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Strategy Formulation

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Unit 3 Strategy Formulation
Ronald Rogers
MGT680-1303A-01: Strategic Management
American Intercontinental University

Synopsis
Often a business, particularly a startup, has little to no choice in when to introduce a product or service. However, given the opportunity, market information, and competition data, managers should be able to make valid choices concerning the release time of that product. This paper addresses the advantages and disadvantages of first move or late move into a market. It also explains how and why companies have succeeded and failed in both theories.
Part One:
First Mover Theory
First Mover Advantages (FMA)
FMAs have a unique opportunity to create barriers to competition such as limited resources and patents. They may have a sustainable advantage in technology that is Intellectual Property (IP), R&D, Patents, and resources. They have a monopoly of sorts, however short term that it may be (Lieberman & Montgomery, 1988).
Rapid expansion of market share with a new product is extremely likely. Introducing new products involves in-depth market research and a large investment of time and other resources. The results of the market penetration by a first mover can be difficult to overcome for subsequent entries.
Setting the benchmark is an advantage that first movers can exploit. If they introduce a product that becomes a high demand item, establish the brand name and provide good service, then they set the bar really high for late entries.
Tendency to make a high impact, lasting impression on customers, strong brand recognition, and often, a high consumer cost of switching to late entries (Innovation Zin, 2006).
First Mover Disadvantages (FMD)
Consumer education is often expensive. When a new product is introduced there is a unique challenge of educating the potential consumer about the product or service. This will reflect in sales and marketing costs that later entries into the market will not have (Davis, 2007).
Costly mistakes can be made by the first mover company. This will be observed by the potential competitor. Errors in the marketing research, demographics and geographies can cause excessive bleeding of cash and will be noticed by competitors that want to enter the market (Boulding & Christen, 2001).
Supply chain lack of faith in your product or company. Just as the consumer must be educated, often suppliers and vendors of material resources including hardware, software, data, and cash must be educated about the new concept (Boulding & Christen, 2001).
Incumbent Inertia – the early entry may be so locked-in to certain processes, procedures and assets that they cannot innovate (Viellechner & Wulf, 2010). High investments in R&D and production tend to make the company hesitant about making changes; even though the current market introduces environmental and competitive threats that may lead to market decline.

Late Mover Theory
Late Mover Advantages (LMA)
Knowledge is gained from the mistakes and successes of early entry companies that reduce investment needs, as well as, risks. This is often referred to as a ‘free-ride’ on the investments and research of first-movers (Boulding & Christen, 2001).
Adopt new and more efficient processes and technologies that surpass pioneers original processes. In 1961 Joseph Schumpeter coined the term “Constructive Destruction” to describe the process of new innovations of existing products replacing the existing products. This means that ever evolving technology will eventually replace incumbent products (Schumpeter, 1975).
Market is well identified and consumer education is largely complete. When a new product in introduced to the consumer, often the result is a lot of questions like; how does it work? What is it for? How will it make my life easier? Once a market is educated, less time and money can be spent on that process and more invested in creating and distributing the product.
Cost of the production can often be less than the first entry product. Technology, materials, labor, and design costs can lead to reduced startup and production costs. This is a function of follow the leader that can add immediate value to a late mover.
Late Mover Disadvantages (LMD)
Lack of brand recognition can be a real issue for a late mover. Consumers may easily recognize and use a product from a first mover and not recognize late comers company, logo or brand, at all. Market acceptance is a key factor among consumers. Consumers may not have an interest in changing to the late mover’s products because they are used to the first mover’s established standards (Pondent, 2012).
Late movers may run into restrictions due to supply chain, intellectual property and patents. Late movers may not have access to the necessary resources, talent, and prime office and manufacturing locations. They may also run into patent and intellectual property issues (Pondent, 2012).
First mover is far ahead in the market. The first mover has a distinct advantage of being the pioneer in the particular industry. The first mover has the experience, sales and distribution network and access to an often exclusive source of supplies (Pondent, 2012).
Multiple late movers entering the market at the same time would make it extremely hard to cut a sizable share of the market place. As multiple late entries (such as in the mobile phone industry) vie for the market, it comes difficult to carve out a niche unless you are offering something radically new or highly desired to the consumer (Gupta, 2011).

Part Two: First Movers
First Mover Theory Successful Firms (FMSF)
Proctor and Gamble has been innovating new products and markets since 1837. Through technical leadership, perceptive market research, and preemption of store shelf space is what led to the amazing lead in disposable diapers, in 1961 (Proctor and Gamble, 2006). They utilized a manmade fiber created in Europe to fill a need in the US market place.
Amazon was not the first to sell books on-line, but they pioneered the marketing of books, electronics, and consignment of nearly every sort of product via the internet. They debuted in 1995 and went public in 1997. In the following years of 1998 and 1999, they began to market online music, videos, toys, electronics, tools and hardware. Unlike Barnes & Nobles, Amazon carried a mere 2000 titles in stock and delivered most orders through wholesalers and publishers, eliminating the need for warehouses (Funding Universe, n.d.).
DuPont’s core competency is an extensive research and development platform, in vesting more than $2 billion annually in research. Technological competence and proper management allows DuPont to use and develop new technology in chemicals, coatings, and synthetics, such as Kevlar fibers, Teflon fluoro-polymers and nylon. DuPont has more than 1500 people in the R&D center and a strong focus on R&D enables DuPont to transfer technology from the laboratory to the market place (DuPont, 2013). DuPont is able to launch new innovative products and use the first mover’s advantage.
General Electric had its humble beginnings in 1876 when Thomas Edison opened his first lab to study dynamos. This led to the discovery of the incandescent light bulb. After merging with Thomson-Houston Company in 1892, they became General Electric. From these modest beginnings, GE designed lighting, transportation devices, power generation and distribution networks, medical equipment, appliances, plastics, and aircraft engines (General Electric, 2013). Competition was virtually unheard of and GE ran a virtual monopoly.

First Mover Theory Unsuccessful Firms (FMUF)
Docutel automated teller machines were the shining star of the banking industry worldwide. They grew rapidly and created excitement for the industry. That excitement was short-lived because the hardware was plagued with bugs and Docutel could not keep up with the technology (ATM Marketplace, 2003).
Sony Betamax VCRs is one of the Top 20 Product Failures in history. Sony introduced the Betamax in 1975 and refused to license the technology to other manufacturers. They refused to allow certain industries to use their format, i.e. the porn industry. JVC released the first VHS format and increased the available recording media to up to 4 hours compared to Beta’s 1 hour. Sony held out until it conceded defeat in 1988 and started making its own VHS machines (Frank & Khadder, 2013).
Adam Osborne was an upstart that created the first portable PC. This happened in 1981 with the announcement of the Osborne 1 at the West Coast Computer Faire. The company failed miserably and virtually flew into bankruptcy when Osborne announced a new version of the portable before it was ready and consumers stopped buying the Osborne 1 (McCracken, 2011).
Webvan was a first mover designed to be an online grocery shopping experience. They entered the market without the realization and market research that consumers were not ready to give up the weekend shopping trip for the family food items. They lost millions of dollars and declared bankruptcy in 2001 (Swell Strategies, n.d.).

Late Movers
Late Mover Theory Successful Firms (LMSF)
Apple did not invent the personal computer, iPod, iPad, or mobile phones. They did, however, make them far better than anyone else. They had the advantage of seeing what others had done and then designing what the consumer wanted (Worstall, 2012).
Microsoft owns the rights to MS-DOS but the disc operating system was not an innovation of Microsoft; Bill Gates bought the original DOS, known as QDOS, from Seattle Computer Products and hired Tim Patterson, the author of QDOS, to modify it into MS-DOS (Honan, 2011). There was no need to re-invent the wheel, just change the number of spokes and add a metal rim.
Chevrolet capitalized on Ford’s assembly line process but took it one step further – they offered customization. While Ford offered their Model T in any color “as long as it’s black”, Chevy began to offer other colors and models. In 1914, Chevy introduced the first massed produced V8 engine for the Cadillac division. In 1950, Chevrolet introduced the Powerglide, the first low priced automobile with an automatic transmission (Lassa, 2011). This resonated well with the consumer.
Google is an example of how a late mover took advantage of existing technology to become a $25 Billion dollar company. In 1998, a small DotCom business called GsTs.com created a search engine and advertising platform that would pay per click. It took Google only 2 years to develop and present its version called AdWords that allowed customers to create their own text based ads for placement on the Google sites (Blank, 2010).

Late Mover Theory Unsuccessful Firms (LUSF)
The De Lorean Motor Company was the brain child of John Z De Lorean. De Lorean was the chief engineer for Pontiac at 36 years old and created the GTO. He rose to General Manager and then Vice President of General Motor’s Truck and Car division in 1973. He left in 1975 and started his own car company. With credentials like that, the company should have been a rousing success. He wanted to build a safe, reliable, comfortable, and maneuverable car for the younger consumer. He failed badly with a poorly styled, under powered nightmare. Italian styling, 180 HP Renault engine, and a Lotus chassis could not save this car or the company that lacked any substantial leadership. It was closed by the British government after falling into receivership in 1982 (James, 2013).
Renault was ready to make a big splash in the auto industry when the global economic meltdown delayed its unveiling by two years. The Logan model just did not sell well in India, even with the assistance of Mahindra & Mahindra. In the 2 years and 9 months between July 2007 and April 2010, the company sold only 46,000 pieces forcing Renault to end the alliance and transferred the rights to the Indian company. Management blamed the poor showing on the styling that failed to inspire the consumer (Business Standard, 2013).
Toyota’s expansion into China was a disaster, even though China is the world’s largest auto market. Toyota expected to find a Japanese style of market; instead they found one that more closely resembles an American market. This placed them number 9 in sales in the country. They expected that Chinese sale staff were dealing with only a single brand and like the Japanese, paid a salary. What they found was stores that paid commissions to the employees and handled several different brands. This was certainly a lack of demographical analysis.

Part Three: Unless a company has a life-changing and innovative product, along with deep pockets, being the first mover is a strategically dangerous place to be. Being first is not always the best option; in fact, you could end up with arrows in your back. Late movers, specifically, fast followers is a much better idea. Failure rates are very high in first mover and startup companies. Research done in 1993, by Golder & Tellis showed that almost one half of 500 brands in over 50 product categories had failed and that survivors had very lean market shares (GOLDER & TELLIS, 1993). In this survey a description of the startups fell into 4 categories; innovator, product pioneer, first mover and fast follower. The innovator was first to develop or patent an idea, the pioneer was first to have a working model, first mover was the first to sell the product, and fast follower entered early but not first. Notably, the failure rate of first movers was 47% while the fast follower had a failure rate of 8%. It appears that being first is not as important as knowing your market (Blank, 2010). An absolute belief in being first assumes that you know and fully understand your market and consumer base, customer problems and what is required to accomplish this. That is a very unlikely scenario; hence, first movers tend to race through their cash and other resources at an enormous speed. It is notable to see that there is currently no market leader in technology that was a first mover (Blank, 2010). Asus has been a supplier to the computer industry for mother boards, graphics cards, drives of all kinds, networking equipment and accessories. This Taiwanese electronics firm began building its own computers in 2010 and by 2012 was winning an average of 11 worldwide awards for excellence every day (ASUS, n.d.). They were a late mover that rode the coattails of other computer brands until it launched its own product and became number 3 in the market for laptops, tablets and monitors. They were the resource that other brands depended on for hardware materials until they launched their own brand. They closed 2011 with a high of revenues of $11.9 Billion US dollars (ASUS, n.d.). It is the opinion of this writer that being first is not always best, as long as a company learns from the positive and negative attributes of the competition.

Conclusion
There are distinct advantages and disadvantage to both theories. Entrepreneurs and existing companies, alike, must make decisions based on available data regarding the market, competition, and demand of a product before diving off head first into an empty pool. Much energy and effort is put into a first mover activity that is usually not necessary in a late mover (or fast follower).

References
ASUS. (n.d.). Brand Story - The Meaning of "ASUS". Retrieved from ASUS: http://www.asus.com/About_ASUS/The_Meaning_of_ASUS/
ATM Marketplace. (2003). Rise and fall of Docutel: Part II of II. Retrieved from ATM Marketplace: http://www.atmmarketplace.com/article/136044/Rise-and-fall-of-Docutel-Part-II-of-II
Blank, S. (2010). Here's Why The First-Mover Advantage Is Extremely Overrated . Retrieved from Business Insider: http://www.businessinsider.com/steve-blank-first-mover-advantage-overrated-2010-10
Boulding, W., & Christen, M. (2001). First Mover Disadvantage. Retrieved from Harvard Business Review: http://hbr.org/2001/10/first-mover-disadvantage/ar/1
Business Standard. (2013). Late Mover advantage. Retrieved from Business Standard: http://www.business-standard.com/article/management/late-mover-advantage-111013100055_1.html
Davis, M. (2007). The First Mover Disadvantage. Retrieved from Center Nerworks: http://www.centernetworks.com/first-mover-disadvantage/
DuPont. (2013). Science and Technology at DuPont. Retrieved from DuPont: http://www.dupont.com/corporate-functions/our-approach/science/science-and-technology.html
Frank, Z., & Khadder, T. (2013). The 20 Worst Product Failures. Retrieved from Sales HQ: http://saleshq.monster.com/news/articles/2655-the-20-worst-product-failures
Funding Universe. (n.d.). Amazon.com, Inc. History. Retrieved from Funding Universe: http://www.fundinguniverse.com/company-histories/amazon-com-inc-history/
General Electric. (2013). Thomas Edison @ GE. Retrieved from General Electric: http://www.ge.com/about-us/history/thomas-edison
GOLDER, P. N., & TELLIS, G. J. (1993). Pioneer Advantage: Marketing Logic or. Journal of Marketing Research, 158-170.
Gupta, S. D. (2011). Beating the late mover disadvantage. Retrieved from Business Standard: http://www.business-standard.com/article/technology/beating-the-late-mover-disadvantage-111052000067_1.html
Honan, M. (2011). Bill Gates Spent the Best Money of His Life 30 Years ago today. Retrieved from Gizmodo: http://gizmodo.com/5825184/bill-gates-spent-the-best-money-of-his-life-30-years-ago-today
Innovation Zin. (2006). First Mover Advantage Revisited . Retrieved from Innovation Zin: http://innovationzen.com/blog/2006/08/21/first-mover-advantage-revisited/
James, N. (2013). Failure of Design Management. Retrieved from Learning from Interactive Failures: http://www.tech.plym.ac.uk/sme/interactive_resources/tutorials/failurecases/fd1.html
Lassa, T. (2011). The Secret History of Chevrolet. Retrieved from Motor Trend: http://www.motortrend.com/features/consumer/1111_the_secret_history_of_chevrolet/viewall.html
Lieberman, M., & Montgomery, D. (1988). Fast Mover Advantages. Strageic Management Journal, 9(Special Issue), 41-58. Retrieved from http://links.jstor.org/sici?sici=0143-2095%28198822%299%3C41%3AFA%3E2.0.CO%3B2-2
McCracken, H. (2011). Osborne! Retrieved from Technologizer: http://technologizer.com/2011/04/01/osborne-computer/
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Schumpeter, J. A. (1975). Capitalism, Socialism and Democracy. New York: Harper.
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Viellechner, O., & Wulf, T. (2010). Incumbent inertia upon disruptive change in the airline industry: Causal factors for routine rigidity and top management moderators. Retrieved from Uni-Marburg: http://www.uni-marburg.de/fb02/strategy/dateien/incumbentinertia.pdf
Worstall, T. (2012). First Mover Advantage: It Ain't an Advantage or, the Pioneer's the One With Arrows in His Back. Retrieved from Forbes: http://www.forbes.com/sites/timworstall/2012/04/09/first-mover-advantage-it-aint-an-advantage-or-the-pioneers-the-one-with-arrows-in-his-back/

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