Business Today

Copy, But with Care

Henrich R. Greve        Print Edition: March 3, 2013

Henrich R. Greve
Ryanair is a European low-cost airline that has grown a lot since it was formed in 1984. It now flies more than 300 aircraft across all of Europe. More unusually, for an airline, it is profitable. Its path to success is that it learnt from others, and especially from the US lowcost airline Southwest Airlines, which started operations way back in 1971, and introduced a wide range of innovations in operations and management.

Southwest has had an even longer stretch of profitable operations. Although there are many differences between these two airlines , Southwest co-founder Herbert Kelleher has stated that Ryanair is the best imitation of Southwest he has seen. Others have also sought to learn from Southwest. New airlines America West and Reno tried, and so did the major airlines Continental and United, when they started lowcost subsidiaries. None of these attempts met with success.

How do some firms successfully learn from others? Why do they sometimes fail to learn?

To answer these questions, we first need to cut them into individual pieces. First, learning from others does not happen unless the firm decides to change. Although we most easily notice failure when a firm tries to learn from another and does not succeed, the more common failure is to not even try.

Second, successfully learning from other firms does not happen unless the learning firm can transfer lessons and adapt them to its own circumstances. The adaptation part is important. No two firms are alike, so attempting to do exactly the same things will rarely produce the same results.

Let us return to Southwest Airlines. It has been consistently the most profitable airline in the US, which is surely an enviable record. Yet it took a long time before major airlines tried to copy its practices.

Why? A hint is given by the fact that the first large scale attempts to create "Southwest copies" happened in the early 1990s, by which time Southwest was no longer a small start-up. By then, it had become a major airline and was competing with the older major airlines in many routes.

Learning from others does not happen unless the firm decides to change. Although we most easily notice failure when a firm tries to learn from another and does not succeed, the more common failure is to not even try

It was already successful when it was small and operated in a small corner of the US, but success on a small scale did not inspire learning. Southwest got the attention of the major airlines when it became large, and when it became a rival.

This is no isolated case, but a general principle. Although learning occurs when firms pursue success, it is far more common for firms to learn when they are seeking to avoid failure. Isolated success stories are often not enough. They are especially likely to be overlooked when they are very different from the firm that could learn from them. Initially Southwest Airlines was small. It did not have a strong position in the business travel segment.

It had many practices that seemed bizarre, like the absence of seat reservations and flight attendants wearing shorts and high boots. An executive from a major airline would have many reasons to dismiss them as irrelevant.

More importantly, the major airlines could look at the financial results the others had and think their own losses were not so unusual. After all, the entire industry suffered, or so it seemed. This is an important source of non-learning. Managers rate their own performance as success or failure by comparing it with a peer group of similar others.

If only one or two of the major airlines had performed well, the others might have been more willing to learn, but shared low performance put a damper on reforms. The peer groups that managers consider when comparing performance are often based on size and rivalry. They compare themselves with firms of the same size (or bigger), and they compare themselves with their rivals. In many other industries large firms have fallen behind because they have - together - experienced low performance as a result of obsolete practices. They could have learnt from the more modern firms, usually smaller entrants, but only if they had realised the difference in performance.

Once firms have decided that they need to change, the next step is to identify lessons from others and transfer them to their own operations. This is difficult because it can be hard to tell what works, why it works, and whether it will work the same way elsewhere. For example, the Wal-Mart department stores in the US employ "greeters" who smile and greet shoppers. The German chain store ASDA also tried to use "greeters," but it proved to be unpopular with customers. The irony is that ASDA was owned by Wal-Mart. Wal-Mart tried to learn from itself, but failed because its managers did not realise that "greeters" had different effects on US and German customers. Indeed, many are sceptical of whether "greeters" were really among the reasons for Wal-Mart's success, pointing out instead that good store locations and sophisticated logistics and buying operations could be the key factors responsible.

When we see that a firm can even fail to learn from itself, it follows that learning from other firms is still more challenging. Firms seeking to learn from another are on the outside trying to look into the firm they are copying. They do not have the information they need in order to fully understand the sources of success.

Even relatively simple lessons can be difficult to learn. The class of large and successful container ships that now dominate the long routes at sea spread very slowly among shipping firms even though buying ships is easy for them, and they know well why larger ships are more efficient than small ones. A likely reason was that shipping managers hesitated because they were worried about possible differences in the use of large and small ships. This gave the pioneers a 10-year lead before others caught up. These examples also illustrate a general principle: a lesson poorly understood may be applied late, and sometimes incorrectly.

Learning from others does not make a company an innovator. But it saves many firms from falling behind, and when skilfully done, helps them select only the innovations that actually work. It is easy to overlook the challenges in learning from others, because this calls for willingness to change and ability to learn the right lessons.

(The author is Professor of Entrepreneurship, INSEAD, Singapore)

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