Leveraging the Incumbent's Advantage

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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.

Marco Iansiti is the David Sarnoff Professor of Business Administration at Harvard Business School. F. Warren McFarlan is the Albert H. Gordon Professor of Business Administration, Senior Associate Dean and Director of the Asia-Pacific Initiative at Harvard Business School. George Westerman is a research scientist at MIT Sloan School of Management's Center for Information Systems Research. Contact the authors at miansiti@hbs.edu, fmcfarlan@hbs.edu and georgew@mit.edu.

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