Coming in Second: When Being a ‘Fast Follower’ Is the Best Strategy
An accepted wisdom in business is that being first-to-market with a product, service or a new wrinkle on an old idea is the optimal strategy. Intuitively, this makes sense—a new market is there for the taking. The early mover can capitalize on its inventiveness, win brand loyalty and fend off the copycats that follow. Now comes a series of provocative books declaring that being an early mover is fraught with danger, that the risk of failure for a first-to-market company is much higher than for the pack in pursuit.
In business, the silver medal may be worth more than the gold. This is the conclusion of books like Copycats, Fast Followers and Will and Vision: How Latecomers Grow to Dominate Markets. Oded Shenkar, author of Copycats, has stated, “The facts don’t suggest that the innovator wins the market. Rather, the return is quite meager and declines over time.” Shenkar is the Ford Motor Company chair in global business management and a professor of management and human resources at Ohio State University’s Fisher College of Business.
Other academics draw the same conclusion. Their research indicates that holding back has its virtues. “There is much more evidence to suggest that it is better to be second than first,” says Aleksios Gotsopoulos, Ph.D., assistant professor of management at Sungkyunkwan University in South Korea. “Once a market has been proven, a fast follower with capital, distribution channels and innovative marketing can come in with a superior product, satisfying customer needs that the early mover had failed to satisfy. Being first does not mean winning.”
FIRST TO WIN, FIRST TO LOSE
He makes a compelling point. Southwest wasn’t the first airline, but it is the preeminent air carrier today. Google wasn’t the first Internet search engine, Kickstarter wasn’t the first crowdfunding site and Boeing wasn’t the first airplane manufacturer. In fact, the latter company shrewdly analyzes whether it is better to be first-to-market with a new airplane or be second
with something better. (Fair disclosure: The reporter is the author of the book Higher: 100 Years of Boeing.)
Boeing’s 787 Dreamliner demonstrates the wisdom of waiting. Prior to the Great Recession, airlines wanted next-generation aircraft with higher passenger capacity for hub-to-hub routes. Boeing’s chief rival Airbus responded first with plans to build the A380, the world’s largest passenger airline. Boeing instead planned to develop a supersonic jet. When the financial crisis reared, Airbus stuck to its plans but Boeing went in a completely different direction, developing the smaller capacity, but longer-range and more fuel-efficient 787. The company figured that
during the difficult economic period, airlines would want more efficient planes with lower operating costs.
Airbus hit the market first, but Boeing had the more appealing product. Even though the Dreamliner’s debut was postponed because of supply chain issues, it seized more than three times the volume of orders from global airlines than the mammoth A380. By taking its time, Boeing could assess Airbus’ market experience and deliver a product better suiting demand. Both manufacturers had great products, but in this case the early bird did not get the worm. This is not to conclude that all early movers run the risk of a bad fate or that the real advantage belongs only to those that follow. First movers can neatly tie up patents and copyrights, cultivate strong alliances with regulators, and build unshakable brand loyalties.
Shenkar says being first-to-market or second-to-market is less important than having excellent market timing. Nevertheless, he insists that it is generally better to follow than to lead. “There is no reason to rush to market, even though analysts continually tout it as the surest way to gain and hold market share,” he explains. “While the innovator enjoys some preliminary
advantage, the return on this innovation goes down over time.”
This article was originally published by http://chiefexecutive.net/
Pulitzer-nominated financial journalist and best-selling author
8yThanks everyone for your insightful comments on the article. Certainly, the "prevailing wisdom" is not writ in stone, and challenging the status quo can yield value.
Good points Russ but to be fair on the case study of the A380, they started with project approval in Dec 2000 and final certification happening Dec 2007. They were committed fully at that stage so the case study better highlights another challenge of strategy: timing is everything.
Solution Architect
8yMy six year old son must be very wise, he keeps telling me "first is the worst, second is the best,...". But only when he doesn't win of course.
Vice President of Operations at PA Options for Wellness
8yI agree with the article mostly. The race to market idea implies the race is over, this is not true. A lot of runners will tale the fastest runner until the last lap or so to win the race. I think it is good strategy if your organization has good synergy with the developed product. Consumers need to have a compelling reason to leave the first to market winner.
systems engineer/analyst, "secessio plebis"
8yExecution trumps timing every time. If you can execute as a first-mover, that doesn't leave much for a fast-follower but to copy you. By the time they catch up to where you are, you should have already left them in the dust on improvements and solidified your position.