What are the strategic issues facing a large entrenched company when encountering a significant technological innovation? Costs One of the major challenges that the firm has to grapple with is the choice of business model when incorporating a new innovation into their business practice. This is due to the need for specialized As such, the cost of change is oftentimes a metric that is found to be highly discouraging to the established firm; due in part to the fact that existing product or service lines have been highly honed and developed in order to achieve the levels of profitability that they already engender.
Thus, such firms are quite often hesitant to engage with newer technology that could undue many of the changes and developments that exist within their current product or service lines. Culture Another issue that is not oftentimes considered with respect to the ability and willingness of an established firm seeking out new technology as a means of furthering their goods or services has to do with the culture of the business entity itself. Oftentimes, established firms have grown or evolved around a particular way of thinking or a particular approach to the market which has been especially useful or efficient.
However, as times change, the overall likelihood that a legacy approach will continue to be as successful as it has been in the past, without the introduction and/or aid of new technology, is highly doubtful. As such, the resistance that is oftentimes applied by stakeholders in seeking to change or alter existing and proven methodology is quite often severe. Speed and Ability to Change As it is commonly known, “first movers” are those that are able to integrate with a new idea, concept, product, or technology first.
Accordingly, these first movers are often rewarded for their novel concepts by gaining a degree of market share. This market share does not evolve from thin air; rather, it is generally stolen from those firms or business entities that are unable to come up with the change and/or capitalize on it. When a firm launches a completely new product, or is able to leverage a new form of technology in order to market their product, they have essentially created a market where one did not exist before.
Quite often, consumers tend to identify the entire category with the single product that was launched first; thereby proving detrimental to the firm that was slow to adapt or adopt a new technology. One particularly famous example of this is the case of Aspirin; a drug launched by Bayer. This drug has become so commonplace and relied upon that it is practically synonymous with an analgesic.
The new product is often able to establish a very strong relationship with customers: when the customer gets used to buy a certain product, if it is satisfied, has no reason to change brands. Indeed, usually tends to develop what is known as brand loyalty, which is a repetitive buying behavior towards the same brand. The customer, in some cases, to become familiar with a new technology or a new product must support those that are defined switching cost, namely the costs precisely related to the change of technology or product.
First company to enter the market is able to build a network of customers able to self-feed. For example E-bay prior to entering the market has been able to build an online auction site that gives its customers the advantage of a vast network of sellers and buyers. When a firm enters first into a new market usually manages to occupy the best position, that is to say that it can grab the best existing resources, taking them to competitors who will arrive at a later time. This aspect is even more relevant when critical resources to operate in a certain activity are limited.
Businesses entering for the first in a new market or developing a new product not only have the benefits of the first move, but have to bear the burden and take risks sometimes very high. In sectors with high technological intensity to first develop a new product means supporting high costs of research and development. Followers must support investment much lower, as they may exclude certain avenues of research that have already proved very productive and focus its development activities in a direction already explored and already established.
Recent research shows that it is not easy for the first mover to maintain a competitive advantage over time; after the entrance of the first mover in a new market, other companies, “follower”, follow: first, those that have an entry strategy behind the first entrants, so-called early followers, following the companies that expect the situation of the new market will be strengthened, namely the late entrant. A strategy aimed at leadership can also be based on a late entry into the market compared to the first entrant.
Google with entry into the market actually occurred in 1998, as a late entrant, has developed a classification system of information that greatly improved the existing ones. Companies that are first entering the market immediately after the first movers are those who possess significant expertise productive type. A significant example is that of the so-called offer low cost, hardly ever developed by leading enterprises, which in fact had to suffer attacks at times very dangerous by new entrants with business models based on production costs much lower. As can be noted, the need to maintain an up to date level of integration with any given market is essential if a firm is to survive.
By growing complacent and allowing other firms to leverage this complacency as a strategic advantage, the overall revelence to the market of such a firm is drastically reduced. Moreover, the firm that seeks to remain relevant must continually be mindful of the fact that it will be necessary to engage with new technology, new approaches, and continually engage with its stakeholders as a means of avoiding a culture of complacency.