Organizational Implications of Industry Maturity

We tend to think of requirements for organizational change as resulting from major shifts in strategy and from evolution in the size and diversification of a company. The necessary fit between organi-zational structure and a firm‘s strategy holds equally true in industry maturity, and the transition to maturity can be one of the critical points in the development of an organizational structure and sys-tems. Particularly in the area of control and motivational systems, there are some subtle adjustments that must take place.

On the strategic level, we have discussed how a firm must be prepared to adjust its key competitive priorities to the often differing requirements of industry maturity. More attention to costs, customer service, and true marketing (as opposed to selling) may be re-quired. Reduced attention to introducing new products versus refin-ing old ones may be necessary. Less “creativity” and more attention to detail and pragmatism is often what is needed in the mature bus-iness.

These shifts in competitive focus obviously require changes in organizational structure and systems to support them. Systems de-signed to highlight and control different areas of the business are necessary. Tighter budgeting, stricter control, and new performance- based incentive systems may well be required in the mature business, all more formal than those used previously.6 Control of financial as-sets such as inventory and accounts receivable may take on greater importance. All these sorts of changes have been key to successful company turnarounds in industries such as nursing homes and recre-ational vehicles that have recently gone through transition.

More coordination across functions and among manufacturing facilities must often occur for the company to be cost competitive. For example, industry maturity means that regional plants hereto-fore operating independently may well have to be tied together and better coordinated, requiring not only new systems and procedures but also major changes in the plant managers’ jobs.

There can sometimes be resistance to changes along these lines. The company that has prided itself on pioneering and on a high- quality product may find it very difficult to engage in “distasteful” price competition and in aggressive marketing, as was discussed pre-viously. Competition along these dimensions is often resented deep down in the organization, all the way to the shop floor and the sales force. Sacrificing quality for costs and close monitoring of costs are resisted. Furthermore, new reporting requirements, new controls, new organizational relationships, and other changes are sometimes seen as a loss in personal autonomy and as a threat. A company must be prepared to reeducate and remotivate personnel at all levels as it enters the maturity stage.

General management must also be aware of subtle changes in the motivational climate in the organization that can accompany transition to industry maturity. In the growth period which preceded transition, opportunities for advancement have usually been great, excitement has been high for the participants in the rapidly growing enterprise, and intrinsic job satisfaction has obviated the need for much in the way of formal internal mechanisms to build company loyalty. Yet in the more mature competitive environment, there is less growth, less glamour, less excitement, and the spirit of pioneer-ing and uniqueness tends to fade. This development raises a number of extremely difficult problems for general management.

  1. Scaled down expectations for financial performance. The standards for acceptable growth and profits must often be reduced in managers’ m If managers try to meet the old standards, they may take actions that are extremely dysfunctional for the long-run health of the company in the mature market unless it has an extreme-ly strong market position. The scaling-down process is difficult be-cause a strong tradition of achieving financial results may have been built up through past successes by the organization. I hasten to add that general management of the organization is subject to the same problems in revising its own expectations.
  2. More discipline from the All the common envi-ronmental changes in a mature industry previously described allow less slack and require greater discipline from the organization in exe-cuting its chosen strategy. This need extends to all layers of the orga-nization in tangible and intangible ways.
  3. Scaled-down expectations for advancement. Past rates of personal advancement are unlikely to be possible in the more mature environment. Yet managers may have learned to define success in terms of advancement at the old pace. Many managers may leave during the transition process for these reasons, and the pressure the organization places on the general manager can be great. The chal-lenge for general management is to find new ways to motivate and reward personnel. The pressure of transition in this area leads some companies to diversify to provide the growth and advancement pos-sibilities of those of the past. Diversifying solely for this reason can be a serious error.
  4. More attention on the human dimension. In the process of adapting to the new climate of the mature industry, and the shifting strategic priorities implied, there will usually be a need to place more attention internally on the human dimensio Organizational mecha-nisms are required to build more company identification and loyal-ty, and more subtle motivational devices must be developed than those that have sufficed during the rapid growth phase. Support and encouragement internally are needed to replace the external stimuli and rewards of the past and to provide a backstop for the difficult internal adjustments in organizational climate that may be required.
  1. The pressures industry maturity places on cost control may sometimes require the reversal of previous moves to create autonomous profit centers, at the plant level and elsewhere. This is particularly true if the profit center organization was de-signed to facilitate the addition of new products or to open up new markets as the industry developed.

A shift back to a more functional organization increases central control, can eliminate substantial overhead, and can enhance the possibilities for coordination among units. Coordination may be-come more important than entrepreneur ship in the mature business. Crown Cork and Seal achieved a dramatic turnaround by using this approach, troubled Texfi is now attempting it in its textiles,7 and Burger King is using it to take on McDonald’s.

Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.

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