Technology strategy: Technological Leadership or Followership

The second broad issue a firm must address in technology strategy is whether to seek technological leadership. The notion of technological leadership is relatively clear—a firm seeks to be the first to introduce technological changes that support its generic strategy. Sometimes all firms that are not leaders are viewed as technological followers, including firms that disregard technological change altogether. Technological followership should be a conscious and active strategy in which a firm explicitly chooses not to be first on innovations, and that is the sense in which it is examined here.

While technological leadership is often thought of in terms of product or process technology, the issue is much broader. Leadership can be established in technologies employed in any value activity. The discussion here is directed at the strategic choice between pioneering innovation in any value activity and waiting for others to pioneer.

The decision to become a technological leader or follower can be a way of achieving either low cost or differentiation, as illustrated in Table 5-2:

Firms tend to view technological leadership primarily as a vehicle for achieving differentiation, while acting as a follower is considered the approach to achieving low cost. If a technological leader is the first to adopt a new lower- cost process, however, the leader can become the low-cost producer. Or if a follower can learn from the leader’s mistakes and alter product technology to meet the needs of buyers better, the follower can achieve differentiation. There can also be more than one technological leader in an industry because of the many technologies involved and the different types of competitive advantage sought.

The choice of whether to be a technological leader or follower in an important technology is based on three factors:

  • Sustainability of the technological lead. The degree to which a firm can sustain its lead over competitors in a technology.
  • First-mover advantages. The advantages a firm reaps from being the first to adopt a new technology.
  • First-mover disadvantages. The disadvantages a firm faces by moving first rather than waiting for others.

All three factors interact to determine the best choice for a particular firm. Significant disadvantages of being a first mover may eliminate the desirability of taking the leadership role even if a firm can sustain its technological lead. Conversely, first-mover advantages may translate an initial technological lead into a sustainable competitive advantage elsewhere though the technological lead itself disappears. First-mover advantages and disadvantages occur most often in the context of technological choices, but their significance for competitive strategy formulation extends beyond technological strategy. They address the wider question of how timing translates into competitive advantage or disadvantage and into entry and mobility barriers.


Technological leadership is favored if the technological lead can be sustained because (1) competitors cannot duplicate the technology, or (2) the firm innovates as fast or faster than competitors can catch  up. The second condition is im portant because technology often diffuses, requiring a technological leader to remain a moving target. Kodak, for example, has maintained leadership in amateur photography in large part through a succession of camera systems and film chemistries, most recently including the disc camera, rather than possessing a single technology competitors could not match. If a technology lead cannot be sustained, technological leadership can only be justified if the initial lead translates into first-mover advantages, because of the greater cost of leadership compared to followership.

The sustainability of a technological lead is a function of four factors:

The second condition is important because technology often diffuses, requiring a technological leader to remain a moving target. Kodak, for example, has maintained leadership in amateur photography in large part through a succession of camera systems and film chemistries, most recently including the disc camera, rather than possessing a single technology competitors could not match. If a technology lead cannot be sustained, technological leadership can only be justified if the initial lead translates into first-mover advantages, because of the greater cost of leadership compared to followership.

The sustainability of a technological lead is a function of four factors:

The Source of Technological Change. The sustainability of a technological lead depends heavily on whether technology is being developed inside the industry or is coming from outside it. An important proportion of technological change comes from external sources such as suppliers, buyers, or completely unrelated industries. In many process industries, for example, the key source of technology is construction engineering firms that design production processes and build plants.

Where important sources of technology are external to an industry, sustaining a technological lead is generally more difficult. External technology sources decouple a firm’s access to technology from its technological skills and R&D spending rate, because many companies can get access to external developments. Hence external technological changes act as an equalizer among competitors. Technological leaders in industries with key external sources of technology must capture the best of those sources through coalitions or exclusive arrangements in order to sustain their lead, or have a superior ability to adapt externally developed technology to the industry.

The Presence or Absence of a Sustainable Cost or Differentiation Advantage in Technology Development Activity. A technological lead is more likely to be sustainable if a firm has a cost or differentiation advantage in performing technology development. The tools in Chapters 3 and 4 can be used to analyze a firm’s relative cost and differentiation in the development of technology. For example, scale economies or learning effects in technological development give large-share or experienced firms an R&D cost advantage. Where the costs of developing a model are largely fixed, a firm with a large share has proportion-ally lower R&D costs than a smaller-share firm. It may thus be able to spend more money on R&D in order to maintain its technological lead without a cost penalty. This seems to have occurred in large turbine generators, where General Electric has outspent Westinghouse in absolute terms and maintained a significant technological lead although its R&D as a percentage of sales is still lower than Westing- house’s. Rising costs of product development in an industry also work in favor of large-share firms. As the cost of bringing out a new herbicide has risen to over $30 million, for example, the advantages of the industry leaders in agricultural chemicals are widening.

A firm’s relative cost or effectiveness in performing technology development can also be strongly influenced by interrelationships among related business units within the parent company. Interrelationships can allow the transference of skills or sharing of costs of R&D activity. The types of interrelationships involving R&D are described in Chapter 9. Technological leaders often aggressively pursue technological interrelationships, entering new businesses with related technologies. They also create mechanisms for R&D transfer among business units, and tend to invest at the corporate level in core technologies with a potential impact on many business units.

Different parts of the innovation cycle—basic research, applied research, development—tend to offer differing opportunities for sustainable cost advantages in R&D spending. Basic product innovation is often less scale- sensitive than the subsequent rapid introduction of new product types and the incorporation of new features. This is one of the reasons Japanese firms often overtake innovative U.S. firms that fail to maintain their lead in subsequent product improvements. Many successful technological leaders do not reap all of the benefits of scale, learning, or interrelationships in R&D in the form of higher profits, but reinvest to maintain their technological lead. They also exploit any scale or learning advantages in R&D by rapid new model introduction. Honda, for example, has reinforced its competitive advantage in motorcycles through a continual stream of new models.

Relative Technological Skills. A firm with unique technological skills vis- à-vis competitors is more likely to sustain its technological lead than a firm with comparable R&D personnel, facilities, and management to competitors. Technological skills will influence the output from a given rate of spending on technology, regardless of scale, learning, or interrelationship effects. Technological skills are a function of many factors—management, company culture, organizational structure and systems, company reputation with scientific personnel, and others. NEC Corporation, for example, is the company most highly ranked by engineering graduates in Japan. This contributes to its ability to attract the best graduates, reinforcing its strong R&D capability.

Successful technological leaders pay close attention to their stock of R&D skills. They avoid cutting back R&D staff in industry downturns or profit squeezes. They also seek out relationships with the leading scientific centers in appropriate fields, and attempt to develop an image as the best place to work for the types of research personnel that support their technology strategy.

Rate of Technology Diffusion. A final important factor in determining the sustainability of a technological lead is the rate of diffusion of the leader’s technology. Superior technological skills or cost advantages in performing R&D are nullified if competitors can easily copy what a firm develops. Diffusion of technology occurs continually, though at different rates depending on the industry. Some of the mechanisms for diffusion of a leader’s technology are as follows:

  • direct observation by competitors of a leader’s products (reverse engineering) and methods of operating
  • technology transfer through equipment suppliers or other vendors
  • technology transfer through industry observers such as consultants and the trade press
  • technology transfer through buyers who desire another qualified source
  • personnel losses to competitors or spinoff firms
  • public statements or papers delivered by a leader’s scientific personnel

The diffusion of technology is often greater for the basic product and process innovations than it is for later improvements. Product and process refinements are more likely to be kept proprietary, particularly when based on process improvements. Since Japanese firms have emphasized constant process innovations, they often develop more sustainable advantages than U.S. or European firms that pioneered the process.

The rate of technological diffusion is partly intrinsic to an industry and partly under a firm’s control. Most of the technology of a mobile home producer, for example, is readily observable by examining the product. Disposable diaper technology diffuses more slowly because much of it hinges on the way the product is manufactured on customized machines. Some factors that slow down the rate of diffusion are as follows:

  • patenting of the firm’s technology and related technologies
  • secrecy
  • in-house development of prototypes and production equipment
  • vertical integration into key parts that embody or give clues to the technology
  • personnel policies that retain employees

Successful technological leaders are aggressive in trying to slow down diffusion. They patent extensively where patents can be obtained, and enforce them by always challenging infringers. They view all contact with outsiders, even buyers, as a threat to proprietary know-how. Plant tours are a rarity, and even buyers are not told about key innovations. Technological leaders are also often vertically integrated, building or modifying equipment in-house to protect technology, and are discrete in public disclosures. It is striking how many of the firms known to be secretive are also technological leaders. These include DuPont, Kodak, Procter & Gamble, and Michelin.


Technological leadership is strategically desirable when firstmover advantages exist. These allow a leader to translate a technology gap into other competitive advantages that persist even if the technology gap closes. First- mover advantages rest on the role of timing in improving a firm’s position vis-à- vis sustainable sources of cost advantage or differentiation. In general terms, a first mover gets the opportunity to define the competitive rules in a variety of areas.

The most important types of potential first-mover advantages include the following, and can also accrue to moving first into a geographic area or to pioneering that does not involve technology per se:44

Reputation. A firm that moves first may establish a reputation as the pioneer or leader, a reputation that emulators will have difficulty overcoming. Leadership places a firm, at least temporarily, in the posi-tion of being unique which can produce long-term image benefits not available to others. A first mover also may be first to serve buyers and thus to establish relationships where there may be loyalty. The significance of any reputation advantage from leadership will depend on the credibility of a firm and its capacity to invest in marketing. A small company may not succeed in enhancing its reputation by moving first because it lacks the resources to publicize its lead.

Preempting a Positioning. A first mover may preempt an attractive product or market positioning, forcing competitors to adopt less desirable ones. Stouffer’s preempted the gourmet concept in frozen entrees, for example. A first mover gets the opportunity to shape the way a product is defined or marketed in a way that favors it. A first mover can also put capacity in place to preempt the ability of competitors to profitably expand.

Switching Costs. A first mover can lock in later sales if switching costs are present. In hospital management contracts, for example, the pioneer that signed up hospitals first gained a significant edge in contract renewals because of the substantial costs to the hospital of changing management firms. Switching would result in disruption caused by a new administrator, a new computer system, and other changes.

Channel Selection. A first mover may gain unique channel access for a new product or product generation. It can pick the best brokers, distributors, or retailers, while followers must either accept the second best, establish new channels, or persuade the first mover’s channels to shift or divide their loyalties.

Proprietary Learning Curve. A first mover gains a cost or differentiation advantage if there is a proprietary learning curve in value activities that are affected by the early move. The first mover begins down the learning curve first in the affected activities, and may establish a durable cost or differentiation advantage if it can keep its learning proprietary.

Favorable Access to Facilities, Inputs, or Other Scarce Resources. A first mover can often enjoy at least a temporary advantage in access to purchased inputs or other resources, because it contracts for them before market forces reflect the full impact of the change it is pioneering. A firm may get its pick of sites for facilities, for example, or favorable deals with raw material suppliers eager for new business. A good case in point is the airline industry, where the early no-frills carriers have acquired cheap surplus aircraft and/or low-cost terminal space, and hired out-of-work pilots. Market forces will eventually bid up the prices of these inputs as the no- frills strategy is imitated.

Other examples come from several extractive industries. New mines and processing plants are being constructed in increasingly remote locations, raising infrastructure costs. They are also being forced to bear higher environmental costs. Early movers, then, have lower costs.

Definition of Standards. A first mover can define the standards for technology or for other activities, forcing later movers to adopt them. These standards, in turn, make the firm’s position more sustainable. For example, RCA defined the standards in color TV which meant that competitors had to go down the learning curve RCA had already started down rather than create a new one.

Institutional Barriers. A first mover may enjoy institutional barriers against imitation. The first mover may secure patents, or being first into a country may give it special status with government. Institutional factors often facilitate a first mover’s ability to define standards as well.

Early Profits. In some industries, a first mover may be in a position to enjoy temporarily high profits from its position. It may be able to contract with buyers at high prices during early scarcity of a new item, for example, or sell to buyers who value the new technology very highly.

Successful technological leaders actively pursue first-mover advantages rather than rely solely on their technological edge. They take every opportunity to use their technological leadership to define the competitive rules in ways that benefit them. They invest in marketing to reinforce the reputation benefits of being the leader, and price aggressively to make early sales to buyers with the highest switching costs. It is striking how many firms that were first movers have remained leaders for decades. In consumer goods, for example, such leading brands as Crisco, Ivory, Life Savers, Coca-Cola, Campbell’s, Wrigley, Kodak, Lipton, and Goodyear were leaders by the 1920s.

First-mover advantages can be dissipated through aggressive spending by later entrants unless the first mover invests to capitalize on them. As happened to Bowmar in electric calculators, small pioneers are often overwhelmed by later entrants. Their lead is overcome not because first- mover advantages were not present, but because the resources were not present to exploit them. IBM in personal computers is providing a more recent example of a late mover succeeding against early movers based on resources and interrelationships with other business units.

Where the first mover does not have adequate resources, the first early mover with resources can often be the firm to gain the benefits of first-mover advantages. In minicomputers, for example, Digital Equipment did not introduce the first machine but gained many firstmover advantages because it was the first to develop the product aggressively. Digital invested heavily to exploit its advantages through expanding its product line, going down the learning curve, and increasing the size of its sales force. A similar situation occurred in video cassette recorders, where Ampex pioneered the product but Japanese firms invested heavily to improve the technology, produce units cheaply, and translate their lead into first-mover advantages.


First movers often face disadvantages as well as advantages. Firstmover disadvantages stem from two broad sources, the costs of pioneering and the risk that conditions will change.

Pioneering Costs. A first mover often bears substantial pioneering costs, including the following:45

  • gaining regulatory approvals
  • achieving code compliance
  • educating buyers
  • developing infrastructure in areas such as service facilities and training
  • developing needed inputs such as raw material sources and new types of machinery
  • investing in the development of complementary products (see Chapter 12)
  • high costs of early inputs because of scarcity of supply or small scale of needs

Pioneering costs vary widely depending on the type of technological innovation and can be reduced by sharing them with good competitors (see Chapter 6). However, they are often unavoidable for the first mover.

Demand Uncertainty. A first mover bears the risk of uncertainty over future demand. It must put capacity in place first, while later movers can base their decisions on more current information. Though committing before competitors has some advantages, it also has some significant risks. RCA was the first mover into color TV, for example, betting on an early takeoff of the new technology. Later movers learned from RCA’s experience that demand for color sets was some years away and avoided a period of losses.

Changes in Buyer Needs. A first mover is vulnerable if buyer needs change and its technology is no longer valued. A first mover’s reputation advantage may also be eliminated if buyers’ needs change and the first mover is identified with the old generation of technology. Unless buyer needs shift radically, substantially changing the technology required to serve them, however, a first mover can maintain its lead by modifying technology over time.

Specificity of Investments to Early Generations or Factor Costs. A first mover may be at a disadvantage if early investments are specific to the current technology and cannot be easily modified for later generations. In semiconductors, for example, Philco moved early for leadership with a large automated plant. It enjoyed a period of success, but the later development of a different manufacturing process for semiconductor chips made its earlier investment obsolete. Similarly, the early movers will be disadvantaged if its product or process reflected factor costs or factor quality that have changed.

Technological Discontinuities. Technological discontinuities work against the first mover by making obsolete its investments in the established technology. Technological discontinuities are major shifts in technology that a first mover may be ill prepared to respond to given its investment in the old technology. Discontinuity favors the fast follower who does not bear the high cost of pioneering. Where technology evolves along a relatively continuous path, however, a first mover’s head start is an advantage. It can transfer learning from the old technology to the new and stay ahead on the learning curve.

Low-cost Imitation. A first mover exposes itself to followers who may be able to imitate the innovation at lower cost than the cost of innovating. Followers often have to bear some costs of imitation and adaptation, however, which work to the benefit of the first mover.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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