Defying the industry trend : factors for countering the negative impacts of operating in declining industries

Abstract

In this study we investigate the factors and strategies which facilitate organizational overperformance in adverse contexts, such as declining industries, saturated markets or even an economy in recession. A preliminary statistical analysis of 13,000 UK firms operating in declining industries revealed that many of them defy the negative industry trend with some even presenting remarkable growth rates throughout a four-year period. Motivated by the above results, the lack of past research on this phenomenon and the significance of small and medium sized enterprises (SMEs) for the economy, we employ an exploratory multiple case study methodology to examine 25 high growth UK SMEs in 22 declining sectors. We reveal that SMEs which positively diverge from a negative industry trend are run by managers with long firm tenure and high output experience in the industry. These firms also invest in human capital with high levels of firm-specific skills, promote vigorous training within and outside the company and encourage employee participation in the decision making process. In terms of social capital, over-performers tend to foster multiple informal and formal external networks by building long-term personal relationships with external actors and participating in industry-related events. We further illustrate that over-performing SMEs in declining industries concurrently pursue multiple strategies: most of them focus on differentiation via innovation and/or product-service customization along with complementary strategies, such as cost focus, marketing differentiation etc. Yet, none of these SMEs is found to pursue a pure cost leadership or differentiation strategy, while, contrary to our expectations, instead of pursuing the prescribed for SMEs market niche strategies, industry over-performers target the entire market quite aggressively. These findings challenge conventional wisdom that pure strategies are superior to mixed strategies and that 'stuck-in-the-middle' firms cannot lead the market and excel. Overall by developing and testing an integrative model of SME overperformance under adverse conditions we address an overlooked gap in the literature, set the foundations for further research in the area and provide practical value to SME managers.EThOS - Electronic Theses Online ServiceGBUnited Kingdo