Pitfalls in Declining Industries

Finding the firm‘s position on Figure 12-2 requires a great deal of subtle analysis, and many firms violate the basic consistency be-tween industry structure and strategic choice embodied in the figure. Study of declining industries also reveals a number of other potential pitfalls.

Failure to Recognize Decline. With the benefit of hindsight, it is all too easy to admonish firms for being overly optimistic about the prospects for revitalization of their declining industries. Yet dis-counting for legitimate uncertainty about the future, there seems to be a failure in some companies to look objectively at the prospects of decline, either because of long identification with the industry or overly narrow perception of substitute products. The presence of high exit barriers may also subtly affect how managers perceive their environment; they look for optimistic signs since pessimistic ones are so painful. From my examination of many declining industries, the firms that seem to be the most objective about managing the decline process are those that also participate in the substitute industry. They have a clearer perception concerning the prospects of the sub-stitute product and the threat of decline.

A War of Attrition. Warfare with competitors having high ex-it barriers usually leads to disaster. Such competitors are forced to respond vigorously to moves and will not yield position without a significant investment.

Harvesting without Clear Strengths. Unless industry structure is very favorable for the decline phase, harvesting strategies by firms without clear strengths usually collapse. Customers quickly take their business elsewhere once marketing or service deteriorates or prices are raised. In the process of harvesting, the resale value of the business may also be dissipated. The competitive and administrative risks of harvesting make this strategy one that must be based on clear justification.

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

Leave a Reply

Your email address will not be published. Required fields are marked *