What is leapfrog innovation and why you should care

Leapfrog innovation is at the center of our practice; I thought it'd be nice to explain why. To my knowledge, the term leapfrogging was first coined in 1983 in an article in the European Economic Review called Preemption, Leapfrogging, and Competition in Patent Races and later reused by economist extraordinaire Jean Tirole in The Theory of Industrial Organization (1988).

In business, the term leapfrog describes an innovation that goes beyond the next obvious incremental steps and skips beyond a whole phase of change. Imagine that in 2025 most Europeans, instead of renewing their gas cars with hybrid models and then in 2030 going full electric, would go directly to massive adoption of e-bikes. If this sounds highly improbable (it is), much more spectacular examples of leapfrogs did happen.

My most personal example is how China leapfrogged to mobile payment, skipping most of the Western credit card infrastructure. Being late in the electronic payment game, the Chinese government could gauge the cost of deploying the expected credit card infrastructure nationwide and found it way more interesting to skip it entirely to adopt their main communication, commercial and social infrastructure: the smartphone. As is often the case, leapfrogs are how late entrants can innovate in hindsight and, being late, without much legacy technology or sunk costs to deal with.

The notion of achieving major leadership because you're late to the party is quite fascinating. This would be like playing chess by letting an opponent play ten moves in one go, but he only has pawns, and then you have ten moves of your own, but you have queens instead of pawns (does it make sense? In my mind, it does.) Innovation is a rare game where being late can be leveraged as a tremendous advantage to outperform the first movers.

Back to the present and the EV market, there's a real chance European automakers can end up outperforming Tesla by leapfrogging directly to small affordable electric cars for the mass market without the need to sell high-end luxury models first (I don't give a lot of probability to this scenario, but it's definitively on the table).  

The caveat with leapfrogging is that you must learn to do one terribly difficult thing: skating where the puck will be, not where it is – or worse, where it was. This, for publicly traded companies that are driven purely on a quarterly horizon, always seems impossible.

Except when they go through a major global crisis, such as... now?