Navigating the Paradox of Emulating Industry Leaders: Schulich Research Sheds Light on Firms’ Strategic Positioning Dilemma
TORONTO – Friday, April 19, 2024 – Forthcoming research from York University’s Schulich School of Business shows that emulating leading companies may not always be the best strategy.
The research findings are contained in the paper, “The Double-Edged Sword of Exemplar Similarity”, scheduled to be published in Organization Science. The paper is co-authored by Majid Majzoubi, Assistant Professor in Strategic Management at Schulich, together with Eric Yanfei Zhao (University of Oxford), Tiona Zuzul (Harvard University), and Greg Fisher (Indiana University). The research paper sheds light on the nuanced implications of a publicly traded company’s strategic positioning relative to “category exemplars” – competitors considered to be the gold standard in their industry or sector.
Utilizing cutting-edge Natural Language Processing techniques to analyze the 10-K filings of more than 7,600 US public firms spanning 25 years, the study reveals a double-edged sword: while similarity to exemplars can enhance analyst coverage due to increased recognizability, it may also result in less favourable analyst recommendations due to unfavourable comparisons.
The findings highlight a strategic paradox: while exemplar similarity can boost a firm’s visibility and attract initial analyst coverage, it can also lead to less favorable evaluations because of these comparisons. The impact of this positioning depends on the firm’s category characteristics, with more coherent and distinct categories amplifying the effects. This dual effect poses a significant strategic dilemma for firms navigating their identities in competitive markets.
“Our research demonstrates that when it comes to emulating leading firms, flattery can indeed be a double-edged sword,” says Majzoubi. “It might get you noticed by analysts, but it can also lead to brutal comparisons that diminish your standing.” The study underscores the critical balance firms must achieve between aligning with exemplars and establishing distinct identities.
The research findings offer deep insights for both practitioners and scholars, highlighting the complex dynamics that shape analyst evaluations and the strategic considerations firms must weigh when positioning themselves relative to exemplars. Firms must navigate this paradox, gaining visibility through exemplar similarity while striving to avoid unfavorable evaluations against those same exemplars.
Majid Majzoubi is available for interviews.