Appropriating the value from innovation: inimitability and the effectiveness of isolating mechanisms

Abstract

Preventing the imitation of products and their underlying characteristics is a key source of competitive advantage. Isolating mechanisms, such as patents, brand name and speed to market, render an organisation's inventions imperfectly imitable by competitors, helping sustain the above‐normal returns achieved from a new product innovation. A theoretical framework is developed whereby the characteristics of isolating mechanisms, namely causal ambiguity, asset stock effects and enforceability of property rights, are shown to be important determinants of appropriation effectiveness. A multiple method research design, consisting of a survey of 238 large Australian organisations, and a further six case study organisations, is adopted. The results indicate that isolating mechanisms in the form of technological capabilities, market‐based assets and knowledge protection positively moderate an organisation's returns from their innovation activities, while being first‐to‐market is found to negatively moderate the business returns achieved. Implications for managers in increasing the effectiveness of their appropriation regime, and future directions for research are proposed.