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Innovative Imitation

In a 1966 article, Theodore Levitt reflected on how companies tend to dismiss the potential of new products introduced by competitors. At first, the team will assume that the product will be a failure. Then over time, the team will become increasingly convinced that they should be developing an imitation product. Levitt believed that this “attitude of doubt and tentativeness can and should be translated into sound business practice“. And so he proposed a quantitative system that can be put in place to hedge the risk. In this system, a percentage of the perceived overall cost of developing an imitation product is invested in R&D each time period, proportional to a ‘Success Probability Estimate’.