The Lure of First Mover Advantage

Economics, unlike most other social sciences, can seem like magic.  How can months of heavy rain in Florida impact the share price of a paper company in New Jersey?  Like an illusionist revealing a trick, an economist can untangle the knots to reveal the connection:

  1. U.S. OJ manufacturers rely on product from Florida.
  2. The excess rain means an optimal orange yield in Florida.
  3. More, juicier oranges means more product to bring to market.
  4. More cartons of OJ means more business for the paper industry.
  5. New Jersey’s Paper Company “A” acts to absorb the coming excess product before its competitors, by purchasing wood pulp at low rates.
  6. Paper Company “A” meets demand at the lowest cost and highest profit margins among its peers; the paper company’s share price jumps.

When the links are revealed, a logical flow becomes apparent.  The economist is merely the interpreter of a series of events that might seem unrelated to the outsider.

This alchemy is at its most compelling when an organization, seemingly out of nowhere, is able to capitalize on an advantage.  Much like in above example, however, the result we’re seeing isn’t random at all. The economist might point to a phenomenon known as the “First Mover Advantage” (FMA) to explain how the organization achieved such an optimal position relative to its competitors.  In industry, international affairs, and beyond, FMA can differentiate survivors from failures.

piles

DEFENSE FRONTIERS

Perhaps the most poignant example of FMA in the modern era of defense is the development of nuclear weaponry.  When the United States “came to market” with the atomic bomb in 1945, its competitors in that arena were at an immediate, insurmountable disadvantage.

Japan, nuclear aspirants in their own right, quickly faced an entirely new competitive relationship with its enemy.  Militaries around the world continue to seek such a silver bullet, nuclear or not, as a means of reframing the power balance with their enemies.  But is this always a wise course of action?  Let us consider four points:

First, FMA requires significant early investment.  The Manhattan Project was an unprecedented collection of the greatest scientific minds available at the time.  Even then, there was no guarantee of success.  Modern militaries, therefore, must make very well informed judgments about when and where to apply resources seek so-called “game changing technology” that may or may not pay dividends.

scanned: May 2001 by Image Delivery Systems LLC

Manhattan Project members

Second, FMA approach carries risks.  Irrelevancy at the proving hour is one.  Consider the Maginot Line, France’s attempt to delay German aggression before it had occurred.  The set of operating assumptions that led to its creation were rendered shockingly moot at the time of execution, as German offensive planning and capabilities had long since “solved” the problem sets the French were attempting to impose.

Third, and related to the previous point, one’s competitors are not static.  Just as you are attempting to secure an early and powerful advantage, often so too are they.  Even if they are not pursuing an FMA gambit, changes to their doctrine, technology, or the operating environment itself can easily undermine the viability of an FMA approach.

Fourth, beware the potential myopia of FMA.  It is easy to understand the enthusiasm that an organization’s leaders must feel when they appear to have found a way to “subdue the enemy without fighting” in the finest traditions of Sun Tzu.  This shouldn’t excuse the organization from prudent contingency planning in the event of a failure, or from pursuing alternative areas of potential competitive domination.

A WORD ABOUT THE FUTURE

Despite the frequently hopeful words of policymakers, the lure of a “king of the mountain” position in the defense realm remains a dangerous thing.  Information spreads rapidly.  Technology can be stolen.  Countermeasures can be rapidly engineered.

The drone phenomenon is but one example.  Just a few years ago, it seemed as if the United States’ longstanding technological core competency would pay dividends in the race to weaponize the use of drones.  Quickly however, low cost/high utility countermeasures were under development that significantly diluted the once promising space.

The scenarios facing today’s defense futurists are essentially twofold:

Scenario A: any true “game changer” must be so revolutionary and with such high barriers to entry for competitors, that it can stand alone and unchallenged for an amount of time so as to achieve decisive results in the contested space (Examples: Atom Bomb in WWII, Chariots in Mesopotamia).

Scenario B: since the prior scenario is so unlikely, if attempting to position oneself as the First Mover and capitalize on a potential competitive front, it is most prudent to think and plan for a series of short duration advantages, exploitable both independently and in concert with one another, to gain incremental favorable position relative to competitors.  (Examples: China’s island creation in the S. China Sea today, China’s development of gunpowder in the 8th Century).

To be sure, the First Mover Advantage of seizing not just uncontested but often unknown areas to secure a position of strength is a powerful lure. From oranges to atom bombs, however, it is best to think prudently not just about the chances of success, but of the likely duration of that success relative to the investment required.

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The views expressed in this blog are those of the author and do not reflect the official policy or position of the Department of the Army, Department of Defense, or the U.S. Government.

 

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