Chapter 9 concept

strategic management The formulation and implementation of initiatives by top management

that will allow the organization to achieve its goals

strategies The plans for how the organization will do what it’s in business to do, how it will
compete successfully, and how it will attract and satisfy its customers in order to achieve its
goals

business model How a company uses resources to create value for customers and generate
profits

1. Strategic Management

Meaning:
This is when top managers make big, long-term decisions to help the company grow and
succeed.

Real-Life Example: McDonald’s

• Problem: People were starting to eat healthier and avoiding fast food.

• Strategy: McDonald’s added salads, fruit, and low-calorie options to their menu.

• Why It’s Strategic Management:

Top executives looked at customer trends and made a long-term change to keep
McDonald’s competitive and attract more health-conscious customers.

2. Strategies

Meaning:
These are specific plans for how a company will achieve success and satisfy customers.

Real-Life Example: Nike

• Goal: Sell more sportswear.

• Strategy:

o Make high-quality, stylish products.

o Partner with top athletes like Serena Williams and LeBron James.

o Use emotional ads like “Just Do It” to inspire people.

 • Why It Works:
Customers see Nike as powerful, trusted, and connected to top performance.

3. Business Model

Meaning:
This is how a company makes money by delivering value to customers.

Real-Life Example: Spotify

• How It Works:

o Offers free music with ads to attract many users.

o Charges a monthly fee (like $9.99/month) for ad-free listening.

• How It Makes Money:

o Advertisers pay Spotify to show ads to free users.

o Subscribers pay monthly fees.

• Why It’s Smart:

People who try the free version often upgrade to premium, giving Spotify regular
income.

Summary Table

Company
Term Meaning What They Did
Example

Strategic Big, long-term planning Added healthy menu items to

McDonald’s
Management by top managers match customer trends

Specific plans to win Sponsored athletes, built strong

Strategies Nike
customers and succeed emotional branding

Free + Premium model (ads for

How the company earns
Business Model Spotify free users, subscriptions for
money while giving value
others)
 1. Corporate-Level Strategy

Definition:
This strategy is developed at the top level of an organization and determines the overall
direction of a multibusiness corporation. It answers the question:

“What business or businesses should we be in?”

In the diagram: Represented by the Multibusiness Corporation box at the top.

Examples:

• Tata Group: Operates in automobiles (Tata Motors), IT (TCS), steel (Tata Steel), etc. The
corporate strategy involves deciding whether to enter or exit industries.

• GE (General Electric): Might divest from energy and invest more in healthcare
technology.

Types of Corporate Strategies:

• Growth (expansion, acquisition)

• Stability (maintain current operations)

• Retrenchment (downsizing, divesting)

• Diversification (entering new industries)

2. Competitive-Level Strategy (Business-Level Strategy)

Definition:
These strategies are used by individual strategic business units (SBUs) to compete effectively
in their specific industries.
It answers the question:

“How do we compete in this business?”

In the diagram: Shown as Strategic Business Unit 1, 2, and 3 (middle layer).

Examples:

• SBU 1 (Tata Motors): May use cost leadership to target budget-conscious customers.

• SBU 2 (TCS): May pursue a differentiation strategy to stand out through innovation and
service quality.

• SBU 3 (Tata Tea): Might focus on premium organic products, using a focus
differentiation strategy.

Common Competitive Strategies (Porter’s Generic Strategies):

• Cost leadership (Walmart)

• Differentiation (Apple)

• Focus/niche (Rolex)

3. Functional-Level Strategy

Definition:
These are strategies developed by different departments or functions within each business
unit to support the overall business strategy.
It answers the question:

“How do we support the business-level strategy?”

In the diagram: Shown at the bottom – R&D, Manufacturing, Marketing, HR, Finance.

Examples:

• Marketing: For a differentiation strategy, the marketing team will focus on branding
and promotions that emphasize uniqueness.

• Manufacturing: May adopt lean production to support cost leadership.

• HR: Might focus on hiring highly skilled engineers to support innovation.

• Finance: Decides budgeting priorities based on growth plans.

Putting It All Together:

Imagine a company like Samsung:

 • Corporate Level: Samsung decides to operate in electronics, construction, and
biotechnology.

• Business Level: The Smartphone Division competes through innovation and high
performance (Differentiation Strategy).

• Functional Level:

o R&D focuses on foldable screens.

o Marketing targets premium users.

o HR recruits top tech talent.

Summary Table

Level Strategy Focus Example Entity Key Question

Overall organization’s What industries should we

Corporate Multibusiness firm
direction compete in?

Individual business unit’s Strategic Business How should we compete in

Competitive
competition Unit this market?

Departmental support How can we best support the

Functional Marketing, HR, etc.
strategies strategy?

strategic management process A five-step process that encompasses strategic planning,

implementation, and evaluation
 STEP 1: Identify the Organization’s Mission and Purpose

What It Means:

This step is about defining why the business exists. A mission statement usually answers:

• What is the organization’s purpose?

• Who are its customers or users?

• What does it offer that’s valuable?

Breaking Bad Example:

Walter White’s mission (though unofficial) evolves:

• At first: “Make enough money to secure my family’s future before I die.”

• Later: “Build a lasting empire and prove my worth.”

This becomes his “mission” — his reason for doing everything, like a CEO deciding the
direction of the company.

❝ I did it for me. I liked it. I was good at it. ❞ – Walter White

STEP 2: Conduct a SWOT Analysis

What It Means:

Analyze your internal environment (Strengths and Weaknesses) and external environment
(Opportunities and Threats).

Element Description

Strengths What your business does well (skills, resources, advantages)

Weaknesses What your business lacks or struggles with

Opportunities Trends or openings in the market to take advantage of

Threats Dangers from outside, like competition, laws, or changes in the market

Breaking Bad Example:

SWOT Element Example in Walter's World

Strengths Chemistry genius → can make the purest meth in the market

Weaknesses No experience in drug trade; reckless decision-making

Opportunities Huge demand for meth; competition offers low-quality product

Threats DEA, rival dealers (Tuco, Gus), family suspicion, violence

This SWOT analysis helps “Heisenberg Inc.” decide where to compete and what to watch out
for.

STEP 3: Formulate Strategies

What It Means:

Based on your mission and SWOT analysis, decide how you will compete and grow. You might
choose:

• Growth strategies (expand the business)

• Stability strategies (keep things the same)

• Defensive strategies (cut losses)

You’ll also choose competitive strategies: Will you compete on price, quality, service, or
innovation?

Breaking Bad Example:

Walter’s main strategies:

• Product Differentiation: Make meth so pure (99.1%) that no one can match it.

• Low visibility: Start with a mobile RV lab to avoid detection.

• Vertical Integration: Eventually, he tries to control everything—from production to

distribution (like Gus does).

He also partners with Jesse Pinkman, who knows the drug trade, balancing Walter’s lack of
street knowledge.
 STEP 4: Implement Strategies

What It Means:

This is putting the plan into action: hiring people, setting up operations, building partnerships,
creating distribution channels, etc.

It’s the day-to-day work of making your strategy real.

Breaking Bad Example:

• Walter and Jesse start cooking in an RV in the desert.

• They make deals with local distributors, like Tuco and later Gus Fring.

• Walter builds a superlab (under Gus’s control) to scale operations.

• He buys a car wash as a money laundering front.

This is strategy in action — turning the plan into operations, employees, facilities, and cash
flow.

STEP 5: Evaluate Results

What It Means:

After implementation, managers must check:

• Are we reaching our goals?

• What’s working? What’s not?

• What changes or improvements are needed?

If the strategy isn’t working, adjust.

Breaking Bad Example:

• Success: Walter earns millions, builds a global reputation (“Heisenberg” becomes

feared).

• Problems: He becomes too arrogant, draws law enforcement attention, and

alienates his family.

• Outcome: The empire collapses due to poor ethics, unstable partners, and rising
risks.
If Walter had been a traditional CEO, his board of directors would have said: “You need better
risk management and leadership control.”

FINAL SUMMARY

Step In Business In Breaking Bad

Provide for family → Build an

1. Mission Define purpose
empire

Analyze strengths, weaknesses, Chemistry = strength; DEA & rivals

2. SWOT
external trends = threats

High-quality product + Jesse for

3. Strategy Choose how to compete
distribution

4. Build lab, sell meth, launder

Act on the plan
Implementation money

Short-term success; long-term

5. Evaluation Review results and adjust
disaster

SWOT analysis An analysis of the organization’s strengths, weaknesses, opportunities,and

threats

Real-Life Company Example: Pathao

Industry: Ride-sharing, Delivery, Logistics

Founded: 2015
Headquarters: Dhaka, Bangladesh

STEP 1: Identify the Organization’s Mission and Purpose

What Pathao Did:

• Mission: “To move Bangladesh forward by solving real problems in transportation and
logistics using technology.”
 • Purpose: Provide fast, reliable, and affordable ride-sharing and delivery services in
congested urban areas.

STEP 2: Conduct a SWOT Analysis

SWOT
Pathao Example
Element

Strengths Local market knowledge, large user base, strong brand recognition

Weaknesses Infrastructure challenges (traffic, roads), limited access outside major cities

Growing smartphone users, rising demand for delivery, expansion into

Opportunities
fintech

Threats Competition from Uber, government regulation, fuel price hikes

STEP 3: Formulate Strategies

What Pathao Did:

• Growth Strategy: Expand from just ride-sharing to food delivery, parcel delivery, and
fintech (PathaoPay).

• Competitive Strategy:

o Lower cost for local rides than international rivals like Uber.

o Local language interface and mobile money payment options (bKash, Nagad).

• Differentiation: Focus on local market needs (motorbike rides for traffic congestion).

STEP 4: Implement Strategies

What Pathao Did:

• Launched multiple services: Pathao Ride, Pathao Food, Pathao Parcel, and Pathao Pay.

• Partnered with mobile wallet services (like bKash) for easy payments.

• Developed a mobile app in Bangla to reach more users.

 • Hired local riders and delivery agents to build trust and reliability.

STEP 5: Evaluate Results

What Pathao Achieved:

• Became one of Bangladesh’s top apps for transportation and delivery.

• Expanded to Nepal.

• Received major investments from local and foreign investors.

• During COVID-19, adapted by focusing more on delivery (food and parcels).

• Continued tweaking pricing and service quality based on user feedback.

Summary Table

Step Pathao Example

Mission Solve transport and delivery issues using technology

SWOT Strength: Local insight; Threat: Uber competition

Strategy Low-cost, localized service, expand into multiple markets

Implementation Ride-sharing, food delivery, digital wallet, app in Bangla

Evaluation Strong market growth, expansion, investor interest

Term Definition Real-World Example (Top Company)

An organization’s assets—including
Apple: Huge financial reserves,
financial, physical, human, and
advanced manufacturing facilities,
Resources intangible—that are used to
strong brand reputation, and talented
develop, manufacture, and deliver
designers/developers.
products to its customers.

An organization’s skills and abilities Amazon: Exceptional logistics and

Capabilities in doing the work activities needed supply chain management capabilities
in its business. enabling fast delivery worldwide.

An organization’s major value- Google: Dominance in search

Core
creating capabilities that determine algorithms and AI capabilities driving
Competencies
its competitive weapons. its advertising revenue.

Microsoft: Leading software

Any activities the organization does
Strengths development skills and enterprise
well or its unique resources.
cloud platform (Azure).

Activities the organization does not Tesla: Challenges with mass production
Weaknesses do well or resources it needs but scalability and occasional quality
does not possess. control issues.

Netflix: Increasing global demand for

Positive trends in the external
Opportunities streaming content and expanding
environment.
internet access worldwide.

Facebook (Meta): Growing privacy

Negative trends in the external
Threats regulations and increasing competition
environment.
in social media space.

corporate strategy An organizational strategy that determines what businesses a company is

in or wants to be in and what it wants to do with those businesses
growth strategy A corporate strategy that’s used when an organization wants to expand the
number of markets served or products offered, either through its current business(es) or
through new business(es)

stability strategy A corporate strategy in which an organization continues to do what it is

currently doing

renewal strategy A corporate strategy designed to address declining performance

BCG matrix A strategy tool that guides resource allocation decisions on the basis of market
share and growth rate of different business units within a company

competitive strategy An organizational strategy for how an organization will compete in its
business(es)

strategic business unit (SBU) The single independent businesses of an organization that
formulate their own competitive strategies

competitive advantage What sets an organization apart; its distinctive edge

1. Corporate Strategy

Definition:
An organizational-level strategy that determines which industries or markets a company is
in—or wants to be in—and how it manages those different businesses.

Example:
Alphabet Inc. (Google’s parent company) has a corporate strategy that spans across multiple
industries: search engines (Google), autonomous vehicles (Waymo), healthcare (Verily), and
smart home devices (Nest). Alphabet decides which of these business units to invest in,
expand, or divest based on strategic fit and performance.

2. Growth Strategy

Definition:
Used when an organization wants to increase the number of markets it serves or products it
offers. Growth can occur organically (internal development) or inorganically (acquisitions or
partnerships).

Example:
Amazon used a growth strategy by expanding from online retail into new markets like cloud
computing (AWS), video streaming (Prime Video), and grocery stores (Whole Foods
acquisition). Each expansion allowed it to serve more customers in different ways.
3. Stability Strategy

Definition:
This strategy involves maintaining the status quo. The company focuses on continuing current
operations without significant change.

Example:
Coca-Cola often uses a stability strategy in its core beverage business. While it innovates
occasionally (e.g., launching new flavors), the overall strategy is to continue focusing on its
flagship products and brand loyalty without making radical changes.

4. Renewal Strategy

Definition:
Adopted when a company is in trouble or facing declining performance. It aims to restore
health through restructuring, cost-cutting, divestment, or turnaround tactics.

Example:
General Motors (GM) applied a renewal strategy during the 2008 financial crisis. The company
filed for bankruptcy, closed underperforming brands (like Pontiac and Saturn), restructured its
operations, and emerged leaner and more competitive.

5. BCG Matrix

Definition:
A portfolio planning tool that categorizes business units or products based on market growth
rate and relative market share into four categories:

• Stars: High growth, high market share

• Cash Cows: Low growth, high market share

• Question Marks: High growth, low market share

• Dogs: Low growth, low market share

Example (Apple Inc.):

• Star: Apple Watch in its early years

• Cash Cow: iPhone—huge market share and profitability

 • Question Mark: Apple TV+—still gaining market share

• Dog: iPod—eventually phased out due to declining demand

6. Competitive Strategy

Definition:
A strategy that defines how an organization competes within a specific market or industry.

Types (Porter's Generic Strategies):

• Cost leadership: Walmart

• Differentiation: Apple

• Focus (niche): Rolls-Royce (luxury cars)

Example:
Netflix uses a differentiation strategy by offering exclusive original content (e.g., Stranger
Things, The Crown) to attract and retain customers. Its unique content sets it apart from
competitors like Amazon Prime and Hulu.

7. Strategic Business Unit (SBU)

Definition:
An autonomous division or unit within a larger company that has its own mission, objectives,
and strategy.

Example:
Procter & Gamble (P&G) has multiple SBUs: Fabric Care (Tide), Baby Care (Pampers), Hair Care
(Head & Shoulders), etc. Each unit is managed independently and pursues its own strategies
while aligning with the parent company's vision.

8. Competitive Advantage

Definition:
A company’s unique strengths or conditions that allow it to outperform rivals—through cost,
quality, innovation, service, etc.

Example:
Tesla’s competitive advantage lies in its technology and innovation, especially in battery
range, autonomous driving software, and direct-to-consumer sales model. These features
differentiate it in the electric vehicle market.

Overview: How Do Managers Choose a Competitive Strategy?

After completing:

• Porter’s Five Forces Analysis (examines external industry forces), and

• SWOT Analysis (identifies internal strengths/weaknesses and external

opportunities/threats),

Managers are ready to choose a competitive strategy that leverages the company’s strengths
and fits the industry conditions. The goal is to achieve a competitive advantage—something
the company can do better than rivals.

Michael Porter’s Core Competitive Strategies

Porter argued that a firm must choose ONE clear strategic path to succeed:

Strategy Focus Goal

Cost Leadership Entire industry Be the lowest-cost producer

Differentiation Entire industry Be uniquely valuable to customers

Focus Narrow market segment (niche) Cost or differentiation advantage

 1. Cost Leadership Strategy

What it means:

Becoming the lowest-cost operator in the industry. NOT the lowest price necessarily—but the
lowest cost to produce and operate.

Key traits:

• Streamlined operations

• Tight cost control

• Minimum overhead and frills

Example: Ross Stores

No window displays, no fancy decor—just low overhead. This allows Ross to offer major
discounts and still earn profits.

Other examples:

• Walmart: Economies of scale and supply chain mastery

• McDonald’s: Efficiency in operations and standardization

2. Differentiation Strategy

What it means:

Offer unique features that are highly valued by customers—so much so that they’re willing to
pay more.

Differentiation can come from:

• Design (e.g., Apple)

• Brand image (e.g., Coach)

• Innovation (e.g., 3M)

• Service (e.g., L.L.Bean)

Example: Apple

Apple’s elegant design, innovation, and ecosystem create a loyal customer base willing to pay
premium prices.
 3. Focus Strategy

What it means:

Targeting a specific market segment—either geographically, demographically, or by product

type—with either a:

• Cost advantage (Cost Focus), or

• Differentiation advantage (Differentiation Focus)

Example: Bang & Olufsen

Focuses on high-end audio equipment for a niche market. It doesn’t try to serve the mass
market—only customers who want exclusive, high-quality sound systems.

Other examples:

• Rolls-Royce: Differentiation focus on ultra-luxury cars

• Dollar Tree: Cost focus on extreme value seekers

Stuck in the Middle – A Strategic Danger

If a company tries to do everything—low cost AND differentiation—but doesn’t do either

well, Porter says it is “stuck in the middle.”

Consequences:

• Too costly to compete with cost leaders

• Not unique enough to compete with differentiators

Example: A mid-range retailer that isn’t cheap enough for value shoppers and not upscale
enough for premium buyers may struggle to retain customers.

Can a Company Do Both? Yes, but it’s very hard.

Although Porter originally said it’s risky to combine cost leadership and differentiation, some
companies have succeeded with hybrid strategies.

Example: Southwest Airlines

 • Low cost: No assigned seating, direct sales, no meals

• Differentiation: Fun, friendly service; on-time performance

Result: Profitable, unique brand in a competitive industry

Functional Strategies (Supportive Strategies)

These are not competitive strategies but department-level plans that support the broader
strategy.

Examples:

• Marketing strategy: How to promote products to align with cost or differentiation

focus

• HR strategy: Hiring for innovation in a differentiator firm

• R&D strategy: Continuous product development for an innovative firm

You’ll learn more about these in courses like Marketing, Finance, and HRM.

Key Takeaways

Concept Meaning

Competitive strategy How the firm competes in its industry

Cost leadership Be the most efficient; reduce production and operational costs

Differentiation Offer something uniquely valuable to customers

Focus strategy Serve a narrow, niche market better than others

Stuck in the middle Failing to commit clearly to cost or differentiation

Functional strategies Department-level plans that support the overall business strategy

QUALITY as a Competitive Advantage

Definition:
Quality refers to delivering superior products or services that meet or exceed customer
expectations. When a company consistently offers high-quality offerings, it can:

• Charge premium prices

• Build strong brand loyalty

• Reduce returns and complaints

• Outperform competitors who deliver inferior products

Real-Life Examples:

1. Toyota

• Known for: Exceptional product reliability and consistency (e.g., Toyota Corolla, Camry)

• Strategy: Total Quality Management (TQM) and Kaizen (continuous improvement)

• Competitive Impact: Toyota leads in customer satisfaction, resale value, and

operational efficiency.

2. Rolex

• Known for: Craftsmanship, durability, and luxury design in watches

• Strategy: Extremely high standards in materials, precision, and design

• Competitive Impact: Ability to command premium prices and retain elite market status

3. Ritz-Carlton Hotels

• Known for: Premium service quality and exceptional guest experience

• Strategy: Employee empowerment and strict customer service standards

• Competitive Impact: Repeat customers, high brand trust, and differentiation in the
luxury segment

INNOVATION as a Competitive Advantage

Definition:

Innovation involves introducing new ideas, processes, products, or business models to create
value. It helps a company stay ahead of trends, solve problems creatively, and disrupt
markets.
Types of Innovation:

• Product Innovation: New or improved goods/services

• Process Innovation: More efficient operations

• Business Model Innovation: New ways of delivering or monetizing value

Real-Life Examples:

1. Apple

• Known for: Innovative consumer electronics (iPhone, iPad, Mac)

• Strategy: Combines technology, design, and ecosystem integration

• Competitive Impact: Creates strong customer loyalty and leads markets in new
categories

2. Tesla

• Known for: Disrupting the automotive industry with electric vehicles and autonomous
driving

• Strategy: Vertical integration, software-driven updates, energy innovations

• Competitive Impact: First-mover advantage in EVs, brand leadership in tech mobility

3. Amazon

• Known for: Constant innovation in e-commerce (1-click ordering, Prime), logistics

(drones), and cloud computing (AWS)

• Strategy: Data-driven R&D and customer-centric experimentation

• Competitive Impact: Market dominance in multiple sectors through continual

reinvention

Comparison Table:

Basis of
Quality Innovation
Advantage

Focus Excellence in execution Introduction of something new

Basis of
Quality Innovation
Advantage

Customer Appeal Reliability, trust, satisfaction Novelty, excitement, value

Higher production cost, lower

Cost Impact R&D costs, potential for high payoff
warranty

Low – based on standards and High – experimentation, market

Risk Level
control reaction

Examples Toyota, Rolex, Ritz-Carlton Apple, Tesla, Amazon

Summary:

• Quality builds trust and loyalty through consistency.

• Innovation wins market share and mindshare by solving problems in novel ways.

1. Customer Focus as a Competitive Advantage

Definition:

Customer focus means placing the customer at the center of decision-making—understanding

their needs, preferences, and expectations, then designing products, services, and
experiences accordingly.

It becomes a competitive advantage when a company:

• Builds stronger relationships with customers

• Increases customer loyalty

• Gains insights that competitors overlook

How It Works:

• Deliver personalized experiences

• Provide outstanding customer service

 • Act on customer feedback

• Anticipate needs (not just react)

Real-Life Examples:

Amazon

• Uses customer data to offer personalized product recommendations, fast delivery, and
easy returns.

• Keeps the customer at the center of everything—its famous motto: “Start with the
customer and work backward.”

Nordstrom

• Offers high-touch customer service—personal stylists, free returns, and in-store

tailoring.

• Known for empowering employees to go above and beyond.

Starbucks

• Focuses on the "third place" experience (home, work, Starbucks).

• Uses its mobile app to personalize offers and make ordering more convenient.

Benefits of Customer Focus:

• Drives repeat business and word-of-mouth

• Creates brand loyalty

• Helps companies innovate based on real customer needs

2. Mass Customization as a Competitive Advantage

Definition:

Mass customization is the ability to produce goods and services that meet individual
customer needs—but with efficiency close to mass production.

It blends:
• Customization: Unique or tailored for each customer

• Mass production: Scalable, cost-efficient production systems

How It Works:

• Customers choose product options via websites or apps

• Technology (AI, modular design, 3D printing) enables low-cost customization

• Supply chains and manufacturing are flexible and responsive

Real-Life Examples:

Nike By You (formerly NikeiD)

• Customers design their own shoes by choosing colors, materials, and even personal
tags.

• Shoes are made-to-order and shipped directly to the customer.

Tesla

• Allows buyers to configure their vehicles online: battery range, color, wheels, software
options.

• This flexibility doesn’t interrupt the production line significantly, making it scalable.

M&M’s (My M&M’s)

• Lets customers print custom messages, images, or colors on M&M candies for events
or branding.

Benefits of Mass Customization:

• Enhances customer satisfaction by offering choice

• Increases perceived value without major cost increases

• Helps differentiate from competitors offering standard products

Comparison Table
Competitive
Focus Value to Customer Example Brands
Advantage

Amazon,
Deep understanding Personal attention, empathy,
Customer Focus Nordstrom,
of needs responsiveness
Starbucks

Mass Personalized Unique products, self- Nike, Tesla, My

Customization offerings expression, convenience M&M’s

Summary

Concept Key Idea

Customer Focus Compete by knowing and serving the customer better than anyone else

Mass Compete by letting customers tailor the product, without losing

Customization efficiency

Both approaches create strong emotional connections, and increase customer loyalty, helping
firms stand out in competitive markets.

first mover An organization that’s first to bring a product innovation to the market or to use a
new process innovation
Advantages of Being a First Mover

1. Reputation for Being Innovative and an Industry Leader

o Explanation: First movers often gain recognition as pioneers, earning credibility

and respect in the industry.

o Example: Tesla was among the first to scale up electric vehicles (EVs), and it
gained massive brand recognition as a tech-savvy, innovative company—even
before competitors caught up.

2. Cost and Learning Benefits

o Explanation: First movers can accumulate experience and knowledge faster,

reducing production costs over time through the learning curve.

o Example: Amazon in the e-commerce space gained years of operational

efficiency and data analytics insights before other major retailers adapted.

3. Control Over Scarce Resources

o Explanation: Being first allows a firm to secure critical suppliers, talent, prime
locations, patents, or distribution channels before competitors.

o Example: Coca-Cola established strong global distribution partnerships early

on, making it difficult for rivals to gain similar access and shelf space.

4. Building Customer Relationships and Loyalty Early

 o Explanation: Early entry allows companies to build brand loyalty and switching
costs—making it hard for customers to switch to newer entrants.

o Example: Netflix started streaming before most media companies and built a
strong base of loyal subscribers worldwide.

Disadvantages of Being a First Mover

1. Uncertainty Over Market and Technology Direction

o Explanation: The market or technology might evolve in unexpected ways, and

early innovations may become obsolete.

o Example: Yahoo was a first mover in search engines, but failed to evolve its
model, allowing Google to overtake and dominate.

2. Risk of Competitors Imitating Innovations

o Explanation: Fast followers can observe and replicate the innovation—

sometimes even improving on it—without the costs of trial and error.

o Example: Facebook was not the first social network (Friendster and MySpace
came before), but it perfected the model and became the dominant player.

3. Financial and Strategic Risks

o Explanation: Large investments in R&D and market development may not pay
off if the market doesn’t respond as expected.

o Example: Segway introduced innovative personal transporters but failed to

capture significant market demand, leading to commercial failure.

4. High Development Costs

o Explanation: First movers often face the full burden of R&D, marketing to
educate customers, and building infrastructure.

o Example: Palm (PDA devices) incurred high costs building an early mobile
computing platform—only to lose out when smartphones (like the iPhone)
revolutionized the market.

Conclusion:
Being a first mover can offer a strong strategic edge, especially if the company can protect its
innovation and scale quickly. However, fast followers often benefit from learning from the
first mover’s mistakes while avoiding the initial heavy costs.

So, whether to lead or follow depends on the firm’s capabilities, industry dynamics, and risk
tolerance.