Strategic Positioning and Industry Life Cycle Stages
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The present conditions in the industry are supposed to have an influence and inform the strategic leaders of the possible strategies that they can formulate for their companies. Though companies react and respond differently to the prevailing industry conditions, the conditions present at every stage provide constraints and opportunities unique to every firm. As a result, the strategies for different companies differ in every life cycle stage.
When technological advancement is yet to be implemented, business models are yet to be proven, capabilities startups and resources outstripped by capital needs and the level of uncertainty is high, this level of industry is known as the embryonic stage. The stage is vital in establishing a customer base and introducing the product’s primary demand (Bos, Economidou & Sanders, 2013). Companies that manage to strategically position themselves for competition at this stage manage to easily sail through other life cycle levels. Companies fit effectively on the stage through the establishment of a strong foundation and the capability to meet consumer demands. Having established a strong foothold, the industry gets into rapid growth periods where the existing companies take advantage of their foundations to increase market share (Carpenter & Sanders, 2008). The period increases the speed of a firm’s learning curve and the management is presented with opportunities to develop low-cost positions which are hard for the competitors to imitate in the short term, the level is known as the growth stage.
Unlike in the embryonic stage, at this level firms can make technological changes for new entrants to compete with early movers through particular improvements. Depending on the strategic position of a firm, the leaders decide on how they intend to develop and grow at this stage (Bos, Economidou & Sanders, 2013). The firms decide on the drivers which should guide them towards effective implementation of the preferred strategic decisions. As Christensen states, managers are likely to fail companies at this stage if they measure success in reference to dollars instead of ratios (MacFarquhar, 2012). At the growth stage, companies which were keen on the embryonic level acquire desirable resources and elements which incumbent firms may wish to develop and related business firms wish to acquire as they seek to make entries into the market (Carpenter & Sanders, 2008). The effective strategic positioning of firms depends on their ability to transition through the various industry stages.
Products become familiar to the target consumers as the growth slows and the industry matures and at this level; the quality of the product becomes paramount. Strategic positioning at this stage requires companies to understand consumer needs to improve on the quality (MacFarquhar, 2012). The mature firms have the ability to use differentiation strategies to reap the benefits of premium prices. Companies at this level often consider consolidation to exploit the available economies of scale and market power increase. The last and important life cycle stage is the declining level where the products behave like quasi-commodities (Bos, Economidou & Sanders, 2013). Strategic positioning is not only essential for entry and industry survival, it is equally significant when considering an exit strategy in case of demand decline. Selling divisions or the entire company to the competitors is the best decision at this stage. However, the move does not signify a failure of a firm, sometimes it is the best decision for use of shareholder’s resources. Companies which fail to incorporate strategic positioning and management at this stage risk experiencing massive losses. The firms which remain as the rest exit the industry reap the benefits of high profitability due to reduced competition.
Strategic positioning of firms from the onset enables the leaders and the management team to make decisions which have a positive influence and considerate of the industry trends. As stated above, the industry life cycle has four distinct stages namely embryonic, growth, and maturity and decline stage. Each of these levels is unique and depends on the successful transition from the previous stage. The effective requirements of every stage determine the profitability and market share of the firm and its position in relation to the competing companies.
Bos, J. W., Economidou, C., & Sanders, M. W. (2013). Innovation over the industry life-cycle: Evidence from EU manufacturing. Journal of Economic Behavior & Organization, 86, 78-91.
Carpenter, M.A., & Sanders, W.G., (2008). Strategic management: A dynamic perspective. Upper Saddle River, NJ: Pearson Prentice Hall.
MacFarquhar, L. (May 14, 2012). When giants fail: What business has learned from Clayton Christensen. The New Yorker. Retrieved from https://www.newyorker.com/magazine/2012/05/14/when…