Schulich research sheds light on strategic positioning dilemma

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Forthcoming research from York University’s Schulich School of Business shows that emulating leading companies might not always be the best strategy.

Majid Majzoubi
Majid Majzoubi

The research findings are contained in a paper titled “The Double-Edged Sword of Exemplar Similarity,” scheduled to be published in the journal Organization Science. The paper is co-authored by Majid Majzoubi, an assistant professor in strategic management at Schulich, together with Eric Yanfei Zhao from the University of Oxford, Tiona Zuzul from Harvard University and Greg Fisher from Indiana University. It 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.

Using cutting-edge natural language processing techniques to analyze the financial performance summaries of more than 7,600 U.S. 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 favourable 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 competitors. Firms must navigate this paradox, gaining visibility through exemplar similarity while striving to avoid unfavourable evaluations against those same competitors.