In previous articles, we’ve written about the emerging competitors from China, firms that are beginning to expand their reach from that country’s broad middle market to even the well-established markets of North America and Europe. We have characterized these companies as Second Mouse firms, drawing upon the saying “The early bird gets the worm, but the second mouse gets the cheese” in recognition of their strong fast follower and fast learner competencies. In fact, it has been the ability of these firms to learn best-in-class manufacturing skills from western firms and to parrot key elements of western technology and design that have enabled them to succeed by bringing to market an “almost as good product at a great price point”. Such firms as Huawei, Haier, Sany, Mindray, and Geely are now significant forces in the global economy, with more and more Chinese firms in manufacturing, construction, engineering, services, and other segments of the economy occupying positions on the Fortune Global 500.
A key ingredient in the success of the Second Mouse firms has been their application of fast learner skills to the goal of creating “almost as good products at a great price point”. More often than not, western firms focus innovation and product development on raising the bar in terms of key performance metrics, improved design, or additional features. The Second Mouse firms, on the other hand, focus their efforts on achieving significant cost saving without compromising the factors that matter most to their targeted customers. We have used the familiar story of Southwest Airlines as an analogy, reflecting a successful western firm that stripped away some costly features found in other airlines to offer an acceptable service at a very attractive price. So a first element of learning that can be gained from the Second Mouse firms is that there are multiple flavors of innovation, and that innovations that achieve highly attractive price points with still-acceptable products can create a business success story that yields sales to middle market customers that translate into strong rewards for the firm’s shareholders.
Just as these Chinese firms have learned from western market leaders, it is possible for western firms to benefit from implementing other aspects of their approach to learning. In this article, we’ll describe three additional philosophies that are second nature to the Second Mouse firms, ones that have helped them to achieve success through fast learning. They are ones that some western firms can accurately say they practice, but by and large, the Second Mouse firms have taken these ideas to a higher level. Even those western firms that can correctly say they already implement these ideas should be asking how they can similarly take their current practices to a higher level.
Several decades ago, our firm hosted delegations of Chinese interns who hoped to learn about western practices with respect to data resource management. As our team welcomed these individuals, we first began to hear comments like “I’m exhausted answering all of their questions”. But over time, the comments shifted to observations like “They asked me a really provocative question today” and “I had to admit I had no answer to a question, and it’s gotten me thinking …”. Reflecting this experience, the first learning principle we see in the Second Mouse firms is “Question everything”. This is a practice that had paid off for many western firms, particularly when they’ve listened carefully to messages from the market as to what does and what doesn’t create value for their customers. It’s easy to do things “because we’ve always done them that way” that in truth are costly and that contribute little to value creation.
A second lesson involves the familiar concept of the 80-20 rule, with a particular twist to its application by Second Mouse firms. Their concept is that the final increments to performance, design, and features come at a very high cost, and the Second Mouse firms use the 80-20 rule as the route through which they can offer “almost as good products at a great price point”. Over and over, they’ve found that their customers, not just in the middle markets of China, but around the world, are willing to sacrifice those final increments when doing so makes the product much more affordable. One western firm with which we worked learned this lesson well. Through a careful market research project, they learned that their targeted market segment in China attributed very little importance to five product features that were of major importance to their ability to differentiate their product in western markets. By excluding these features and taking the associated costs out of their product, they were able to achieve a competitive position in China, gaining share, unlike other western firms that attempted to market their western products into China with an unchanged feature set and price point.
The third learning lesson is one that all western firms will recognize: “Time is money”. The Second Mouse firms are religious in terms of thinking about how to shorten the critical path. Anyone with experience in China’s markets can probably provide examples about how a Chinese firm built a working prototype of a product in the same time that western firms used to gain approval to begin working on the same project. We have used the phrase “China speed” to characterize their obsession with quickly getting to market through creative approaches that “take time out”. Not all of the concepts that they employ to do that will translate neatly into western markets. For example, many Chinese firms are seen as doing “beta testing in people’s homes”, or, stated more positively, substituting service resources for expensive and time-consuming processes. While not all of their practices are appropriate to other markets, the focus on “taking time out” is one that frequently pays off not only in terms of cost savings, but also in terms of first-mover advantages.
For many western firms, competition from Chinese Second Mouse firms that are new to global markets will be the most significant challenge of the coming decade. These new competitors will draw upon their fast learning skills to achieve success in new markets, and will frequently surprise their western targets with products, processes, and innovations that “look obvious once you think of it”. What enabled the Second Mouse firms to be the ones that “first thought it it” was their constant focus on fast learning, looking at innovation from a new perspective, questioning everything, applying the 80-20 rule to cost reduction, and focusing on ways through which they can “take time out”. Those western firms that learn these same principles will be the ones that will have the best chances of winning in the future, not only against new competitors from China and other emerging economies, but against their traditional roster of “usual suspect” competitors. Learning from the fast learners will be a critical success factor in the coming years, and now is the time to start on that journey.
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