Small Business Strategies in Different Industry Growth Environments

Article excerpt

SMALL BUSINESS STRATEGIES IN DIFFERENT INDUSTRY GROWTH ENVIRONMENTS

The notion that the growth stage of an industry may affect the competitive strategies of firms has received much attention in the literature.1 But until recently, prescriptions for success have been developed primarily for growth environments, the implication being that firms should avoid non-growth industries.2 Researchers have now begun to explore viable strategies for the maturity and decline phases as well. A general conclusion is that while high volume and high market share are desirable components of effective strategies in a growth environment, in the maturity and decline phases, firms should attempt to pursue high-profit strategies, even if that means lower volume.3

1 C. R. Anderson and C. P. Zeithaml, "Stage of the Product Life Cycle, Business Strategy, and Business Performance,' Academy of Management Journal, vol. 27 (1984), pp. 5-24; W. K. Hall, "Survival Strategies in a Hostile Environment,' Harvard Business Review, vol. 58 (1980), pp. 75-87; D. C. Hambrick, I. C. Macmillan, and D. L. Day, "Strategic Attributes and Performance in the BCG Matrix--A PIMS-Based Analysis of Industrial Product Businesses,' Academy of Management Journal, vol. 25 (1982), pp. 510-531; R. G. Hammermesh and S. B. Silk, "How to Compete in Stagnant Industries,' Harvard Business Review, vol. 57 (1979), pp. 161-168; K. R. Harrigan, "Strategies for Declining Industries,' Journal of Business Strategy, vol. 1 (1980), pp. 20-34; C. W. Hofer, "Toward a Contingency Theory of Business Strategy,' Academy of Management Journal, vol. 18 (1975), pp. 784. 810; M. E. Porter, Competitive Advantage (New York: Free Press, 1985); and M. E. Porter, Competitive Strategy (New York; Free Press, 1980).

2 B. Hedley, "Strategy and the "Business Portfolio,'' Long-Range Planning, vol. 10 (1977), pp. 9-15; and B. Henderson, Henderson on Corporate Stragegy (Cambridge, Mass; Abt Books, 1979).

3 Hall, "Survival Strategies'; Hammermesh and Silk, "How to Compete'; Hambrick, et al., "Strategic Attributes'; Harrigan, "Strategies for Declining Industries'; and Porter, Competitive Strategy.

Much of this research has been done for large firms, and it is not clear how well these prescriptions apply to small businesses. Therefore, this article presents the results of an empirical study of profitable small business strategies under conditions of growth, maturity, and decline.

RELATED RESEARCH

Previous researchers distinguish three main stages of industry growth: (1) growth, (2) maturity, and (3) decline. The business or competitive strategies that help firms to achieve profits are thought to differ under each of these stages.4 The findings of previous research on strategies adopted by large businesses under different growth conditions are summarized in table 1.

4 Anderson and Zeithaml, "Stage of the Product Life Cycle'; Hambrick, et al., "Strategic Attributes'; Hofer, "Toward a Contingency Theory'; and Porter, Competitive Strategy.

In growth industries, the overall competitive pressure is limited, and a firm has a comparatively broad range of choices among strategies. Many researchers imply that this is the most hospitable environment in which to operate and earn profits. The "learning curve' is a major tool for the large firm to use to gain competitive advantage; hence high market share is often helpful. One interesting result is that while resource efficiencies, product quality, market share, and high levels of future-oriented investments have commonly been employed as strategies in growth industries, they have had little impact on profit performance.

In mature industries, the environment presents severe competitive pressures. High market share firms are thus thought to be better off emphasizing resource efficiency and avoiding investments, while the low market share firm is usually advised to seek profitability through product differentiation, market segmentation, and the technological superiority of its products and services. …