Is Second or Fast Second the Best Strategy for Big Established Companies?

Background  - Second or Fast Second

Many large companies prefer to take “second strategy” to get the most of the market value the “first mover” may create without taking the risk the “first mover” may have. They hope to enter the emerging market secondly but utilizing its know-how in the existing industry to become one of the leaders in the new market.

Will “second strategy” works? It really depends on whether a large company has the capability and time to execute effectively to enter a new market as a second mover but become one of the leader in the new market quickly.

Given the fact that quite some large leading companies taking “second strategy” failed to become a leader in a new market they pursued and some of them even failed to survive, e.g. Blockbuster, Barnes & Noble, Kodak, etc. the “fast second strategy” is proposed as the best strategy for big, established companies contemplating entry into an emerging market (by Constantinos C. Markides and Paul A. Geroski, published here at HBR in 2008)

Challenge – Is it really the best

Is the “fast second strategy” really the best for large established companies?

It depends on the following key factors:

What is the “strategic objective”

If a company’s strategic objective is to lead its industry to the future, to innovate and create new business landscape first, the “fast second strategy” will not be right. The “first strategy” is the one they should take. That’s what Amazon, Facebook, Google, etc. have been trying to do.

If a company’s strategy is to sustain or renew its industry leadership with minimized risk, the “fast second strategy” may or may not be effective. It depends on the following three factors.  

What is the “new”

If it is just a new product or service in an existing business segment evolution cycle, the “second” or “fast second” strategy should work well, because a large established company can effectively utilize its existing business capabilities to quickly create an imitative product or service (as the first movers developed), but with lower cost and better quality, and reach larger scale of customers through its existing market channels.

However, if it is a new product or service in a new business landscape with new business models and winning strategy, the “second”, or even “fast second”, strategy will not be sufficient for a large established company to catch up the “first mover” to become one of the leaders in the new business landscape, because the large company will not be able to utilize (most of) its existing business capability to quickly “replicate” the new innovative product or service with lower cost and better quality. Instead, it has to invest heavily, in a relatively short-period, on developing “new” capability. It is going to be a time consuming and higher-risk program to execute. Because the company will be lack of the core competence fundamentally required by the “new” business landscape, it will not be able to be “fast”. For example, Microsoft has been trying extremely hard to catch up “search” business for many years, but has little hope to be near the ‘first mover”, Google.  

Who is the “First Mover”

Whether the “fast second strategy” works depends on the width of the window of opportunity open to the second movers. How wide of the opportunity window open for the second movers depends on how fast the first movers will scale up its “first advantage”. The speed of the first mover depends on who the “first mover” is. If it is a new start up with limited resources, “fast second” may be fine because a “second mover” may get relatively “widely-opened” opportunity window. However, if the “first mover” is a large established front-runner in an emerging business landscape, like Amazon, Google, Facebook, etc. which has tremendous resources and capabilities to push new innovated business market forward quickly, the “fast second” strategy will not work, because there is a very limited time for other large established companies, as the second movers, to catch up the first-tier players in the new business landscape.

There is an exception in the latter case. If a new business landscape has deep interdependency with some existing business or industries, and a “second mover” has built the business assets and relationships with the industries for dozens of years, and those assets and relationships are still valid in the new business landscape, the “fast second” strategy may work, depending on the company’s leadership and execution capability. For example, Microsoft/Azure is catching up AWS quickly by utilizing its existing business assets and relationships in enterprise IT industry.  

What is the gap between the execution capability needed in the current and new market

A key success factor for “fast second” strategy is whether a large established company, as a second mover, has the needed execution capability to be fast enough to start secondly but catch up the first mover quickly and become one of the leaders in the emerging market. This is really depends on how much new capabilities required by the new business the first mover tries to create, and how quickly the large company, as a second mover, may develop, acquire and integrate the new capabilities. Therefore, the larger the difference between the existing and new business landscape the first movers create, the more new capabilities needed to be developed by the second movers, the slower the second movers can execute the catching-up, and hence, the less likely the “second” or “fast second” strategy will work.

Therefore, “fast second” strategy may not work for some large established companies who want to create, sustain or renew its leadership in landscape-changing industry.

Solution – “Conservative First Strategy”

“Conservative First Strategy” is a more appropriate one for large established companies who plan to lead industry to the future, through creating, sustaining or renewing its leadership with minimized risk.

The “conservative first strategy” is a “first mover” strategy with reduced-scale across scope, resource, budget and risk. It will enable a company to minimize the risk as a “first mover” but gradually and consistently develop the “new” capabilities (in a smaller scale) required by the potential “new” business landscape under watch. The company can quickly scale up its new capability and execute its transformation to be “the first conquer” (or one of the fist conquers) in the new market when the market validation is done by itself or its competitors.  It requires a large established company to keep on trying and innovating, like “first mover” but in a much smaller scale in the scope, resource and budget, so that it can systematically develop and gain “new” competencies across technology, people and process with minimized potential lost, and is able to quickly expend the “new” capabilities across the enterprise when the “new opportunity” is validated by the market.  Basically, the “conservative first strategy” addresses the challenges blocking “fast second” strategy to be effective (i.e. execution capability gap, limited opened opportunity window and large scale of change caused by fundamental business landscape shifting). The strategy requires a company to keep on trying and developing “new” capabilities, although in a small scale, so that it will be able to become one of the leaders in the new market through scaling up the already-developed “new” capabilities quickly across the enterprise by investing heavily on the strategic focused areas.

Summary:  First/Second Strategy Matrix

Depending on the scale of the business landscape change and the first movers execution capabilities, a large established company may take different strategies as shown in the matrix below.

The “second” or “fast second” strategy is not the best for a large established company, which wants to lead its industry to the future, through creating, sustaining or renewing its leadership, when its industry business landscape will be changed fundamentally.  For example, the “second” or “fast second” strategies is not appropriate for Walmart, Costco, Target, etc. which wants to sustain or renew its leadership into the digital future.  A better one for them is “Conservative First Strategy”, which is a “first strategy” with reduced objective and scale of resource, budget and risk.  

PS: To systematically identify strategic “new” business landscape/opportunity introduced by emerging technologies and design a constructive innovation and transformation roadmap, please refer to EmergingTechnology Strategic Analysis Framework, or contact support@xcresource.com.