London’s Jan-Michael Ross and Dmitry Sharapov and published in the June 2015 Academy of Management Journal, the authors suggest this hypothesis:

In winner-takes-all competition, the likelihood of staying ahead of the follower is higher when the leader imitates the follower.

Using this approach the leader can identify the challenger’s key competitive advantages and start nullifying them. As the market leader, absolute growth can be less important than retaining relative advantage and protecting the top position.

Critically the authors suggest that the more volatile the environment the more effective a “follow the follower strategy” can be.

They tested it using data from the America’s Cup yachting race in 2011, which provided a natural test environment. Cooperation and collusion are not options and each team has similar resources allowing comparison.

When the boats are sailing into the wind and having to tack to make headway, it’s very clear whether the leading boat is choosing its own strategy (and ignoring the yachts behind it) or whether it is copying what they are doing to reduce the risk of being overtaken and dethroned.

The America’s Cup also made a good experiment to test the theory because the environment – wind and waves – is highly variable and, when combined with the sailing strategy, performance variations can be significant. However, as in modern business, there is little information asymmetry. Everyone knows what the market looks like and what is happening.

The paper analyzed 79 races in the 2011-12 series and found that under most circumstances copying the challenger was a very effective method of maintaining a lead. Where it didn’t work was in cases where the two boats were very close together.

When a leader and a challenger are very close, the authors found, there’s too much randomness and the strategy becomes increasingly unreliable.

Back in the real world we’ve seen this in place in the mobile phone industry. This industry is highly volatile with market leading positions often held for only a few years. For example, when Nokia was market leader it ignored Apple’s entry into the market. It didn’t adopt a strategy of copy Apple’s innovations and positioning; for this and other reasons, Nokia was soon dethroned.

Importantly, Apple seems to have learned the America’s Cup lesson. As Samsung entered the smartphone market in a big way, it used phone and Tablet size to differentiate itself from Apple. Steve Jobs’ famously said that “no one would buy a phone that’s too big to get your hand around.” Five years later Apple has done exactly that, to jeers that it is selling out, to stop Samsung’s attempt to dethrone it and retain the majority of the industry’s profitability.

The takeaways:

  • For market leaders, copying your competitor’s position can maintain your market leadership even if their strategy is sub-optimal
  • For challengers, getting to parity as quickly as possible stops the market leader from using copying as a defensive strategy. Alternatively, challengers might design their strategy to make copying it as costly as possible for the market leader.