The COMPETITIVE ADVANTAGE realized by a company by entering a market first. First movers are usually better placed to reap economies of scale, to reduce costs through cumulative learning, to establish brand names and customer relationships, to control distribution channels and to obtain the best locations for facilities or the best sources of inputs. The danger with the first mover strategy is that the company may end up creating a market which may be better exploited by a later entrant offer- ing a superior product. First mover strategies seem to work best when both technology and market conditions remain reasonably steady, econ- omies of scale are significant and customers are conservative about switching suppliers. When both technology and market are changing rapidly, later entrants have ample opportunities to uproot the first mover. As Michael PORTER* has mentioned, to succeed first movers must correctly anticipate industry changes. American companies were early entrants into electronic watches. However, they bet heavily on light emitting diode (LED) displays. This technology proved inferior to liquid crystal displays (LCD) for less expensive watches and traditional (ana- log) displays combined with quartz movements for watches in higher price ranges. The introduction of LCD and quartz enabled Japanese firms to become industry leaders in watches targeted at the mass market.
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Often the wise strategy is to be an early mover, not necessarily the first mover. Just like in a marathon race, a company can be in the front but not necessarily at the top of the pack. That way it can learn from the first mover and yet move fast when necessary and reach the winning line. The global software giant Microsoft has succeeded by pursuing this kind of a strategy in many of its markets.
(See also: FREE RIDER)
Five Forces Model
Probably the most widely used tool in business strategy which helps analyze the attractiveness of an industry. It can be seen as one of two dimensions in maximizing corporate value creation. The other dimen- sion, value creation is how well a company performs relative to its com- petitors. Here the VALUE CHAIN framework and the COMPETITIVE AD- VANTAGE concept, both developed by Porter come in handy. The five forces are:
Barriers to Entry: The barriers to entry are high or low, depending
upon factors such as economies of scale, brand image, capital re- quirements, access to distribution channels, government policies, etc. Higher the barriers to entry, the more attractive the industry.
Bargaining Power of Buyers: This is influenced by buyer volume, buy-
er information, buyer profits, substitute products available, etc. The lower the bargaining power of buyers, the more attractive the industry.
Bargaining Power of Suppliers: This is affected by various factors
such as switching costs, differentiation of inputs, supplier concentra- tion, presence of substitute inputs, threat of forward / backward inte- gration, etc. The lower the bargaining power of suppliers, the more attractive the industry.
Threat of Substitutes: The threat of substitutes is high if there are
alternative products with lower prices or better performance parame- ters for the same purpose. The lower the threat of substitutes, the more attractive the industry.
Rivalry: This refers to the intensity of competition among existing
players in an industry. Competition among existing players is likely to be high when there exists a large number of companies, slow mar- ket growth, high fixed costs, and high exit barriers. The lower the de- gree of rivalry, the more attractive the industry.
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Some scholars argue that the model emphasizes an outside-in ap- proach and underemphasizes the importance of the (existing) strengths of the organization (inside-out). That is the main argument behind a competing school of strategy, RESOURCE BASED THEORIES. Notwithstand- ing this criticism, the five forces model remains a conceptually elegant way of analyzing the structural attractiveness of an industry.
(See: BARRIERS TO ENTRY, BARGAINING POWER OF BUYERS, BARGAIN- ING POWER OF SUPPLIERS, INDUSTRY, THREAT OF SUBSTITUTES, RIVALRY)
Flat Organization
An organization with only a few layers of management between the highest and the lowest levels. It presents a stark contrast to the classic hierarchical organization which has several layers of managers, each of whom supervises a lower layer. The basic premise behind the flat organ- ization is that trained, empowered workers with assigned goals, who are encouraged to work innovatively, will be more productive than workers who are closely supervised by managers. A flat organization is more transparent, less bureaucratic and improves communication. One prob- lem with a flat organization is that opportunities for career advancement may be limited.
(See: ORGANIZATIONAL DESIGN, SPAN OF CONTROL)
Focus
A strategy which believes in concentrating on a small segment defined either in terms of customer segment or geographical territory. A focus strategy means carefully choosing the arena to compete in and narrow- ing the competitive scope. By selecting carefully*a segment and meeting the needs of that segment better than can competitors who target more broadly defined segments, companies can gain competitive advantage. A focus strategy takes advantage of the differences between the target segments and other segments in the industry. It is these differences that result in a segment being poorly served by the broad-scope competitor. The firm that focuses on cost may be able to outperform the broad-based firm through its ability to strip out frills not valued by the segment. Al-
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This term is taken from the book The Essence of Strategic Management by Cliff Bowman, Prentice Hall of India, 1990.
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ternatively, the product or service itself can be differentiated taking into account the unique needs of a segment.
The obvious danger with the focus strategy is that the target segment may shrink or disappear over time for some reason. A new player may ―outfocus‖ the firm. Alternatively, shifting from broad to narrow target- ing usually means a dramatic reduction in volumes. This can raise unit costs if the overheads have not been trimmed to match the smaller out- puts demanded by the narrower customer base.
(See also: GENERIC STRATEGY)
Follett, Mary Parker
One of the earliest and strongest advocates of collaborative, participative approaches to management and cross-functional problem solving. Follett argued that true authority and leadership were a function of the knowledge and experience of people, not their rank in a corporate hier- archy. If Taylor was the father of scientific management, Follett pio- neered a behavioral, post-scientific approach to managing human organ- izations. She pioneered ideas such as constructive conflict resolution, participative management, and flatter organizations. According to Fol- lett, the proper response to conflict was ―integration‖ of different points of view to reflect multiple viewpoints. Collaboration and cooperation with labor, she argued, were the only rational ways to run a business. Follett can be considered an early advocate of organizational learning through she never used those words explicitly.