One of the standard pieces of conventional wisdom about innovation has to do with the role of the incumbent firm. Existing, incumbent companies don't innovative, so the story goes. Start-up and new entries are the innovators -- who then go on to displace the incumbent firms. Mammals and dinosaurs are the usual analogy. But just like evolutionary biology (which now posits that modern birds are the descendants of the dinosaurs), innovation looks a lot more interesting when you start getting into the details. One of those details is the role of incumbent companies as fast-followers rather than first-movers.
A story today on Bloomberg ("Zipcar Now Sees Enterprise in Rear Window") illustrates the point. Zipcar was the pioneer in creating the "shared car" concept: short term car rentals from nearby sites. There were a number of innovations that came together in this case. The concept of hourly rental was only the beginning. There was also a different distribution model made up of two parts: no office to go to and no paperwork to fill out. Paperwork was essentially done before hand as part of membership and cars were located in neighborhoods, often singly at reserved spaces on the street or in someone's driveway. Then there was the innovative marketing model. It was marketed as a shared-ownership model, not a rental model. The target was not travelers or people would needed a car while theirs was being repaired. The target was people who didn't own a car and didn't want to own a car. It was a substitute for car ownership, not a temporary replacement of one's own car.
Now it looks like at least two of the incumbent companies, Hertz and Enterprise, are trying to play the role of fast-followers. In Europe, car makers Daimler and BMW have gotten into the game. So we will have a classic natural experiment in the market place of business evolution. The question is, can the incumbent's successfully pull off the strategy?
Both Enterprise and Hertz will have to adopt a new approach, which is usually the reason why incumbents fail in their attempts at fast-following. Innovation means doing it differently and often means abandoning existing organizational and other intangible assets. The Bloomberg story hints at how this might be a problem for Enterprise:
Enterprise is betting that its network of neighborhood branches will be a differentiator. With 5,500 locations, the company says 90 percent of the U.S. population is within 15 miles of one. Zipcar says about 10 million people live within a 10-minute walk of its cars.As I noted earlier, one of the innovations in the car sharing model is by-passing the office. The other is the closeness and ease of access to the car. There is a universe of difference between 15 miles away and a 10 minute walk away. The Enterprise "we'll pick you up" is vastly different from Zipcar's "wheels when you want them."
For the car makers, the task is different. They don't have the organizational legacy to overcome. But that just means that they aren't joining the party with any specific advantage. And, if they tie themselves to just their own products, they are a niche player catering to BMW and Mercedes want-to-be owners.
So, this is a case of innovation worth watching. Will the first-movers (Zipcar) hold on? Can the incumbents (Hertz and Enterprise) become fast-followers or will they be tied down by their past? And can some other large new entrants (the car companies) leverage their intangible assets (especially brand) into this market? Stay tuned!