ACADEMY OF MANAGEMENT EXECUTIVE, in press
Strategic and Organizational Requirements for Competitive Advantage
David Lei
Edwin L. Cox School of Business
Southern Methodist University
Dallas, Texas 75275
214-768-3005
dlei@mail.cox.smu.edu
John W. Slocum, Jr.
Edwin L. Cox School of Business
Southern Methodist University
Dallas, Texas 75275
214-768-3157
jslocum@mail.cox.smu.edu
August 2004
This research was sponsored by the Division of Research, Edwin L. Cox School of
Business, Southern Methodist University, Dallas, Texas and the OxyChem Corporation
of Dallas, TX. Portions of this paper were presented at the 21st Pan-Pacific Conference,
Anchorage, Alaska, May 26, 2004. The authors would like to thank Anita Bhappu, Mel
Fugate, Don Hellriegel, Peter Heslin, Roger Kerin, Bharath Rajagopolan and Don
VandeWalle for their constructive comments on an earlier draft of this manuscript.
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Executive Overview
Formulating an effective business strategy for a firm is a complex task. How best to
compete in an industry is one of the major determinants that influence managers’ choice
of business strategy. The life cycle stages of the industry and the rate of technological
change are two drivers that have significant impact on industry evolution. We develop a
typology of four types of industry environments: Fast Growth; Wild, Wild West; Steady
Evolution, and Creative Destruction. Each of these generates a different set of strategic
imperatives for managers. To operate effectively in each type of industry environment,
managers may select among four business strategies: Concept Drivers, Pioneers,
Consolidators, and Concept Learners. We present the various strengths and challenges
posed by each strategy and how managers can overcome these.
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Although successful organizations are less unified than living organisms, they too
constitute configurations of mutually supporting parts that are organized around stable
themes or strategies. These themes or strategies may be derived from leaders’ visions,
the influence of powerful departments/divisions, or the state of the industry. Once a
stable theme or strategy emerges, a whole infrastructure emerges to support it. The firm
perpetuates and amplifies one type of design and suppresses all mutations. That is,
senior managers choose a set of goals and values and champions these above all
others.
In this article, we will point out that managers need to understand the nature of
their industry’s life cycle and the rate of technological change as they impact the
strategies and organization designs they craft to compete in their industry. In addressing
the nature of changing environments, we examine the broad nature of industry
transformation in the first part of our article. Industries are economic complex adaptive
systems that evolve through states of birth, growth, maturity, as well as death at their
own rates. These systems are also impacted by the rate of technological change that
can redefine the nature of firms’ offerings to their respective markets. The second part
of our article examines how four archetypes of firms – Concept Drivers, Pioneers,
Consolidators, and Concept Learners - can redefine their strategies and organization
designs to respond to these different types of change. We consider the impact of
industry change on how firms are likely to adapt to faster changing environments in the
future.
Industry Ecosystems and Change
Industries can be viewed as economic examples of a complex adaptive system.
This is a concept that has been used to describe the evolution that occurs in living
ecosystems (e.g., forests, climates, creation of new species). Although firms in an
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industry ecosystem compete with one another for customers, they are also highly
interdependent in the sense that they share the same changes that affect an industry
over time. The parallel growth and decline of semiconductor, telecommunications, and
even Internet-based “dot.com” firms during the late 1990s reveals to an amazing degree
the shared fate that tied these firms together within their respective industry ecosystems.
The slump in the demand for broadband communications technology used to power the
Internet precipitated a massive decline in demand for personal computers and other
related equipment. In turn, this cascaded into one of the roughest downturns ever for
the semiconductor industry. Major changes in an industry ecosystem can dramatically
reshape the industry’s structure, and define the context of the competitive strategies
used by firms to build new sources of competitive advantage.1 In addressing changing
environments, firms in some industries have engaged in proactive actions to help mold
the structure of their industry and to render the underlying competitive setting more
advantageous for them. However, as the competitive environment continues to evolve
over time, it is often quite difficult for firms to manage every aspect of their industry
ecosystem. For example, in the early 1990’s, a consortium of firms (e.g., AT&T, RCA,
Philips, Zenith, General Instrument, and NBC) worked together to develop the current
standards of high-definition television (HDTV) to help define an entirely new technology
for consumer electronics. Although their efforts were highly successful in shaping
today’s broadcasting standards, the ensuing development of the technologies used to
make HDTV sets followed much of the same progression that defined the earlier
generations of analog color television sets and other consumer electronics products.
Likewise, the nature of competition among firms can influence the value received by
customers, as well as how closely firms work in conjunction with their suppliers. For
example, the symbiotic relationship between Wal-Mart and Procter & Gamble has
redefined the role of the supplier in the massive retailing industry. The accumulation of
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their responses (and their subsequent effects) shaped the overall competitive structure
of this industry.
Two defining characteristics of an economic complex adaptive system are: (1)
the existence of a life cycle that guides evolution within the system, and (2) the rate of
technological change that can dramatically reshape the configuration of the system
itself.2 We will use these two underlying tenets of complex adaptive systems to aid our
understanding of industry change.
If industries are viewed from this perspective, we need to be able to demonstrate
how organizations respond to changing environments. First, it is important to delineate
the nature of life cycle-based evolution within an industry. The early stage of the life
cycle, characterized by rapid growth, proliferation of firms, and low barriers to entry,
witnesses many firms’ attempting to get their innovative products accepted by
customers. As the overall size of the market expands, it attracts a large number of
competitors. This growth provides considerable economic ferment that enables different
firms to craft strategies to compete in the industry, often by developing highly
differentiated products that lead to a wide spectrum of value propositions for customers.
Over time, however, customers become more knowledgeable and competing products
become more similar to one another. Declining differences between products of
competing firms generally leads to similar pricing, and also compressed margins. This
results in much slower revenue growth, and potentially lower economic returns to many
firms. As the industry becomes highly mature, a dominant industry-wide paradigm
becomes established. At this time, firms become highly specialized and cost efficiency
becomes important in determining profitability. The evolution of products and
technologies in most industries tends to exhibit strong life cycle characteristics. Recent
examples of industries that have undergone such a progression include those pertaining
to cell phones, digital cameras, and managed health care plans.
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In adaptive systems, rate of technological change refers to the extent to which
new products and technologies evolve in ways and patterns that are completely different
from their predecessors. On the one hand, all industries undergo a constant, steady
evolution in which technologies slowly improve over time. Change is often gradual and
highly predictable as product and process technologies follow a well-defined
progression. However, industries are subject to periods of “disruption,” whereby new
technologies can redefine an industry’s structure in unpredictable ways. Disruptive
technologies can “shake up” a dominant design (i.e., way of conceiving and
commercializing a product/service offering) and established firms to such an extent that
an entire industry can be transformed in a short time.3 For example, the latest advances
in medical technology have raised considerable hope that entirely new forms of
treatments and less-invasive surgical procedures will be developed shortly. These
technologies would provide entirely new treatment regimens that represent bold
opportunities for the rise of new firms. Similarly, the advent of wireless Internet
capabilities and their impact on traditional telecommunications firms relying on land-line
modes of transmission would represent another avenue to create entirely new service
offerings as well.
The creation of new core technologies to design products for a set of customers
in one industry may serendipitously open up new avenues to exploit the technology in
other markets. More often than not, a new technology destabilizes the industry’s preexisting equilibrium and a transformed industry ecosystem replaces it. In recent years,
for example, this pattern has emerged numerous times within several different
industries, such as photography, telecommunications, and financial services. Indeed,
most industries periodically face the prospect of substantial technological change,
whereby an entirely new method, product design, or value proposition dramatically
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redefines the strategies and market positions of competing firms. The competitive
environment in these industries will become significantly more intense.4
The presence of life cycle dynamics, combined with the prospect for
technological change provides the basis for understanding how firms can rapidly adapt
to a variety of contexts. Our characterization of industries enables us to develop a
framework that captures the strategic and organizational imperatives that are likely to
guide firm behavior. Figure 1 presents an overlay of life cycle dynamics with the levels
of industry technological change to highlight the different sets of ecosystems.
_______________________
Insert Figure 1 about here
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Quadrant One: Fast Growth
In quadrant one, a new product concept or idea becomes the basis for fast
industry growth. Firms will try to stake out and expand key portions of the market by
offering their own distinctive value proposition for customers. Often, firms compete with
highly differentiated product offerings that not only seek to capture market share, but
also to create a product concept or design that cannot easily be replicated throughout
the industry.5 The underlying technology or method used to create new products and
service concepts evolves in a predictable manner. Eventually, an industry “shakeout”
displaces weaker rivals and industry growth abates as buyers become more
knowledgeable about how the product/service adds value for them. However, there is
still room for a number of strong rivals to continue offering their own unique value
propositions, since the underlying product or service concept has either attracted a loyal
following, or created high switching costs that lock in the buyer.
Many product and service concepts fit this industry setting. For example, the
rapid growth in chain restaurants, specialty retailing, laboratory diagnostics, auto service
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centers, hair-styling salons, and video games have followed well-defined trajectories in
which a core product concept was successfully tested and replicated throughout the
industry. In the restaurant industry, a highly innovative product concept (e.g., Corner
Bakery) or service approach (e.g., Sonic Drive-Ins) has enabled a variety of competing
firms to thrive, even when they serve a similar menu line. This has enabled firms in
many different technology and service-based industries to grow rapidly by following a
highly replicable and distinctive business model. Even certain high-technology
products, such as software and specialized chemical agents, have followed a similar
development path, where leading companies have built a strong lock-in with their
buyers.
Quadrant Two: Wild, Wild West
In quadrant number two, a combination of fast growth and technological ferment
attracts numerous upstarts who bring novel ideas and new technologies to a highly
dynamic setting. As the number of new firms increases, so does the potential range of
technologies and concepts that firms will use to stake out their market positions. Rivals
face a highly dynamic, fluid industry environment that is not only fast-growing, but also
ripe for numerous competing emerging, breakthrough technologies. Market boundaries
are unstable, since customer expectations and value propositions are changing so
quickly that firms choose not to commit to a standard technology or product platform.6
Customers may flock to a given product or service in one time period, and then embrace
a completely new version later. It is difficult for any firm to “command the high ground” in
the industry, since there are so many different types of technologies that could be used
to create new products and services. The technologies themselves are highly unstable
and subject to rapid change or substitution from newer innovations, mostly from within
the industry. This industry segment witnesses a high rate of firm entry and exit as new
product and technology concepts are developed and tested. Moreover, these
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technologies are often so new or different that it is impossible for any given firm to define
an industry-wide standard early on.
Industries that fit this characterization include many aspects of biotechnology,
medical devices and instrumentation, fuel cells, and even digital home electronics.
Consider, for example, some of the recent developments that firms have pioneered to
create alternative sources of fuels for automobiles.7 A wide range of battery
technologies based on nickel-metal hydrides, lithium derivatives, and hydrogen cells
compete for attention and investment funds by large automotive firms for the
development of advanced systems to power new generations of cars. These
technologies are themselves subject to fast-changing innovations that promise even
more reliable sources of power and ease of manufacture. In the biotechnology field,
dozens of new entrants compete with one another to create treatment regimens for a
variety of ailments and diseases. They employ a broad range of techniques from
molecular biology, genetic engineering, and even nanotechnology-based electronic
devices that can regulate body functions. More recently, a number of firms have begun
to offer a fully digital home entertainment system (e.g., Samsung, Sony, Intel) whereby a
central computer or networking device controls everything from the television to washing
machines and even Internet access. 8
Quadrant Three: Steady Evolution
In quadrant number three, industry maturity is characterized by a stable industry
structure, whereby large firms enjoy significant market shares. Market share for
competitors has become well-established, making it essential for firms to capture and
sustain cost-driven efficiencies. Opportunities for product differentiation may still exist,
but they are more difficult to pursue because buyers are knowledgeable about
competing firms’ products (e.g., the airline industry). As a result, products from
competing firms often exhibit a marked tendency to utilize standardized technologies,
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platforms, and operating systems.9 Consequently, the pursuit of substantial economies
of scale, large size, integrated supply chains, and continuous improvements in process
technologies drives firms in this environment. As the industry continues to mature,
many firms will seek to lower their cost structures even further, often by working more
closely with key suppliers to outsource some of their high fixed-cost activities. In order
to further stabilize industry-wide pricing and to gain even greater economies of scale,
some firms will seek to acquire their rivals in order to gain even stronger bargaining
power over their suppliers and buyers.
Industries such as personal computers (PCs), memory chips, automobiles,
chemicals and even managed health care populate quadrant three. The automotive
and memory chip industries have begun to consolidate in recent years as firms need to
become larger in order not only to gain additional scale, but also to amortize the costs of
capital-intensive product and process development. Even in such high-technology fields
as information technology and consulting, numerous firms (e.g., Deloitte Consulting,
EDS, IBM) have begun to outsource some of their data processing operations to India
and China. This trend has occurred throughout the globe, as established firms seek
ways to further lower their operational costs.
Quadrant Four: Creative Destruction
In quadrant four, firms in highly mature industries face the onslaught of new
technologies and other technological changes from outside their industry that promise to
transform the very essence of their survival. Although a single technology or external
event may provide the trigger for industry-wide change, over time the cumulative effect
results in an ecosystem-wide phenomenon.10 Creative destruction is the hallmark of
quadrant four, as new technologies or ways of serving a customer dramatically redefine
the nature of the product or service offered to customers. The previous ways of creating
value crumble under the weight of a new technology that dramatically changes the
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performance and/or pricing of previous offerings. In many situations, the new entrant will
set a new standard for customers’ expectations regarding product/service design, price,
convenience, and speed; newly designed products that build on a superior value
proposition accelerate the displacement and substitution of older products. Established
firms face enormous tradeoffs as they attempt to adapt to the new paradigm, as they
must respond in ways that denigrate the value of their current business models and
invested assets.11
Industries such as entertainment, photography, financial services, travel
agencies, telecommunications, semiconductor capital equipment, and even certain
medical devices and procedures have recently faced significant forces of creative
destruction that have completely transformed how firms create value for their customers.
For example, the rapid creation and dissemination of MP3 and other formats in the
entertainment industry reveal the extent to which new products (and strategic
requirements) are completely different from the capabilities of established firms. They
have also served to create the basis for an entirely new method of reaching customers,
as music and eventually video offerings are distributed through the Internet and other
mobile technology platforms.
Strategic Requirements for Competing in Different Ecosystems
As the industry ecosystem changes, firms must be able to learn, develop, and
adjust their core competencies in ways that respond quickly to external developments.
Strategies and organization designs that seem well-suited for a particular stage of an
industry’s life cycle may not translate into competitive advantage or success in another
stage.
Competitive advantage depends upon a firm’s ability to craft a coherent strategy
that integrates several core pillars of delivering a successful value proposition. Using a
unified strategic framework developed by Hambrick and Fredrickson, we build upon their
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set of core strategic pillars, which include: (1) arenas, (2) vehicles, (3) distinguishing
features, (4) economic logic, and (5) staging of actions to highlight some possible
combination of strategies that enable firms to compete effectively.12 Arenas focus on
what businesses the firm will be in, product categories, geographic areas, core
technologies, as well as the value-adding stages (e.g., product design, manufacturing, or
logistics). Besides specifying these arenas, strategists need to determine the relative
importance that will be placed on each arena. Vehicles are the ways that strategists
need to choose among to enter the arena(s). That is, how is the firm going to accomplish
entry into an arena: licensing agreements, joint ventures, acquisitions, and/or internal
development are all vehicles for entering an arena. A strategy should not only specify
what arenas the firm will be active in and how it will get there, but how the firm will
distinguish itself in the marketplace. That is, how will the firm compete—through styling,
price, product features, and quality. Economic logic refers to how firms will capture
returns that exceed their cost of capital. That is, will these be achieved through low costs
and scale advantages, scope, replication, or will it charge premium prices because it will
offer superior service or develop proprietary product features. While these choices have
been referred to as the pillars of a firm’s business strategy, there is some judgment
needed about the staging or sequencing of these choices. Staging of actions refers to
the sequencing of choices related to the first four strategic pillars, since the actions taken
by any given firm will depend on its unique circumstances.
Archetypes and Industry Ecosystems
The four types of ecosystems we illustrated in Figure 1 place different demands
on the organization to respond. We present four different archetypes that correspond to
the four different ecosystems. Consolidators, Concept Learners, Concept Drivers, and
Pioneers are each viable to operate in different ecosystems, albeit at different levels of
effectiveness. These strategic archetypes focus at the line of business level within the
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firm. Unlike other strategic typologies that have been developed, we focus on industry
life cycle and technological change as the major drivers of industry ecosystem
evolution.13 For example, firms facing an ecosystem characterized by steady evolution
are driven towards crafting business strategies that align with our consolidators in Figure
2. They have developed a broad-line of standard products for customers and focus
primarily on cost reduction and scale. Conversely, pioneers that aggressively pursue
new technologies and strive to be first-movers in the marketplace tend to dominate the
Wild, Wild West quadrant of Figure 1. For example, Ampex (a pioneer) developed the
first video recorder, but JVC and Sony (both consolidators) eventually mass produced it.
Similarly, Bowmar (a pioneer) created the first pocket calculator, but Texas Instruments
(consolidator) captured the mass market because of its distinctive manufacturing
competency. While each archetype tends to be focused on doing one thing extremely
well, each firm positions itself to exploit an ecosystem. That is, they create
competencies and complementary assets to take advantage of their strategy. While it is
impossible to specify a universally superior set of pillars that will apply to each firm, there
are some compelling patterns and differences that exist across the four ecosystems.
Even though these strategic pillars will vary in their importance across the ecosystems,
each firm must build upon its own internally consistent set to produce firm-specific
competitive advantage. Figure 2 presents four strategic archetypes that overlay the
general properties that shape these five core pillars across the four environmental
states.
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Insert Figure 2 about here
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Quadrant One: Concept Drivers
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Concept drivers are firms competing in fast-growth industries that create a value
proposition which is highly differentiated from those of its rivals to sustain high
profitability. Brinker International and Discount Tire are examples of concept drivers that
have created and shaped a core product concept that enables them to achieve a
competitive advantage. These firms invest heavily in market research and product R &
D to craft a product or service design that is highly replicable or “scalable” across
markets. As a result, the arenas of concept drivers are typically new markets where they
can enter easily with a well-developed and easily replicable business model. Core
value-adding activities (e.g., human resources, merchandising, accounting, logistics) are
often centralized to achieve uniformity and consistency of operations. Brinker’s
acquisition of The Corner Bakery was synergistic because it had operations, such as
Chili’s, On The Border and Romano’s Macaroni Grill. Brinker was able to replicate its
supply chain, logistics systems, hiring practices, market research capabilities, and other
competencies to service this new arena.14 To sustain this strategy, concept drivers
frequently experiment and innovate new product offerings that borrow upon and expand
its core product/service. They often acquire rivals that enable them to enter new product
or geographic markets quickly. Thus, their primary vehicles for building and extending
their competitive advantage are through internal development and related acquisitions to
complement their existing product lines.
A concept driver must continue to focus its new product development initiatives
that reinforce and build upon its core product expertise and knowledge, and test new
markets to ensure a workable fit. As a result, these firms are likely to evaluate new
market opportunities through a carefully staged process. Many concept drivers invest
heavily in new process technologies that enable them to engage in product
customization and provide customer intimacy. These skills enable them to build strong
barriers to imitation from their rivals. Concept drivers seek to build strong customer
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loyalty or customer lock-in by virtue of a highly desirable offering or a proprietary
technology. This effort to secure a strong customer lock-in serves as the foundation for
an economic logic predicated on either the possession of proprietary technology or the
delivery of superior product or service features. Branding is a vital tool to help fast
shapers reduce buyers’ perceived risk when introducing new products.
Concept drivers rely on organization designs that support fast innovation,
creativity and flexibility within a division.15 This places a high premium on fast
communication and information flow across functions within a division. Concept drivers
must also cultivate and develop their own talent internally, since these firms rely heavily
on experience and tacit knowledge that are further refined with each subsequent product
innovation.
Discount Tire appears to be setting the industry standard for providing
replacement tires.16 Unlike other auto repair firms that offer a wide range of other
services, Discount Tire relies on a simple formula of only providing ultra-courteous fast
tire repair, rotation, and installation at all of its stores. Discount Tire also offers a
generous mileage-based warranty program that enables the customer to lower the
lifetime cost and risk of tire ownership by allowing for free tire replacement in case of
road hazard or other circumstances at any Discount store. By focusing exclusively on
providing fast turnaround and lower-risk tire ownership, Discount Tire has created a
distinctive value proposition. This $1.4 billion privately-held firm has expanded rapidly
from its Arizona roots to serve customers in twenty states across the country. Everyone
from managers to technicians are trained to examine customers’ tires, assess the need
for repair or replacement, write up the purchase, and install the new tires within a very
short time. This cross-functional approach to customer service enables Discount Tire to
slice the waiting time that customers face in their tire maintenance needs.
Quadrant Two: Pioneers
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Pioneers are risk-takers that thrive in highly uncertain, dynamic environments
where barriers to entry and exit are often quite low. 17 In addition, pioneers face a high
degree of uncertainty regarding customer expectations. These firms are often small and
possess a deep knowledge about leading-edge technologies. Typically, they possess
the seeds of a breakthrough technology that can transform or even create entirely new
products. Pioneers rely on agility and speed of product development to create bold new
product ideas that keep competitors from copying their initiative. They cannot count on
the presence of a large customer base to amortize their investment costs. Customers
who buy pioneers’ products tend to be technology enthusiasts who want the “new toy.”
It is the functionality of the product that attracts customers. Unlike consolidators, they
often confine their arenas towards very specialized technological niches that could lead
to breakthrough products. The only way to innovate successfully is to be intimately
familiar with specific technologies and with exact needs of a particular set of customers.
Too broad a range of product offerings works against the sharp focus so necessary for
pioneers to survive. If a pioneer develops an end product, it likely meets the needs of a
specialized niche, rather than a mass market. More often, pioneers seek to
aggressively develop and license their technologies to other firms who may be better
positioned to assume the risks of full-fledged market development. For example,
Chicopee Mills first introduced the disposable diaper in 1932. By 1956 only one percent
of the market was buying them. The main reason was cost – around $.09 per diaper In
1962, Procter & Gamble acquired the company. Through their efficient marketing and
manufacturing capabilities, P & G drastically reduced the cost to less than $.03 per
diaper. Today, Pampers commands 15% market share of this $19 billion market.
A combination of internal technology development and external licensing
represent important strategic vehicles for pioneers. Pioneers need to keep their R & D
wellsprings full with a continuous flow of new ideas and emerging technologies to create
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opportunities for application in numerous product markets by other firms. Pioneers seek
to distinguish themselves from other rivals through faster innovation, better designs, or
advanced technologies. Overall, pioneers can survive only to the extent they are
effective in developing new technologies and protecting them from rapid competitor
imitation. The combination of developing new technology with a marked tendency to rely
on licensing it to other partners means that the economic logic of pioneers rests on
securing a steady stream of profits generated by strong proprietary features.18 Pioneers
often gain the needed financial support usually from private financiers. Unless the
product has the necessary technical features, financiers will not back it.
Pioneers depend on organizational routines that promote fast learning,
experimentation, and encouragement of internal debate. Because they license their
technologies to other firms, they must also be able to use these strategic alliances as a
vehicle to better understand market developments and customer evolution, since they
are unlikely to possess these capabilities on their own. Pioneers are particularly
attractive acquisition candidates for established firms seeking to learn and to build
entirely new core competencies, like P & G did with Chicopee Mills. However, they often
represent a difficult cultural and organizational fit with the management practices and
routines that are embedded in an established firm’s organization.
Pioneers tend to populate those fast-moving industries driven by high levels of
R&D spending and fast product innovation. In recent years, pioneer-type firms have
charted new techniques and methods to dramatically lower the cost of
telecommunications, despite this industry’s massive downturn. Companies such as
Vonage, 8x8, and others have begun offering Voice-over-Internet-Protocol (VoIP)
technology that enables savvy users to place long-distance calls over the Internet
through personal computers and other access devices.19 Although many large corporate
buyers are already heavy users of VoIP technology, Vonage and 8x8 are directly
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challenging established long-distance firms, such as AT&T and MCI, with their
dramatically lower costs and ease of network installation. While it is unlikely that these
small firms will become telecom giants in their own right because of current industry
over-capacity, they have started discussions to form marketing and technology
development alliances with Regional Bell Operating Companies to learn more about
users’ needs. Other pioneer-type firms active in the Internet and telecommunications
industries have focused on new applications such as data encryption and audio/video
streaming.
Quadrant Three: Consolidators
Consolidators refer to firms competing in mature life cycles that seek to capture
the benefits of consolidating their industries in the midst of slow growth.20 Consolidators
are those firms that seek to maximize the benefits of cost and process efficiencies in
their attempt to garner industry-wide economies of scale. Wal-Mart and CVS in the
retailing industry, and Lenovo in electronics and PC manufacturing in China are
examples of consolidators.21 As a result, their typical choice of arenas is to focus on
gaining access to a wide scope of markets that enables them to leverage their fixed
costs. Consolidators move into pioneers’ markets by shifting the basis of competition
from technical performance to such attributes as quality and price (e.g., in microwave
ovens, from Litton to Samsung; in 35 mm cameras, from Leica to Canon). This makes
the product attractive to the mass market and facilitates a change in the product’s life
cycle from growth to maturity. Carefully honed marketing campaigns, distribution
networks and customer service are essential to capture value by consolidators.
Consolidators that are cost leaders are not known for major technological innovations in
their product lines. Even though consolidators often introduce incremental technological
improvements to extend the range and longevity of a product, their motto, “Do not be
first, be the best” captures the zeitgeist of these firms.
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Consolidators actively search for ways to reduce their high capital intensity. They
frequently attempt to work closely with their core suppliers to share the risks of future
product development and new market entry. At the same time that consolidators narrow
the scope of their activities through outsourcing, many also seek to become larger by
merging and acquiring competitors in order to attain even greater benefits of scale and
size. Hence, they primarily rely on such vehicles as long-term supply and coproduction/sourcing arrangements, as well as selective mergers to help reinforce their
scale-based advantages and negate rivals’ moves to gain market share. In particular,
consolidators in many cases look to their suppliers not only as a provider of necessary
inputs, but also as an outsourcing platform in which the supplier takes on a greater role
(and cost) in the firm’s overall value creation process (e.g., Wal-Mart and Procter &
Gamble). Consequently, as consolidators over time become more specialized in their
activities, they also must become adept at an important staging skill – that of
sequentially orchestrating and managing an expansive web of suppliers that are
becoming important sources of process technologies in their own right. The move to
outsource a broader range of value-creating activities to key suppliers enables the
consolidator to become more focused on what it considers to be its future core
competencies. Accordingly, these firms generally avoid products that require a high
degree of customization in favor of mass production and distribution of more
standardized products that facilitate low cost operations. Managing distribution channels
to buyers is also an important skill.
Many companies in recent years have already surfaced to play important
consolidator roles in their respective industries.
For example, in the automobile
industry, new car designs are based increasingly on shared platforms and components
that are found across a manufacturer’s entire line of product offerings. Core
components, such as safety glass, fuel tanks, braking systems, engine sealants,
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automotive seats, and dashboards, made of advanced composites are designed for
similar manufacture and use for cars at the upper, middle and entry price points. As a
result, automotive companies need to maximize the potential scale economies and cost
efficiencies that accompany the development of shared technologies and components
across all product lines.
Quadrant Four: Concept Learners
Concept learners are firms that successfully acquire new knowledge and
competencies as well as harness change to create new value propositions. In a mature
industry that faces a high rate of technological change, firms must adapt quickly to
create new products and services based on a rapidly evolving technology or new means
of serving a customer.22 In many cases, established firms have not been able to adjust
their strategies and organization designs rapidly enough to learn the new requirements
to revitalize themselves successfully. However, a growing number of firms in a wide
range of industries will face the challenge of meeting and adapting to the imperatives
that accompanies technological change.
Concept learners actively seek knowledge about emerging technologies and
developments in other industries to redefine their core products. Successful concept
learners not only have the capability to rapidly absorb new technologies, but are also
willing to “unlearn” pre-existing core competencies that can become core rigidities in the
creative destruction of their ecosystem. Change will compel concept learners to
reconfigure themselves at any number of different arenas, but the primary realignment
occurs in the firm’s core technology base. This base is confronted with rapid
obsolescence from a more vibrant or more cost-effective substitute.23 As a result, a
change in the core technology will certainly make itself felt in the type of new products
introduced in subsequent periods. Many concept learners approach product
development by attempting to “incubate” a variety of technological “seeds” that lay the
21
foundation for different product designs. By fostering an internal corporate race to
assess which product design is ultimately accepted, this “parallel” approach builds on a
vehicle that promotes risk-taking and knowledge-sharing which is valuable for future idea
generation. Joint ventures and strategic alliances represent important complementary
vehicles for concept learners, especially with partners that are likely to possess
important related technologies. These learning-based alliances enable the firm not only
reduce some the internal costs and risks of going-it-alone, but also to gain important
insight into a potential competitor’s market direction. Concept learners need to regain
the initiative by introducing bold new products quickly into the marketplace, but face a
critical tradeoff when they start cannibalizing their older product offerings. Thus, these
firms are faced with significant difficulties concerning the speed of staging of their
product introductions. Long-term, their economic viability will depend on how well they
can learn and assimilate sources of change as part of their renewal.
The medical devices industry confronts the challenge of harnessing new forms of
technology with increasing frequency.24 For example, the development of nextgeneration pacemakers, telemedicine products, minimally-invasive surgical tools, and
self-regulating pumps has incorporated many technology developments, processes, and
ideas that were originally conceived from outside the industry by other firms. The need
to carefully monitor chronic diseases conditions has provided the innovative ferment that
now makes possible proactive disease management programs and products through the
Internet and even wireless technologies.
Medtronic, a leading medical device firm, has incorporated telecommunicationsbased technologies to create a wireless pacemaker that automatically and quietly dials
for assistance in advance of a cardiac event. Previous pacemakers designed by
Medtronic and other firms did not offer this instantaneous, immediate response
capability, and the patient had to be aware of his/her imminent condition to seek help on
22
his/her own. Medtronic also began to investigate and learn how to develop wireless
applications for other body-monitoring products. To create new types of advanced selfregulating pumps that help diabetic patients manage their disease, Medtronic has also
invested heavily in new types of servomechanics-based competencies that mimic the
human body’s endocrine regulatory feedback system. In late 2001, Medtronic bought
Mini-Med, a small leading-edge developer of miniaturized insulin pumps. This
acquisition complements Medtronic’s growing core competencies in working with
advanced microelectronics, as well as enables the firm to learn even newer drugdelivery methodologies that will likely reshape other disease treatment regimens in the
future.25
Potential Organizational Issues and Challenges
Each of the strategic archetypes represents a way of competing, creating value,
and adjusting to its environment. Yet, as the firm adapts to the economic and strategic
requirements necessary to build competitive advantage, it also faces a series of
important tradeoffs – many of which are embedded in the design of the firm’s
organizational structure. Figure 3 captures some of the more salient strengths and
weaknesses that confront firms in each strategic archetype.
_______________________
Insert Figure 3 about here
_______________________
Quadrant One: Concept Drivers
Concept drivers face a number of important organizational challenges as they
pursue high-growth market opportunities. To remain innovative and agile, they are
organized by product, with each line of business formulating a product- or marketspecific strategy. Although this provides the benefit of fast response to meeting
customers’ needs, this design also delimits the firm’s ability to promote internal resource
23
sharing and cooperation among business units.26 Centralization of key processes, such
as merchandising, logistics, inventory management, purchasing, and human resources
are important to achieve consistency of operations. As a result, a strong product focus
may sometimes reward managers to become overly focused on their individual units’
performance at the expense of that of the overall firm. In turn, concept drivers are likely
to have high cost structures, particularly as business units duplicate important functional
activities as they expand into new products or markets. If growth and expansion are not
carefully managed, there is a high risk of excessive product proliferation that may
actually confuse the customer, cannibalize the unit’s offerings, and bring out products
that are not needed.
For example, many financial services firms (Citigroup, Fidelity Investments) that
offer one-stop shopping, such as brokerage, banking, and insurance offerings, to their
customers have recently confronted some important organizational challenges. In the
early 1990’s, different divisions within Merrill Lynch attempted to sell high-return funds,
fixed-income securities, annuities, and insurance to its customers. Although Merrill
encouraged each division to promote its offerings aggressively (and rewarded its
managers for doing so), many customers were often confused by the message they
received. Clients wanting the benefits of more stable, secure investments received a
very different message from account representatives who wanted to steer them towards
higher-risk products, such as stocks and growth-oriented funds.27 In a similar vein, the
specialty retailer Gap now faces the challenge of sustaining high growth without diluting
the core message, marketing strategy, and retailing approach of each of its three
divisions. Composed of three different divisions – The Gap, Banana Republic, and Old
Navy - this company has thrived in providing highly fashionable clothing to young adults
and children looking for the right blend of design elegance, comfort and versatility. In
particular, the Banana Republic focuses on trendy but elegant clothing; The Gap is
24
oriented more towards active wear, while Old Navy offers a full array of fashionable
clothing at slightly lower prices targeted towards teenagers and college students. Even
though the company has begun to share some ordering and logistics functions across its
three divisions, the company still faces the potential risk of cannibalizing its own
revenues if expansion is not carefully managed.
Quadrant Two: Pioneers
Pioneers thrive by engaging in fast innovation of breakthrough technologies and
products. With organic structures, R&D-driven cultures, and few manufacturing
capabilities, these firms can accelerate the pace and scope of their product innovations.
These firms by their very nature are risk takers and have been founded by entrepreneurs
whose technical and engineering competencies allow them to translate a certain
technology into a new product. Yet, they are also potentially vulnerable to a series of
organizational issues. First, because pioneers tend to focus on leading-edge
technologies whose ultimate market applications are unknown, they face the risk of
“technological overkill.” Consequently, these firms often have few marketing
competencies. In some cases, pioneers can find themselves refining a technology
beyond the point (and cost) that would meet the needs of customers or firms. Because
most pioneers are young and small, they are also unable to dedicate the resources to
monitor highly intricate accounting, human resources and other “infrastructure” related
tasks. Many pioneer firms are highly dependent on venture capital or external funding
from established firms that are their alliance partners to sustain their growth. Leadership
in pioneer firms is highly dependent on a singular-focused CEO who may become overly
“wedded” to a particular technology or product design at the risk of ignoring other
developments or trends in the industry. Steve Jobs’ promotion of Lisa at Apple
Computer, Edwin Land’s vision for Polaroid cameras, and Fred Smith’s zap mail at
25
Federal Express (now FedEx) were all major technological projects that customers
eventually rejected.
Quadrant Three: Consolidators
In their continuing search for greater economies of scale, consolidators strive to
achieve a high degree of product and process standardization. Known for their low cost
operations, consolidators stay ahead of their competition by devising ever more
economical means of service or manufacturing to lead the race down the cost curve.
Consolidators are run by strong leaders who crafted tightly-knit cultures. These cultures
ensure that the company’s values are inextricably linked to its goals. Sam Walton at
Wal-Mart Stores, Meg Whitman at E-Bay and Liu Chuanzhi at Lenovo all fostered
cultures that infused employees with day-to-day behaviors consistent with the firms’
goals. They face very high fixed costs that make it difficult to change quickly. Likewise,
consolidators must have the organizational capability to manage vast webs of suppliers
and distributors to serve mass markets. Consolidators face a number of important
issues within their respective industries. First, they are highly dependent on their
suppliers because of the increased reliance on outsourcing. If a consolidator’s set of
suppliers were to merge and consolidate among themselves, they would yield
considerable supplier power. Their margins will erode as suppliers charge higher prices.
Second, the large size of consolidators means they are likely to become highly riskaverse, bureaucratic, and smother innovation. The cumbersome reporting relationships
and growing bureaucracy can breed decision-making that is slow, cautious and
inflexible. Hence even those consolidators who invest heavily in product innovation are
likely to be slower than a concept driver or pioneer in racing to market. Finally, the
standardization of products, components, and technologies strongly suggests that
consolidators will have difficulty appealing to many different market segments with a
compelling value proposition for each.
26
Quadrant Four: Concept Learners
Concept learners face a vast array of organizational challenges as they attempt
to adapt to change in their creative destruction ecosystem. On the one hand, concept
learners compete in highly mature markets that are ripe for change; yet, they must be
able to learn new technologies or ways of serving their customers quickly. One of the
biggest organizational challenges for concept learners is how best to reposition
themselves to learn about new customers and developments beyond their immediate
focal market or industry. Thus, concept learners face a much more complex set of
organizational challenges than pioneers, consolidators, or concept drivers. Concept
learners must investigate and invest in new technologies because they are often very
different from their existing core technology. Concept learners in turn must manage two
different mindsets and possibly two or more different perspectives that shape how
managers view their customers. Concept learners also face numerous internal
resource allocation issues as they try to find ways to invest in new customers and
technologies. In particular, they must be able to reinvest the cash generated by mature
businesses into promising new opportunities.
Managerial Implications
When competing in their industry ecosystems, firms need to develop important
sources of competitive advantage that build upon their own unique strengths, core
competencies, and complementary assets. As firms jockey for stronger market position,
they will seek to develop strategies that best match their vision of the industry with the
resources at hand. Yet, some general strategic patterns of behavior are exhibited
across the four cells.
For concept drivers, they need to focus their strategies on defining a unique
product or service concept that enables them to expand the range of markets they serve.
27
Concept drivers need to engage in a high degree of marketing and innovation to sustain
the cutting-edge feel to their products or services. Developing a replicable business
model that erects strong barriers to imitation (especially by way of branding, service
delivery, or product design) from rivals is central to the concept driver’s future prosperity.
Centralization of decision-making in key value-adding activities is needed to achieve
consistency of operations, as well as to capture important sources of scale economies.
For retailing firms such as Gap Stores, Tiffany & Co., and Chico’s FAS, distinctive
product offerings allow these companies to define the leading edge of fashion in
clothing, exquisite jewelry and specialty women’s clothing respectively. Similarly,
Starbucks has been able to redefine the notion of what customers should expect from
their morning coffee. By creating exciting new flavors in both hot and cold formats,
Starbucks has been able to greatly expand the number of outlets in the United States
and increasingly abroad over the past ten years.
Careful experimentation and market testing of new product ideas can help the
concept driver stake out an attractive position in its industry’s ecosystem to sustain
profitable growth. To do this, the concept driver should focus on creating or acquiring
small, highly autonomous units whose purpose is to test market boundaries to capture
new customers. For example, Tiffany & Co. recently acquired Little Switzerland in 2002,
a jewelry retailer that serves tourists in the Caribbean, Alaska, the Florida Keys, and
sells to customers mostly through duty-free stores that are near cruise-ship destinations.
Little Switzerland will operate under its own trade name and will offer jewelry and
renowned brand-name watches and other items. At the same time, Tiffany has also
taken a major investment position in Temple St. Clair, a leading gem designer that has
debuted new boutiques in high-end shopping malls such as southern California’s South
Coast Plaza. Little Switzerland helps Tiffany expand its reach into new tourist markets,
while Temple St. Clair enables the firm to reach upscale female customers who prefer to
28
purchase jewelry for themselves. In 2004, Tiffany & Co. will begin selling a new line of
pearls that complement its diamond and traditional jewel-based offerings.
Can you name the company that created online book retailing? If your answer is
Amazon.com, you’re wrong. The idea originated with Charles Stack, an Ohio-based
bookseller in 1991. Amazon, under CEO Jeff Bezos, did not enter the market until 1995.
Who created the first safety shaving razor? The natural answer would be Gillette, but in
reality, the first safety razor was created by Henry Gaisman, founder of the AutoStrop
Safety Razor Corporation in 1928. In 1930, Gillette bought AutoStrop and its safety
razor patent. These examples highlight a key point. Oftentimes, the companies that
create radically new products are not necessarily those that succeed in the mass
market. Pioneers are rarely able to explore new technologies quickly enough and to
create an organization design that can serve the mass market.
There are several implications for pioneers. First, new products do not
automatically translate into a successful business model. Initial products frequently do
not satisfy a well-articulated need; therefore, adoption rates are often slow. To survive in
this ecosystem, pioneers must have a deep knowledge of technology, strong financial
backing, and be interested in pushing its envelope. These firms are serial risk takers
because they are willing to bet on the results of new products that extend beyond the
current state of knowledge. Second, pioneers need to create organic management
systems so they can quickly respond to the developments of new technologies.
Learning new technological skills and information is prized and rewarded. Their
competitive advantage stems from their ability to remain flexible and to hit a moving
target. Customers of pioneers often share an enthusiasm for technology and value a
pioneer’s performance much like investors do.28 Third, effective pioneers must be ready
to leap into a new market when a dominant technology is about to become standardized
because they rarely have the capabilities to craft an organization design that can
29
distribute and serve to a large customer base. Since pioneers do not have the cultures
necessary to compete in mature markets, they should spend their time developing new
markets for their cutting-edge technologies.
For consolidators, these firms need to focus on refining key value-creating
activities such as manufacturing, logistics, and reaching a large customer base.
Although Procter & Gamble has attained dominance in the disposable diaper market by
dramatically improving both product quality and cost, there are instances where
consolidators have captured large market share gains even with a product whose
features do not match those offered by a pioneer. Particularly in high-technology
markets, consolidators can often seize large market share by creating a product that is
good enough for the vast majority of users. When they are able to do this at a much
lower price, consolidators can transform the ecosystem to make it much more
advantageous for them to compete. For example, Apple Computer created the Newton
hand-held communication device in 1993. Palm followed three months later with the
Zoomer. Both products flopped a short time later. In 1995, Palm was acquired by U.S.
Robotics, a leading manufacturer of modems and other communication devices. Palm’s
product was technologically less sophisticated than that of Apple’s Newton, but U.S.
Robotics’ stronger financial position and distribution-based competencies enabled it to
capture more than seventy percent of the market by producing a product for less than
$300, compared to the Apple’s $700 Newton line.
Consolidators can also change distribution channels to better complement their
low-cost, operational competencies. In the 1960’s, most potato chips in the United
Kingdom were sold in pubs. All major competitors established distributors to supply
pubs around the country. Golden Wonder, a Scotland-based division of Imperial
Tobacco, changed the target market and began marketing chips as a snack for women.
The company developed competencies in distribution channels most appropriate for its
30
target customers – supermarkets and other retail outlets – by training sales people to
sell products to retailers, arrange shop displays, and provide point-of-sale promotional
materials. Golden Wonder also invested in new technology to improve the product’s
quality and to reduce manufacturing costs. In a ten-year period, its percentage of sales
of chips in pubs went from 75 percent to 25 percent, while sales at supermarkets surged
from 25 percent to 65 percent. Selling at convenience outlets made up the other 10
percent of sales.
Concept learners face a difficult balancing act. The advent of rapid technological
change in mature markets means that concept learner firms are compelled to develop
entirely new competencies and even mindsets in order to adapt. Creative destruction in
an industry means that winning products quickly become dinosaurs as new technologies
lay the groundwork for next-generation innovations. Concept learners must continue to
scan the environment to learn about new technologies and other developments that
could trigger massive disruption in their industry. On the other hand, they must
simultaneously wean themselves from excessively depending on highly mature products
for their long-term profitability. Once the period of creative destruction in an industry
ends, concept learners will need to develop new sets of core competencies that will
enable them to recast themselves as either concept drivers or consolidators to compete
in a later time period. This is because the industry has evolved to a more steady state
(thus requiring a consolidator strategy), or fast growth (thus requiring a concept driver
strategy).
Creating an entirely new business unit to learn and to experiment with emerging
technologies is essential for concept learners. Ideally, managers and technical
personnel in these units should not report to existing lines of businesses, but directly to
the CEO so that they can develop their own innovative cultures. When managers
charged with learning about a new technology must report to senior management
31
through the pre-existing organizational arrangement (usually a large, well-established
unit), they will be unable to “break free” from the constraints and core rigidities that will
likely be imposed on them by managers who are still thinking about today’s current line
of products. Instead, they should be thinking about designing new products for
tomorrow’s potential customers. For example, only now after a dozen restructurings, do
managers at Eastman Kodak have greater freedom to pursue a full-blown digital imaging
strategy. In the past, managers who wanted to develop next-generation filmless
cameras and other technologies still had to report to superiors who viewed these
products from the perspective of chemical-based imaging and not through the lens of
more advanced technologies. Also, concept learners need to build a web of strategic
alliances to learn about new technologies from multiple partners, particularly before
committing to an emerging product or technical standard, since forecasting market
demand will likely remain uncertain for an extended period.
Managers operating in highly diversified firms need to formulate business unit
strategies that best match the industry which each SBU resides. As a practical matter,
highly diversified firms will likely have a mix of businesses that will transcend all four
cells of Figure 2. To provide overall coherence of a corporate strategy, senior
management should evaluate each SBU’s strategy within the context of its particular
industry. Even though the SBU is part of a larger corporation, it needs to develop the
competencies and resources that will enable it to perform most effectively in its
competitive setting.29
Figure 1
Industry Ecosystems
Rate of Technological Change
Low
Lifecycle
Mature
3. Steady Evolution
•
•
•
•
•
•
Stable industry structure
Well-established competitors
Few opportunities for product differentiation
Scale and size important
Cost efficiency predominates
Knowledgeable customers
Growth
1. Fast Growth
•
•
•
•
Focus on developing core product concept
Rivals attempt to differentiate from one another
Emphasis on scalability, replicable business
models
Value proposition seeks to build customer loyalty
High
4. Creative Destruction
•
•
•
•
Rise of technological change
New entrants from other industries
New technologies reshape underlying value
proposition
Established firms face market share loss
2. Wild, Wild West
•
•
•
•
•
Market boundaries uncertain
Multiple competing technologies and standards
Numerous entrants from a wide number of
industries
Value propositions in flux
Need to establish customer lock-in
33
Figure 2
Archetypes and Strategies
Rate of Technological Change
Low
3.
Consolidators
Mature
Growth
Concept Learners
Broad-line markets/wide product lines
Arenas:
Mature markets impacted by disruption
Vehicles:
Long-term supplier relationships,
selective mergers & acquisitions
Vehicles:
"Skunkworks," incubation of new
businesses, strategic alliances with
related firms
Low cost, standardized offerings
Distinguishing
Features:
New product introduction, ease-of-use
by customers
Outsourcing to reduce backward
integration
Staging:
Sequencing is difficult due to
cannibalization
Attain maximum scale to reduce costs;
industry leader
Economic Logic:
Premium prices based on new products
or low cost to serve large markets
Staging:
Economic Logic:
Lifecycle
4.
Arenas:
Distinguishing
Features:
1.
High
Concept Drivers
2.
Arenas:
New market entry based on core
product concept
Vehicles:
Internal development of product
concepts; related acquisitions
Pioneers
Arenas:
New products, new core technologies
Vehicles:
Internal development and external
licensing to larger firms
Distinguishing
Features:
Distinguishing
Features:
Customization, fast innovation, branding
Staging:
Penetration and development of related
products and neighboring geographic
markets
Economic Logic:
Superior pricing through customer
loyalty or proprietary features
First-to-market, fast innovation, patents
Staging:
Quick speed of expansion into niche
markets; develop sequential new
technologies in R&D
Economic Logic:
Generate high royalties from proprietary
technology/patents; premium pricing
from niched products
34
Figure 3
Strengths and Weaknesses of Strategic Archetypes
Rate of Technological Change
Growth
Lifecycle
Mature
Low
3. Consolidators
Strengths:
• Market share
• Operations & logistical sophistication
• Distribution networks
• Marketing
• Outsourcing
Weaknesses:
• Vulnerable to high fixed costs
• May face rising supplier power
• Excessive focus on standardization
• Products lack distinctive attributes
• Overconfidence of brand
• Bureaucracy
1. Concept Drivers
Strengths:
• Innovation
• Value chain drivers centralized
• Marketing
Weaknesses:
• Difficulty in sharing resources among business
units
• Duplication of costs and functions
• Proliferation of products
• May confuse the customer
High
4. Concept Learners
Strengths:
• Highly decentralized
• Customer focused
• Adaptation
Weaknesses:
• Must "unlearn" older business model
• Risk of culture clashes
• May lose customers in the wake of realigning
operations
• Resource allocation conflicts
2. Pioneers
Strengths:
• Organic structure; small size
• Finding new niches
• Visionary CEO
• R&D leadership
• Flexible production facilities
• Outsource manufacturing
Weaknesses:
• Reliance on external funding or venture capital
• Technological overkill
• Overcommitment to a particular design approach
• Potential ego-driven CEO
Endnotes
1
D’Aveni, R. 1994. Hypercompetition. New York: Free Press.
2
Zimmerman, B., Plsek, P. and Lindberg, C. 1998. Edgeware: Insights from complexity science
for health care leaders. Dallas: VHA, Inc.
Christensen, C. M. 1997. The Innovator’s Dilemma. Boston, MA: Harvard Business School
Press. Also see Adner, R. 2002. When are technologies disruptive: A demand-based view of
the emergence of competition. Strategic Management Journal, 23: 667-688.
3
4
See Anderson, P. and Tushman, M. L. 1990. Technological discontinuities and dominant
designs: A cyclical model of organizational change. Administrative Science Quarterly, 35: 606633. Also see Christensen, op. cit. and Dosi, G. 1992. Technological paradigms and
technological trajectories. Research Policy, 11: 147-162. Also see Porter, M. E. 2001. Industry
transformation. Case Number 9-701-008.
5
Tushman, M. and Murmann, J. P. 1998. Dominant designs, technology cycles, and
organizational outcomes. Research in organizational behavior. Greenwich, CT: JAI Press,
Volume 20.
6
Evans, P. B. and Wurster, T. S. 1997. Strategy and the new economics of information.
Harvard Business Review, 75(6): 71-82. Also see Cheng, Y. T. and Van de Ven, A. H. 1996.
Learning the innovation journey: Order out of chaos. Organization Science, 7: 593-614, and
Markides, C. and Geroski, P. 2003. Colonizers and consolidators: The two cultures of corporate
strategy. Strategy + Business, 32: 46-55.
7
See, for example, Ball, J. 2004. Car makers split over timing of hydrogen-powered vehicles.
The Wall Street Journal, 26 February 2004.
8
Lei, D. 2003. Competitive strategy and the rise of new organizational forms in the
semiconductor industry. Review of the Electronic and Industrial Distribution Industries, 2: 116142.
9
Christensen, op. cit. Also see Morris, C. R. and Ferguson, C. H. 1993. How architecture wins
technology wars. Harvard Business Review, 71(2): 86-97.
10
The original landmark work that pioneered the notion of creative destruction is Schumpeter, J.
A. 1939. Business cycles: A theoretical, historical and statistical analysis of the capitalist
process. New York and London: McGraw-Hill. More recent works that further develop the
creative destruction concept include Foster, R. and Kaplan, S. 2001. Creative Destruction. New
York: Currency and Doubleday. Also see Kodama, F. 1995. Emerging patterns of innovation.
Boston, MA: Harvard Business School Press.
11
Jones, N. 2003. Competing after radical technological change: The significance of product line
management strategy. Strategic Management Journal, 24: 1265-1288. A classic leading work in
this area is Leonard-Barton, D. 1992. Core capabilities and core rigidities: A paradox in
managing new product development. Strategic Management Journal, 13: 111-25. Also see
Tripsas, M. 1997. Surviving radical technological change through dynamic capability: Evidence
from the typesetter industry. Industrial and Corporate Change, 3: 341-377, and Henderson, R.
M. and Clark, K. B. 1990. Architectural innovation: The reconfiguration of existing product
technologies and the failure of established firms. Administrative Science Quarterly, 35: 9-30.
36
12
Hambrick D. C. and Fredrickson, J. W. 2001. Are you sure you have a strategy. Academy of
Management Executive, 15(4): 48-59.
13
Some of the more prominent strategic typologies developed in the strategic management field
include those of Miles, R. E. and Snow, C. C. 1978. Organizational strategy, structure and
process. New York: McGraw-Hill. Miller, D. 1990. The Icarus Paradox: How exceptional
companies bring about their own downfall. New York: Harper Business. Treacy, M. and
Wiersema, F. 1995. The discipline of market leaders. Reading, MA: Addison-Wesley.
14
Conversation with Jean Birch, President, Corner Bakery, Dallas, Texas, February 10, 2004.
15
See, for example, Galbraith, J. R. 2002. Designing organizations. San Francisco: JoseeyBass. Grant, R. M. 1996. Prospering in dynamically competitive environments: Organizational
capability as knowledge integration. Organization Science, 7: 375-387; Slocum, J. W., McGill, M.
E. and Lei, D. 1994. The new learning strategy: Anytime, anything, anywhere. Organizational
Dynamics, 23(2): 33-48.
A discussion of Discount Tire’s strategy is found in a strategic typology presented in Lei, D. and
Greer, C. R. 2003. The empathetic organization. Organizational Dynamics, 32: 142-164.
16
17
Markides, C. and Geroski, P. 2004. The art of scale. Strategy + Business, 35, Summer, 5059.
18
Ibid.
19
Latour, A. and Grant, P. 2004. PC users an now make long-distance calls free. The Wall
Street Journal, 9 October 2003. Also see Drucker, J. 2004. Vonage, TI plan a web-phone deal.
The Wall Street Journal, 9 January 2004 and Drucker, J. 2004. Big-name mergers won’t ease
crowding in cellphone industry. The Wall Street Journal, 13 February 2004.
20
Porter, M. E. 1985. Competitive advantage: Creating and sustaining superior performance.
New York: Free Press. Also, Scherer, F. M. and Ross, D. 1990. Industrial Market Structure and
Economic Performance. Boston, MA: Houghton-Mifflin. Also see Dobrev, S. D. and Carroll, G.
R. 2003. Size (and competition) among organizations: Modeling scale-based selection among
automobile producers in four major countries. Strategic Management Journal, 24: 541-558. At
the business unit level, see Anderson, C. R. and Zeithaml, C. P. 1984. Stages of the product life
cycle, business strategy, and business performance. Academy of Management Journal, 27: 524.
21
Biediger, J., DeCicco, T., Green, T., Hoffman, G., Lei, D., Mahadevan, K., Ojeda, J., Slocum, J.
W. Jr., and Ward, K. 2005. Strategic action at Lenovo. Organizational Dynamics, in press.
22
Christensen, op. cit.
23
See Lei, D. 2000. Industry evolution and competence development: The imperatives of
technological convergence. International Journal of Technology Management, 19(7): 699-738.
24
See, for example, Wysocki, B. 2004. Robots in the OR. The Wall Street Journal, 26 February
2004.
25
Medtronic to buy MiniMed and Medical Research. 2001. The Wall Street Journal, 31 May
2001.
26
Govindarajan, V. and Fisher, J. 1990. Strategy, control systems and resource sharing.
Academy of Management Journal, 33: 259-285.
37
27
See Retail financial services in 1998. 1998. Harvard Business School Case 9-799-051.
28
Markides and Geroski, op. cit.
29
See, for example, Chandler, A. D. Jr. 1990. Scale and scope: The dynamics of industrial
capitalism. Cambridge, MA: Harvard University Press.