Environment Two Second Advantage Pdf


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What made Wayne Gretzky the greatest hockey player of all time wasn't his speed on the ice or the uncanny accuracy of his shots, but rather his ability to predict. The Two-Second Advantage: How We Succeed by Anticipating the Future - Just Enough. Written by Vivek Ranadive and Kevin Maney. Summary by Kim. Yep, here comes another summary - The Two-Second Advantage PDF by Vivek Ranadive and Kevin Maney.

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di, 26 mrt GMT the two second advantage pdf - In sports. ( particularly association football), a two-legged tie is a contest between two teams which. To save The Two-Second Advantage: How We Succeed by Anticipating the Future--Just Enough. eBook, make sure you follow the link under and save the. [email protected] A summary of The Two-Second Advantage: How We Succeed by Anticipating Download as PDF, TXT or read online from Scribd .

Buyers may rationally stick with the first brand they encounter that performs the job satisfactorily. If the pioneer is able to achieve significant consumer trial, it can define the attributes that are perceived as important within a product category. For individual customers the benefits of finding a superior brand are seldom great enough to justify the additional search costs that must be incurred.

Switching costs for corporate buyers can be more readily justified because they purchase in larger amounts. Switching costs play a huge role in where, what, and why consumers buy what they buy. Over time, users grow accustomed to a certain product and its functions, as well as the company that produces the products. Once consumers are comfortable and set in their ways, they apply a certain cost, which is usually fairly steep, to switching to other similar products. Buyer choice under uncertainty has developed into an advantage for first-movers, who realize that by getting their brand name known quickly through advertisements, flashy displays, and possible discounts, and by getting people to try their products and becoming satisfied customers, brand loyalty will develop.

First-mover disadvantages[ edit ] Although being a first-mover can create an overwhelming advantage, in some cases products that are first to market do not succeed. These products are victims of first-mover disadvantages. Late-movers have the advantage of not sustaining those risks to the same extent. While first-movers have nothing to draw upon when deciding potential revenues and firm sizes, late-movers are able to follow industry standards and adjust accordingly.

This can occur when the first-mover does not adapt or see the change in customer needs, or when a competitor develops a better, more efficient, and sometimes less-expensive product.

Often this new technology is introduced while the older technology is still growing, and the new technology may not be seen as an immediate threat. This disadvantage is closely related to incumbent inertia, and occurs if the firm is unable to recognize a change in the market, or if a ground-breaking technology is introduced.

In either case, the first-movers are at a disadvantage in that although they created the market, they have to sustain it, and can miss opportunities to advance while trying to preserve what they already have. Incumbent inertia[ edit ] While firms enjoy the success of being the first entrant into the market, they can also become complacent and not fully capitalize on their opportunity.

According to Lieberman and Montgomery: Vulnerability of the first-mover is often enhanced by 'incumbent inertia'. Such inertia can have several root causes: the firm may be locked into a specific set of fixed assets, the firm may be reluctant to cannibalize existing product lines, or the firm may become organizationally inflexible.

Firms that simply do not wish to change their strategy or products and incur sunk costs from "cannibalizing" or changing the core of their business, fall victim to this inertia. They may pour too much of their assets into what works in the beginning, and not project what will be needed long term. Some studies which investigated why incumbent organizations are unable to be sustained in the face of new challenges and technology, pinpointed other aspects of incumbents' failures.

These included: "the development of organizational routines and standards, internal political dynamics, and the development of stable exchange relations with other organizations" Hannan and Freeman, All in all, some firms are too rigid and invested in the "now", and are unable to project the future to continue to maximize their current market stronghold.

General conceptual issues[ edit ] Endogeneity and exogeneity of first-mover opportunities[ edit ] First-mover advantages are typically the result of two things: technical proficiency endogeneic and luck exogeneic. Skill and technical proficiency can have a clear impact on profits and the success of a new product; a better product will simply sell faster.

An innovative product that is the first of its kind has the potential to grow enormously. Technically competent companies are able to manufacture their products better, at a lower cost than their competitors, and have better marketing proficiency. An example of technical proficiency aiding first-mover advantage is Procter and Gamble's first disposable baby diaper.

Luck can also have a large effect on profits in first-mover-advantage situations, specifically in terms of timing and creativity. Simple examples such as a research "mistake" turning into an incredibly successful product serendipity , or a factory warehouse being burned to the ground unlucky , can have an enormous impact in some instances.

Initially, Procter and Gamble's lead was aided by its ability to maintain a proprietary learning curve in manufacturing, and by being the first to take over shelf space in stores. Definitional and measurement issues[ edit ] What constitutes a first-mover?

Should a first mover advantage apply to firms entering an existing market with technological discontinuity, the calculator replacing the slide rule for example, or should it apply solely be new products? The imprecision of the definition has certainly named undeserving firms as pioneers in certain industries,[ citation needed ] which has led to some debate over the real concept of first-mover advantage.

Another common argument is whether first-mover advantage constitutes the initiation of research and development versus the entry of a new product into the market. We have done our best to root out every such transaction, but we have undoubtedly missed some. There may also be new entries that we did not uncover, but our best impression is that the number is not large. Exhibit 1 Diversification Profiles of 33 Leading U.

Their data cover the period up through takeover but not subsequent divestments. My data paint a sobering picture of the success ratio of these moves see Exhibit 2.

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Even a highly respected company like General Electric divested a very high percentage of its acquisitions, particularly those in new fields. Companies near the top of the list in Exhibit 2 achieved a remarkably low rate of divestment. Some bear witness to the success of well-thought-out corporate strategies. Others, however, enjoy a lower rate simply because they have not faced up to their problem units and divested them. Their data cover the period up through takeover, but not subsequent divestments.

I calculated total shareholder returns stock price appreciation plus dividends over the period of the study for each company so that I could compare them with its divestment rate. While companies near the top of the list have above-average shareholder returns, returns are not a reliable measure of diversification success.

Companies like CBS and General Mills had extremely profitable base businesses that subsidized poor diversification track records.

I would like to make one comment on the use of shareholder value to judge performance. Linking shareholder value quantitatively to diversification performance only works if you compare the shareholder value that is with the shareholder value that might have been without diversification. Because such a comparison is virtually impossible to make, measuring diversification success—the number of units retained by the company—seems to be as good an indicator as any of the contribution of diversification to corporate performance.

My data give a stark indication of the failure of corporate strategies. Only the lawyers, investment bankers, and original sellers have prospered in most of these acquisitions, not the shareholders. Premises of Corporate Strategy Any successful corporate strategy builds on a number of premises. These are facts of life about diversification.

They cannot be altered, and when ignored, they explain in part why so many corporate strategies fail. Competition Occurs at the Business Unit Level. Diversified companies do not compete; only their business units do. Unless a corporate strategy places primary attention on nurturing the success of each unit, the strategy will fail, no matter how elegantly constructed. Successful corporate strategy must grow out of and reinforce competitive strategy. Obvious costs such as the corporate overhead allocated to a unit may not be as important or subtle as the hidden costs and constraints.

A business unit must explain its decisions to top management, spend time complying with planning and other corporate systems, live with parent company guidelines and personnel policies, and forgo the opportunity to motivate employees with direct equity ownership.

These costs and constraints can be reduced but not entirely eliminated. Shareholders Can Readily Diversify Themselves. Shareholders can diversify their own portfolios of stocks by selecting those that best match their preferences and risk profiles.

These premises mean that corporate strategy cannot succeed unless it truly adds value—to business units by providing tangible benefits that offset the inherent costs of lost independence and to shareholders by diversifying in a way they could not replicate.

Passing the Essential Tests To understand how to formulate corporate strategy, it is necessary to specify the conditions under which diversification will truly create shareholder value. These conditions can be summarized in three essential tests: 1. The attractiveness test. The industries chosen for diversification must be structurally attractive or capable of being made attractive.

The cost-of-entry test. The cost of entry must not capitalize all the future profits. The better-off test. Either the new unit must gain competitive advantage from its link with the corporation or vice versa. Of course, most companies will make certain that their proposed strategies pass some of these tests.

But my study clearly shows that when companies ignored one or two of them, the strategic results were disastrous. How Attractive Is the Industry? In the long run, the rate of return available from competing in an industry is a function of its underlying structure, which I have described in another HBR article. An unattractive industry like steel will have structural flaws, including a plethora of substitute materials, powerful and price-sensitive buyers, and excessive rivalry caused by high fixed costs and a large group of competitors, many of whom are state supported.

Diversification cannot create shareholder value unless new industries have favorable structures that support returns exceeding the cost of capital.

An industry need not be attractive before diversification.

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In fact, a company might benefit from entering before the industry shows its full potential. Unless the close fit allows substantial competitive advantage, however, such comfort will turn into pain when diversification results in poor returns.

Royal Dutch Shell and other leading oil companies have had this unhappy experience in a number of chemicals businesses, where poor industry structures overcame the benefits of vertical integration and skills in process technology.

Another common reason for ignoring the attractiveness test is a low entry cost. Sometimes the buyer has an inside track or the owner is anxious to sell. Even if the price is actually low, however, a one-shot gain will not offset a perpetually poor business. Almost always, the company finds it must reinvest in the newly acquired unit, if only to replace fixed assets and fund working capital.

Many that rushed into fast-growing industries personal computers, video games, and robotics, for example were burned because they mistook early growth for long-term profit potential. Industries are profitable not because they are sexy or high tech; they are profitable only if their structures are attractive. What Is the Cost of Entry? Diversification cannot build shareholder value if the cost of entry into a new business eats up its expected returns.

Strong market forces, however, are working to do just that. A company can enter new industries by acquisition or start-up. Acquisitions expose it to an increasingly efficient merger market. An acquirer beats the market if it pays a price not fully reflecting the prospects of the new unit. Yet multiple bidders are commonplace, information flows rapidly, and investment bankers and other intermediaries work aggressively to make the market as efficient as possible.

In recent years, new financial instruments such as junk bonds have brought new buyers into the market and made even large companies vulnerable to takeover. Philip Morris paid more than four times book value for Seven-Up Company, for example. Simple arithmetic meant that profits had to more than quadruple to sustain the preacquisition ROI. Since there proved to be little Philip Morris could add in marketing prowess to the sophisticated marketing wars in the soft-drink industry, the result was the unsatisfactory financial performance of Seven-Up and ultimately the decision to divest.

In a start-up, the company must overcome entry barriers. Bearing the full cost of the entry barriers might well dissipate any potential profits. Otherwise, other entrants to the industry would have already eroded its profitability. In the excitement of finding an appealing new business, companies sometimes forget to apply the cost-of-entry test.

The more attractive a new industry, the more expensive it is to get into. Will the Business Be Better Off? A corporation must bring some significant competitive advantage to the new unit, or the new unit must offer potential for significant advantage to the corporation. Sometimes, the benefits to the new unit accrue only once, near the time of entry, when the parent instigates a major overhaul of its strategy or installs a first-rate management team. Other diversification yields ongoing competitive advantage if the new unit can market its product through the well-developed distribution system of its sister units, for instance.

This is one of the important underpinnings of the merger of Baxter Travenol and American Hospital Supply. When the benefit to the new unit comes only once, the parent company has no rationale for holding the new unit in its portfolio over the long term.

Once the results of the one-time improvement are clear, the diversified company no longer adds value to offset the inevitable costs imposed on the unit. It is best to sell the unit and free up corporate resources. The better-off test does not imply that diversifying corporate risk creates shareholder value in and of itself.

Doing something for shareholders that they can do themselves is not a basis for corporate strategy. Diversification of risk should only be a by-product of corporate strategy, not a prime motivator. Executives ignore the better-off test most of all or deal with it through arm waving or trumped-up logic rather than hard strategic analysis. One reason is that they confuse company size with shareholder value.

In the drive to run a bigger company, they lose sight of their real job. They may justify the suspension of the better-off test by pointing to the way they manage diversity.

Evolving user needs and late-mover advantage

By cutting corporate staff to the bone and giving business units nearly complete autonomy, they believe they avoid the pitfalls. Such thinking misses the whole point of diversification, which is to create shareholder value rather than to avoid destroying it. Concepts of Corporate Strategy The three tests for successful diversification set the standards that any corporate strategy must meet; meeting them is so difficult that most diversification fails.

Many companies lack a clear concept of corporate strategy to guide their diversification or pursue a concept that does not address the tests. Others fail because they implement a strategy poorly.

My study has helped me identify four concepts of corporate strategy that have been put into practice—portfolio management, restructuring, transferring skills, and sharing activities. While the concepts are not always mutually exclusive, each rests on a different mechanism by which the corporation creates shareholder value and each requires the diversified company to manage and organize itself in a different way. The first two require no connections among business units; the second two depend on them.

See Exhibit 4. While all four concepts of strategy have succeeded under the right circumstances, today some make more sense than others. Ignoring any of the concepts is perhaps the quickest road to failure.

Exhibit 4 Concepts of Corporate Strategy Portfolio Management The concept of corporate strategy most in use is portfolio management, which is based primarily on diversification through acquisition.

The corporation acquires sound, attractive companies with competent managers who agree to stay on. While acquired units do not have to be in the same industries as existing units, the best portfolio managers generally limit their range of businesses in some way, in part to limit the specific expertise needed by top management.

The acquired units are autonomous, and the teams that run them are compensated according to the unit results. The corporation supplies capital and works with each to infuse it with professional management techniques. At the same time, top management provides objective and dispassionate review of business unit results. Portfolio managers categorize units by potential and regularly transfer resources from units that generate cash to those with high potential and cash needs. In a portfolio strategy, the corporation seeks to create shareholder value in a number of ways.

It uses its expertise and analytical resources to spot attractive acquisition candidates that the individual shareholder could not. The company provides capital on favorable terms that reflect corporatewide fundraising ability. It introduces professional management skills and discipline. Finally, it provides high-quality review and coaching, unencumbered by conventional wisdom or emotional attachments to the business.

The logic of the portfolio management concept rests on a number of vital assumptions. Acquired companies must be truly undervalued because the parent does little for the new unit once it is acquired. To meet the better-off test, the benefits the corporation provides must yield a significant competitive advantage to acquired units.

The style of operating through highly autonomous business units must both develop sound business strategies and motivate managers. In most countries, the days when portfolio management was a valid concept of corporate strategy are past.

Other benefits have also eroded. Large companies no longer corner the market for professional management skills; in fact, more and more observers believe managers cannot necessarily run anything in the absence of industry-specific knowledge and experience. Another supposed advantage of the portfolio management concept—dispassionate review—rests on similarly shaky ground since the added value of review alone is questionable in a portfolio of sound companies.

The benefit of giving business units complete autonomy is also questionable. Setting strategies of units independently may well undermine unit performance. The companies in my sample that have succeeded in diversification have recognized the value of interrelationships and understood that a strong sense of corporate identity is as important as slavish adherence to parochial business unit financial results.

But it is the sheer complexity of the management task that has ultimately defeated even the best portfolio managers. As the size of the company grows, portfolio managers need to find more and more deals just to maintain growth. Supervising dozens or even hundreds of disparate units and under chain-letter pressures to add more, management begins to make mistakes.

Eventually, a new management team is installed that initiates wholesale divestments and pares down the company to its core businesses. Reflecting these realities, the U. In developing countries, where large companies are few, capital markets are undeveloped, and professional management is scarce, portfolio management still works. But it is no longer a valid model for corporate strategy in advanced economies.

Nevertheless, the technique is in the limelight today in the United Kingdom, where it is supported so far by a newly energized stock market eager for excitement. But this enthusiasm will wane—as well it should. Portfolio management is no way to conduct corporate strategy. Restructuring Unlike its passive role as a portfolio manager, when it serves as banker and reviewer, a company that bases its strategy on restructuring becomes an active restructurer of business units.

The new businesses are not necessarily related to existing units. All that is necessary is unrealized potential. The restructuring strategy seeks out undeveloped, sick, or threatened organizations or industries on the threshold of significant change. The parent intervenes, frequently changing the unit management team, shifting strategy, or infusing the company with new technology.

Then it may make follow-up acquisitions to build a critical mass and sell off unneeded or unconnected parts and thereby reduce the effective acquisition cost. The result is a strengthened company or a transformed industry. As a coda, the parent sells off the stronger unit once results are clear because the parent is no longer adding value and top management decides that its attention should be directed elsewhere.

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A conglomerate with units in many industries, Hanson might seem on the surface a portfolio manager. In fact, Hanson and one or two other conglomerates have a much more effective corporate strategy. Its customer and supplier power is low and rivalry with competitors moderate. The target is a market leader, rich in assets but formerly poor in management. Hanson pays little of the present value of future cash flow out in an acquisition premium and reduces purchase price even further by aggressively selling off businesses that it cannot improve.

In this way, it recoups just over a third of the cost of a typical acquisition during the first six months of ownership. Like the best restructurers, Hanson approaches each unit with a modus operandi that it has perfected through repetition.

Hanson emphasizes low costs and tight financial controls. To reinforce its strategy of keeping costs low, Hanson carves out detailed one-year financial budgets with divisional managers and through generous use of performance-related bonuses and share option schemes gives them incentive to deliver the goods.

If it succumbs to the allure of bigness, Hanson may take the course of the failed U. When well implemented, the restructuring concept is sound, for it passes the three tests of successful diversification. The restructurer meets the cost-of-entry test through the types of company it acquires. It limits acquisition premiums by buying companies with problems and lackluster images or by buying into industries with as yet unforeseen potential.

Intervention by the corporation clearly meets the better-off test.

Provided that the target industries are structurally attractive, the restructuring model can create enormous shareholder value. To work, the restructuring strategy requires a corporate management team with the insight to spot undervalued companies or positions in industries ripe for transformation. The same insight is necessary to actually turn the units around even though they are in new and unfamiliar businesses.

These requirements expose the restructurer to considerable risk and usually limit the time in which the company can succeed at the strategy. The most skillful proponents understand this problem, recognize their mistakes, and move decisively to dispose of them. The best companies realize they are not just acquiring companies but restructuring an industry.

Unless they can integrate the acquisitions to create a whole new strategic position, they are just portfolio managers in disguise. Another important difficulty surfaces if so many other companies join the action that they deplete the pool of suitable candidates and bid their prices up. Perhaps the greatest pitfall, however, is that companies find it very hard to dispose of business units once they are restructured and performing well.

Human nature fights economic rationale. Size supplants shareholder value as the corporate goal. The company does not sell a unit even though the company no longer adds value to the unit. While the transformed units would be better off in another company that had related businesses, the restructuring company instead retains them.

Gradually, it becomes a portfolio manager. The perceived need to keep growing intensifies the pace of acquisition; errors result and standards fall. The restructuring company turns into a conglomerate with returns that only equal the average of all industries at best. The last two concepts exploit the interrelationships between businesses. In articulating them, however, one comes face-to-face with the often ill-defined concept of synergy. If you believe the text of the countless corporate annual reports, just about anything is related to just about anything else!

But imagined synergy is much more common than real synergy. Such corporate relatedness is an ex post facto rationalization of a diversification undertaken for other reasons. Even synergy that is clearly defined often fails to materialize. Instead of cooperating, business units often compete. A company that can define the synergies it is pursuing still faces significant organizational impediments in achieving them. But the need to capture the benefits of relationships between businesses has never been more important.

Technological and competitive developments already link many businesses and are creating new possibilities for competitive advantage. In such sectors as financial services, computing, office equipment, entertainment, and health care, interrelationships among previously distinct businesses are perhaps the central concern of strategy. To understand the role of relatedness in corporate strategy, we must give new meaning to this ill-defined idea.

I have identified a good way to start—the value chain. I call them value activities. It is at this level, not in the company as a whole, that the unit achieves competitive advantage. I group these activities in nine categories. Primary activities create the product or service, deliver and market it, and provide after-sale support. The categories of primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities provide the inputs and infrastructure that allow the primary activities to take place.

The categories are company infrastructure, human resource management, technology development, and procurement. The value chain defines the two types of interrelationships that may create synergy.

The second is the ability to share activities. Two business units, for example, can share the same sales force or logistics network.

The value chain helps expose the last two and most important concepts of corporate strategy. The transfer of skills among business units in the diversified company is the basis for one concept.

While each business unit has a separate value chain, knowledge about how to perform activities is transferred among the units. For example, a toiletries business unit, expert in the marketing of convenience products, transmits ideas on new positioning concepts, promotional techniques, and packaging possibilities to a newly acquired unit that sells cough syrup.

Newly entered industries can benefit from the expertise of existing units and vice versa. These opportunities arise when business units have similar buyers or channels, similar value activities like government relations or procurement, similarities in the broad configuration of the value chain for example, managing a multisite service organization , or the same strategic concept for example, low cost.

Even though the units operate separately, such similarities allow the sharing of knowledge. Of course, some similarities are common; one can imagine them at some level between almost any pair of businesses.

Countless companies have fallen into the trap of diversifying too readily because of similarities; mere similarity is not enough. Transferring skills leads to competitive advantage only if the similarities among businesses meet three conditions: 1.

The activities involved in the businesses are similar enough that sharing expertise is meaningful. Broad similarities marketing intensiveness, for example, or a common core process technology such as bending metal are not a sufficient basis for diversification.

The resulting ability to transfer skills is likely to have little impact on competitive advantage. The transfer of skills involves activities important to competitive advantage. Transferring skills in peripheral activities such as government relations or real estate in consumer goods units may be beneficial but is not a basis for diversification.You score is dependent on how good your grammar and vocabulary is and how well you answer the question.

Most companies shy away from modes of entry besides acquisition. General conceptual issues[ edit ] Endogeneity and exogeneity of first-mover opportunities[ edit ] First-mover advantages are typically the result of two things: technical proficiency endogeneic and luck exogeneic.

With their short life-cycles, patent-races can actually prove to be the downfall of a slower moving first-mover firm. By doing so, they can reduce some of the risks of internal entry and speed up the process. The corporation supplies capital and works with each to infuse it with professional management techniques.

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