Conservative Approach of Organisations - Coursework Example

?Running Head: Conservative Approach of Organisations Conservative Approach of Organisations [Institute’s Conservative Approachof Organisations Introduction As the competition in the corporate world becomes stiffer, more and more people from the business world and academia are realising the importance of strategy or plans in helping companies succeed in achieving long lasting and sustainable growth. One question or one ongoing debate in this regard is that whether companies should go for an aggressive approach to achieve this growth, which demands becoming first movers in industry and capitalizing on technological development, or should they go with the defensive/conservative or wait and watch approach. Some say, “Attack is the best defense” while others preach, “defense is the best attack” (Shim, pp. 62, 2011). This paper is an attempt to capture a glance of this debate by exploring the arguments of both sides of the debate. Discussion Arguments in favour of aggressive approach Following could be some of the advantages in favour of the aggressive approach of companies. First, it is always difficult for firms to compete with each other when the switching costs incurred by the buyer for a product or service are high. This is more likely to be true in the technological market since the switching costs goes on to include the high fixed investments, training expenditure and others (Markides & Geroski, pp. 139-140, 2005). Therefore, when a new firm tries to compete with the first mover in the industry, it always has to consider the switching costs of buyers that are high in case of technology related or technology based products. Therefore, the new firms has to come up with a value proposition that not only offers more value than the existing product but that value should also be sufficient to induce the customers in incurring the switching costs (Geel, pp. 351, 2011). Second, with most of the products and services in the technology industry or even other products, those are somehow associated with technology; options of patents are always available. Companies that spend thousands of dollars on research and development are quick in applying for patents, copyrights, trademarks, trade secrets and use all other possible means of legal protection to generate maximum possible revenue and advantage for their efforts in technological advancement (Hill & Jones, pp. 20-21, 2009). Third, there are no doubts in the fact that firms that are quick in capitalizing on technological opportunities also develop a unique relation with their buyers that other firms fail to have. These firms get more time to exploit the distribution and supplier channels thus their relationship with all of distribution and supplier channels stands out of the crowd (Skarzynski & Gibson, pp. 168-169, 2008). Further researches reveal that not only firms that capitalize on technological opportunities end up getting hold of those superior and innovative technologies but at the same time, they also end up acquiring the lion’s share of many other resources associated with the same. For example, if there any assets or natural resources associated with the business that is unique, the firm may be able to acquire that on well below the market price or may have great bargaining advantage over the suppliers, which other firms will not have when they enter into a crowded market (Shim, pp. 62, 2011; Porter, pp. 46-47, 1998). The importance of adopting new technologies is also evident from the blue ocean strategy as well, which is, in itself, a new and unique chapter in the field of strategic management. The strategy argues that the entire field of strategic management is faulty and flawed in the sense that it encourages firm to remain and fight in the red oceans. The blue ocean strategy divides the marketplace into blue oceans and red oceans. Most of the firms are in Red Ocean that is characterized by their fierce competitive environment, cutthroat competition, increasing pressuring on firms to beat competition (Markides & Geroski, pp. 139-140, 2005). However, despite of spending billions of dollars in advertising, price cuts, product extensions, media campaigns and others in an attempt to outclass competition and increase their profits, with every passing day, these firms sense more and more pressure on their profits. Blue ocean strategists argue that the best way of beating competition is to stop trying to beat the competition (Hitt, Ireland & Hoskisson, pp. 32-33, 2010). Therefore, when firms focus on new technologies, they create and discover undisputed industries and unexplored oceans of market, which are named as blue oceans. By focusing on technological developments, these firms move to new industries where they do not have to fight with the competition since there is no competition. Therefore, rather than fighting with the competition, they make the competition irrelevant (Hitt, Ireland & Hoskisson, pp. 32-33, 2010). Consider the example of Starbucks in this regard which the first mover in the retail beverage or coffee industry and even as of today, it remains the largest coffee in the entire world. Amongst many of the reasons of Starbucks’s spectacular growth over the past decades is also the fact that it was one of first coffeehouses and one of its kinds. Thus, even as of today, Starbucks enjoys an extremely loyal customer base that trusts Starbucks due to their long association with the company. These customers have always been skeptical of other companies and coffeehouses and during the decades, at least a couple dozens of such coffeehouses have come and gone. Out of which many of them have tried to copy the Starbucks model to their best but they cannot copy the fact that Starbucks was the first to enter into the market (Afuah, pp. 273, 2009). Another relevant example here could be P&G, which during the 70s capitalized on the diaper and brought the innovation of disposable diapers, received a patent for the same and even as of today, it is the market leader in the diaper industry despite many attempts of UniLever, J&J and other companies to penetrate into the market. Arguments against the conservative approach However, the fact is that there are also certain disadvantages associated with taking an aggressive approach. First, the firms that follow the first movers are, at times, better off since they get the time to do their homework and learn from the mistakes of the firm that was the first entrant. Furthermore, the same technology on which the firm spent thousands and maybe millions of dollars becomes available to the upcoming firms as well who had previously taken the “conservative approach” (Boone & Kurtz, pp. 104-106, 2011). They carefully study that technology, improve the shortcomings, add few more features, follow the approaches uses by the first firm, and end up becoming a serious competitive threat to the firm that was hoping to reap some advantage from its million dollars investment. They also benefit because they do not have to experiment but follow the follow the footsteps of the first mover. The first mover may have done extensive investments and efforts over an extended period to educate the buyer, create supplier channels, distribution channels, develop infrastructure and others. The companies that take the “wait and see” approach end up becoming free riders who derive maximum benefits from the efforts and investments of the first mover or companies with aggressive approach and pocket much of the profits that were originally the dream of first movers (FitzRoy, Hulbert & Ghobadian, pp. 85-89, 2011; Porter, pp. 46-47, 1998). Second and more importantly, in many well known cases, first movers end up becoming rigid and inflexible as the size of the organisations grow bigger and the firms associates some sort of emotional attachment with products and services. Furthermore, self-fulfilling prophecy and biases also end up damaging these firms to great extent. For example, Ford kept on going with the production of Model T despite knowing the fact that the competitive scenario of the market has changed. It took the firm more than five years to realize the same because Ford, one of the first movers and one of the firms that capitalized on the opportunity very early, ended up creating its own formula for destruction (Hitt, Ireland & Hoskisson, pp. 32-33, 2010). Many of the US’s leading automotive manufacturers such as Ford, GM, and Chrysler were extremely late in at first, accepting, and then reacting to the challenge posed by them from the Japanese automotive industry players. During the 1970s and 1980s, when it took the US automotive manufacturers to build a car more than five-six years, from product idea development to final sale, the Japanese companies were able to do the same in 2-3 years. The point here is that when new comers are done with exploiting the advantages of their first entry or monopoly, they themselves open doors for other companies by exposing their weaknesses to other firms (FitzRoy, Hulbert & Ghobadian, pp. 85-89, 2011; Skarzynski & Gibson, pp. 168-169, 2008). The example of Dell could help in elaborating the phenomenon. When Dell entered the computer industry during the 1980s, the market giants were IBM and HP. The foundations of Dell were not based on any technological innovation but on a simple technique to assemble the PCs with low cost operations, surpass all the channel members to reduce price and sell it to customers on a lower price to gain the low cost competitive advantage. Without any doubts, the first movers and established firms in the industry which had spent depends in the industry, spent millions of dollars in research and development but they were easily beaten by a college dropout who exploited their single weakness and created an entire empire of Dell Computers (Hill & Jones, pp. 20-21, 2009). Conclusion Even as of today, this is an ongoing debate in the field of strategic management and business management and there are various factors that need to be taken into consideration before suggesting an aggressive or conservative approach for any firm. However, it appears that despite the fact that the costs associated with taking an aggressive approach are high are so are the risks, the returns associated with such an approach are also high. In fact, many of the success stories that we hear study and listen from the business world are not of the firms that decide to “wait and watch.” However, they are of the firms that took the charge to lead the way for others and took the risk in a calculated and rational manner to create success stories (Skarzynski & Gibson, pp. 168-169, 2008). References Afuah, Allan. 2009. Strategic Innovation: New Game Strategies for Competitive Advantage. Publisher. Boone, Louis E., & Kurtz, David L. 2011. Contemporary Marketing. Cengage Learning. FitzRoy, P., Hulbert, James., & Ghobadian, Abby. 2011. Strategic Management: The Challenge of Creating Value. Routledge. Geel, Reinier. 2011. Strategic Management: The Radical Revolutionary Strategic Management Matrix for Predators. Trafford Publishing. Hill, Charles, & Jones, Gareth. 2009. Strategic Management Theory: An Integrated Approach. Cengage Learning. Hitt, Michael A., Ireland, R. Duane., & Hoskisson, Robert E. 2010. Strategic Management: Competitiveness & Globalization, Concepts. Cengage Learning. Markides, Constantinos, & Geroski, Paul. 2005. Fast second: how smart companies bypass radical innovation to enter and dominate new markets. John Wiley & Sons. Porter, Michael E.1998. Competitive advantage: creating and sustaining superior performance: with a new introduction. Simon and Schuster. Shim, Jae K. 2011. Strategic Management: Concepts and Tools. Global Professional Publishing. Skarzynski, Peter., & Gibson, Rowan. 2008. Innovation to the core: a blueprint for transforming the way your company innovates. Harvard Business Press. Read More