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Leveraging the Incumbent's Advantage

People often talk about business competition as if it’s a short race: Get to market first and you are bound to win. Indeed, the importance of first-mover advantage has been drummed into the heads of many business executives, and some have almost been brainwashed to think that speed is everything. But when a new technology like the Internet threatens to transform an industry, the companies that are quickest to respond aren’t necessarily the ones that reap the greatest benefits. In fact, choosing a fast strategy can lock them into a set of decisions that actually hurt them in the long run. Instead, organizations that choose the right strategy for the entire race — both for the early and late stages — will come out ahead. Specifically, we have found that companies that respond quickly by launching a spinoff usually have difficulty achieving true staying power in the market. For enduring success, incumbent companies are better off creating a group that is — or will eventually be — integrated within their organizations. Only then will they be able to tap fully into their numerous strengths and assets, leveraging their incumbent’s advantage.

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