competition heating up?, page-7

First-Mover Advantage

Being first into a market brings rewards, but also risks.

During the American Civil War, the Confederate general Nathan Bedford Forrest was asked what is the key to military success. His answer was succinct and simple: 'To get thar fustest with the mostest men.' More refined students of military strategy refer this as the doctrine that armies should seek to occupy and hold defensible ground. In business strategy, the concept has been distilled into what is known as first-mover advantage.

The basis of first-mover advantage is simple: by being the first to enter a new market, the business gains an advantage over its actual and potential rivals. This is true whether the business is seeking to develop new geographical/demographic markets or segments for existing products, or whether it is seeking to introduce new products to its existing market segments. If the business is first into a market, so the thinking goes, it can establish what the military thinkers would call 'defensible ground'. First, it can capture market share much more easily without having to worry about rivals trying to capture the same customers. Second, when the rivals do come along – as they inevitably will – the first-mover and its management team will have advantages in the ensuing competition, such as familiar products, brand loyalty, the best retail outlets, up-and-running distribution systems, and so on. By beating rivals into the market, the first-mover can consolidate its position and compete more effectively, not only defending its previously acquired share but even continuing to expand.

This seemingly simple concept is linked to many other ideas current in management. Innovation, one of the great watchwords of the 1990s, is one of them. Companies should seek to constantly innovate so as to develop new products and processes that will allow them to stay ahead of rivals. Knowledge management is another area where the importance of first-mover advantage is often implicit. Consider Arie de Geus's famous statement in 1989 that in the future, a company's only sustainable competitive advantage may be its ability to learn faster than its competitors. Getting there 'fustest with the mostest' remains a key plank of much strategic thinking, regardless of whether the 'mostest' refers to people, products or ideas.