Strategic Alternatives in Declining Industries

Discussions of strategy during decline usually revolve around disinvestment or harvest, but there is a range of strategic alterna-tives—although not all are necessarily feasible in any particular in-dustry. The range of strategies can be conveniently expressed in terms of four basic approaches (shown in Figure 12-1) to competing in decline, which the firm can pursue individually or in some cases sequentially. In practice the distinctions among these strategies are rarely neat, but there are advantages in discussing their objectives and implications separately. These strategies vary greatly, not only in the goals they seek to achieve, but also in their implications for in-vestment. In the harvest and divest strategies, the business is man-aged to produce disinvestment, the classic goal of decline strategies. In leadership or niche strategies, however, the firm may actually want to invest in strengthening its position in the declining industry.

Putting aside until the next section the question of approaches to matching the strategy to the industry and the particular firm, we can explore the motivations for each strategic alternative and the common tactical steps in implementing it.


The leadership strategy is directed at taking advantage of a de-clining industry whose structure is such that the remaining firm or firms have the potential to reap above-average profitability and leadership is feasible vis-à-vis competitors. The firm aims at being either the only firm or one of few firms remaining in the industry. Once this position is attained the firm switches to a holding position or controlled harvest strategy, depending on the subsequent pattern of industry sales.9 The premise underlying this strategy is that by achieving leadership the firm is in a superior position to hold position or harvest than it would be otherwise (taking into account the investment required).

Tactical steps that can contribute to executing the leadership strategy are the following:

  • investing in aggressive competitive actions in pricing, marketing, or other areas designed to build market share and insure rapid retirement of capacity from the industry by other firms;
  • purchasing market share by acquiring competitors or competitors’ product lines at prices above their opportunities for sale elsewhere; this has the effect of reducing competitors’ exit barriers;
  • purchasing and retiring competitors’ capacity, which again lowers exit barriers for competitors and insures that their ca-pacity is not sold within the industry; a leading firm in the mechanical sensor industry repeatedly offers to buy the assets of its weakest competitors for this reason;
  • reducing competitors’ exit barriers in other ways, such as by willingly manufacturing spare parts for their products, taking over long-term contracts, producing private label goods for them so that they can terminate manufacturing operations;
  • demonstrating a strong commitment to staying in the busi-ness through public statements and behavior;
  • demonstrating clearly superior strengths through competitive moves, which are aimed at dispelling competitors’ thoughts of attempting to battle it out;
  • developing and disclosing credible information that reduces uncertainty about future decline—which lowers the likelihood that competitors will overestimate the true prospects for the industry and remain in it;
  • raise the stakes for other competitors to stay in the business by precipitating the need for reinvestment in new products or process improvements.


The objective of this strategy is to identify a segment (or de-mand pocket) of the declining industry that will not only maintain stable demand or decay slowly but also has structural characteristics allowing high returns. The firm then invests in building its position in this segment. It may find it desirable to take some of the actions listed under the leadership strategy in order to reduce competitors’ exit barriers or reduce uncertainty concerning this segment. Ulti-mately the firm may either switch to a harvest or divest strategy.


In the harvest strategy, the firm seeks to optimize cash flow from the business. It does this by eliminating or severely curtailing new investment, cutting maintenance of facilities, and taking advan-tage of whatever residual strengths the business has in order to raise prices or reap benefits of past goodwill in continued sales, even though advertising and research have been curtailed. Other common harvest tactics include the following:

  • reducing the number of models;
  • shrinking the number of channels employed;
  • eliminating small customers;
  • eroding service in terms of delivery time (inventory), speed of repair, or sales assistance.

Ultimately the business is sold or liquidated.

All businesses are not readily harvestable. The harvest strategy presupposes some genuine past strengths on which the firm can live, as well as an industry environment in the decline phase that does not degenerate into bitter warfare. Without some strengths, the firm‘s price increases, reduction in quality, cessation of advertising, or other tactics will be met with severely reduced sales. If the industry structure leads to great volatility during the decline phase, competitors will seize on the firm‘s lack of investment to grab market share or bid down prices, thereby eliminating the advantages to the firm of lowering expenses through harvesting. Also, some businesses are hard to harvest because there are few options for incremental ex-pense reduction; an extreme example is one in which the plant will quickly fail to operate if not maintained.

A basic distinction in harvesting tactics are actions that are visi-ble to the customer (e.g., price increases, lower advertising) and those that are not (e.g., deferred maintenance, dropping marginal accounts). The firm without relative strengths will probably have to confine itself to invisible actions, which may or may not yield a sig-nificant increase in cash flow depending on the nature of the bus-iness.

Of all the strategic alternatives in decline, the harvest strategy creates perhaps the greatest demands from an administrative stand-point, although these have been little explored in the literature. In practice, a controlled liquidation is very difficult to manage because of problems with employee morale and retention, suppliers’ and cus-tomers’ confidence, and the motivations of executives. Classifying a business as a dog to be harvested, based on portfolio planning tech-niques like those described in Chapter 3, is not a great motivating de-vice either. Although efforts have been made in companies like Gen-eral Electric and Mead Corporation to adapt managerial incentives to the peculiar conditions of harvest, the results of these efforts are not yet clear, and the other administrative problems in harvesting re-main, nevertheless.


This strategy rests on the premise that the firm can maximize its net investment recovery from the business by selling it early in de-cline, rather than by harvesting and selling it later or by following one of the other strategies. Selling the business early usually max-imizes the value the firm can realize from the sale of the business, be-cause the earlier the business is sold, the greater is the uncertainty about whether demand will indeed subsequently decline and the more likely other markets for the assets, like foreign countries, are not glutted.

In some situations it may be desirable to divest the business before decline, or in the maturity phase. Once decline is clear, buyers for the assets inside and outside the industry will be in a stronger bargaining position. On the other hand, selling early also entails the risk that the firm‘s forecast of the future will prove incorrect.

Divesting quickly may force the firm to confront exit barriers like image and interrelationships, although being early usually miti-gates these factors to some extent. The firm can use a private label strategy or sell product lines to competitors to help ease some of these problems.

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

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