ENTERPRISE MANAGEMENT AND EVOLUTION

for the M.Sc. in Business Administration

Prof. Roberto Cafferata University of Rome Tor Vergata October, 2012

INTRODUCTION CHARLES DARWINS LEGACY

EVOLUTION AND SOCIAL DARWINISM

- Organisms

and

organizations:

similarities

and

dissimilarities between them

- there are some principles or rules which determine evolution within the marvellous world in which we live

- we can argue there is a Darwinian interpretation of the evolution of the firm

PRINCIPLES OF DARWINIAN EVOLUTION

- exponential growth of the number of species of (living) organisms within the natural system

- principle

of

variation

differentiation

among

organizations (N.B: evolution is slow, gradual and random)

- principle of natural selection

survival of the fittest!

- principle of heredity (N.B: the external environment has a minor role in influencing evolution)

- principle of the struggle for survival

marvellous fit (selecting in processes)

destruction (selecting out processes)

THE EVOLUTION OF THE FIRM

- The firm as the object of evolution ( la Darwin, 1859): internal and external forces do matter, the firm is a locus of interaction between them

- The firm as the subject and object of evolution ( la Lewontin, 1983): forces are important, but the synergies between them, and the firm as an entity also matter

EVOLUTION AND ADAPTATION OF THE FIRM TO THE ENVIRONMENT

(according to different Darwinist views)

Classical Darwinism
- Main thesis: The organism is the object of evolution and natural selection - The organism is molded and shaped to fit into a preexistent niche (Lewontin, 1983, p.74) - Adaptation reflects this point of view (Supra). The adaptation of the organism/organization to the environment is a problem and this problem is seeking the most effective solution those who adapt best displace the rest (Henderson, 1989)

Contemporary Unorthodox Darwinism

- Main thesis: The organism is both the object and subject of evolution and natural selection - The organism and the environment are not actually separately determined. The environment is not a structure, that is imposed on living beings from the outside, but is, in fact, a creation of those beings (Lewontin, 1983, p.75) - The metaphor of adaptation must therefore be replaced by one of construction (Lewontin, 1983, p. 78)
- Adaptation is dialectical (Benson, 1977; Cafferata, 2009).

It is also circular in the organisms historical process. It is circular in the sense that the organisms and the environment co-evolve in the historical process

THE ENTERPRISE SYSTEM AND THE COUNTRY-SYSTEM

In a task environment, the enterprises competitiveness is influenced not only by market forces, but also by the conditions of the general environment, i.e. by the effectiveness and efficiency of the supply of goods and services on the part of other public or private organizations, as well as by the culture, education structures and material infrastructure of the countrysystem.

In their turn, the organizational and economic conditions of the enterprises and the competitive skills acquired by enterprises during their evolutionary cycle not only influence the task environment, but also affect the general environment, contributing to determine the country-systems state of welfare.

(a)

Enterprises Competitive Task Country-System systemic skills environment (general environment) nature

(b)

(a)

Enterprises systemic conditions and competitive skills

Welfare conditions of the country-system

(b)

FIRST PART
BIRTH AND EXTINCTION OF ENTERPRISES

Index Birth, natural selection and competitive selection of enterprises. Competition. Success, advantage, excellence.

BIRTH, NATURAL SELECTION AND COMPETITIVE SELECTION OF ENTERPRISES

NATURAL SELECTION AND COMPETITIVE SELECTION OF ENTERPRISES

Extinction Natural selection 0 1 2 3 4 5 Competitive selection n t

Birth

Birth At the zero point enterprises are born. Not all of them are destined to last (to survive). Enterprises infant mortality is higher than that of human beings. In Europe, only one out of three todays newborn enterprises is expected to overcome the first 3-4 years of life.

Natural selection The first 3-4 years of life are critical the meta-goal of the enterprises owner is survival. Therefore it is necessary: i) to prevent the enterprises crisis and infant mortality; ii) to come out the enterprises childhood in equilibrium conditions (economic, financial, organizational conditions).

Competitive selection After achieving short-term survival, the enterprises owner or controlling shareholder can aim at different alternative meta-goals. For example, he can: i) seize the opportunities for size growth and if it is necessary change the firms organizational structure and legal status; ii) make choices of profitability maximization, keeping the size achieved, in a situation of independence from other enterprises; iii) promote technological and organizational change, temporarily sacrificing growth; iv) collaborate with other enterprises through alliances and/or networks; v) sell the firm to other enterprises or simply close down.

N.B.: i), ii), iii), iv) can alternate during the firms life cycle.

CHARACTERISTICS OF THE FIRST YEARS OF LIFE (I)

Strength of the rational decision of entering the business. Weakness of being new (liability of newness). Temptation to die of rapid success (death by success), because one wants to turn the profit from his own activity into cash and enjoy it immediately.

CHARACTERISTICS OF THE FIRST YEARS OF LIFE (II)

Have you survived? Beware of acting under emotional pressures (for example: proposals of speculative re-use of the first profits). Beware of abandoning the core business to diversify your activity. Beware of wasting knowledge/experience which you have methodically acquired. Since those who make a profit during a period of time are those who spend one Euro less than that they gain, it is not strictly necessary to maximize sales; it is better to be costconscious.

N.B.: The very successful entrepreneurs are those men/women that are not afraid of early dying!

DEATH RISK OF THE ENTERPRISE

d.r.

Death risk decreases in the course of time. The risk curve is a learning curve.

COMPETITION

PRICE AND NON-PRICE FACTORS OF COMPETITION

The enterprise considered as a system is a competitive force which comes into play and competes with other systems (competitive forces) in both the task environment (sector of economic activity) and the general environment.

The enterprise competes not only through the price factor, but also through factors which are different from price (i.e. quality, services), acquired exogenously and/or created endogenously thanks in particular to the internal capabilities that it develops in its parts and in its participants (not only shareholders, but also managers and workers).

COMPETITIVE SKILLS

Apart from being a system, corporate competitiveness derives from the resources which are also defined as material and immaterial competences (C.K. Prahalad, G. Hamel 1990) acquired or generated by themselves during the firms life cycle. (For example: patented know how, electronic components of a product, an original turbine or engine, the high specialization of manual workers are competences.)

However, we can distinguish competences from other resources by the inbuilt contents of know-how of the former.

 Functional resources/competences Every enterprise subsystem acquires, activates and reproduces specific material and immaterial resources (plants, artificial and personal intelligence, organization, finance, etc.) which can become, in the course of time, distinctive resources/competences.

Core resources/competences Among the functional resources/ competences, some specific factors emerge which are at the core of both survival and competitive success of the enterprise. Sooner or later they become the collective learning of the entire organization (C.K. Prahalad, G. Hamel 1990).

 Distinctive resources/competences They are highly specific, and sometimes unique, material and immaterial factors, that motivate the existence of the competitive advantage of an enterprise compared with other producers.

Excellent resources/competences They are the (distinctive) corporate resources/competences that produce a lasting advantage and become exemplary for all other competitors. The exemplary enterprise is an excellent enterprise, which constantly improves its own way of being a system and its own total competitive skills.

THE COMPETITIVE ENTERPRISE

The enterprise survives and is competitive thanks to: i) the acquired systemic conditions (this refers to the whole enterprise): enterprise systems arent born, but made; ii) some points of strength (this refers to its resources and peculiar competences, coming either from one of its parts or from a group of participants); iii) the prevention of or the remedy for its weaknesses (this concerns both things and people); iv) the leadership features emerging in its hierarchy (this refers, in particular, to managers).

SUCCESS, ADVANTAGE, EXCELLENCE

(competitors, leaders and followers)

PORTER MODEL (I)

(Competitive Strategy, New York: The Free Press, 1980)

Potential entrants

Threat of new entrants Bargaining power of suppliers

Industry competitors

Bargaining power of buyers

Suppliers

Buyers

Rivalry among existing firms

Threat of substitute products

Substitutes

PRINCIPLE It is possible to classify forces acting for or against a firm into five main categories. The five forces can act continuously and adversely against the firm unless it defends itself or influences them in its favour. ELEMENTS Potential entrants: These are new players which threaten the livelihood of firms already in the market. Buyers: Buyers are the customers of firms products. Substitutes: These are the competitors products (services) which may be alternatives to those supplied by the firm. Suppliers: Suppliers can provide raw materials and other resources. Industry competitors: These are firms which compete in the same market and act as rivals to the organization.

PORTER MODEL (II)

ISSUES Effects of the forces: The effect of the five forces upon organizations may vary depending on the strength of the firm, the nature of the sector and the product. Potential entrants: They may be deterred by: economies of scale achieved by existing firms enhanced customer loyalty capital costs of entry (for example, plant and equipment) poor access to distribution channels cost disadvantages such as licenses and adverse governement policy. Buyers: They may try to force down prices whilst requiring better quality or service and may play off competitors against one another. The influence of buyers groups is greater if: they are large customers (in volume or spend) many substitute products exist profit margins are low buyers decide to manufacture their own supplies and thereby replace the supplier (backward integration) Substitutes: The number of perceived substitutes deters existing firms from increasing prices and profits. Suppliers: They are powerful if: they are well integrated (for example, a cartel) they supply small customers their group products are differentiated they integrate forward (for example, by setting up their own buyer organizations to replace firms already in the market). Competition: Competitive rivalry may increase where one or more of the competitors is under threat for example, from a price war, high exit barriers or economic recession.

PORTER MODEL (III)

HOW TO USE THE MODEL Strategy development: This model could be used to develop a strategy to counter competitive forces. Positioning: Ideally a firm would aim for a position in which it could counter potential competitive forces. It might also attempt to influence those forces in order to strengthen its position for example, by improving customer loyalty to deter new entrants. Enhancing competitive advantage: The model could be applied in anticipating and exploiting changes in the forces ahead of competitors for example, in the development of a product to counter the effect of an expected substitute. Main references Porter M.E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press. Porter M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press.

 Competitive success is a synonym for positive performance (market share or profitability) attained in a certain period of time, thanks to competences and/or other resources in natural selection, success corresponds to survival, even without visible size growth, in conditions of minimum income equilibrium; in competitive selection, success corresponds to size growth or even maintenance of the size, associated with an annual income which is higher than the minimum income; in competitive selection, survival and success can be sought even through cooperation with other enterprises (producers, suppliers, distributors, customers) or other organizations created with a different purpose.

Skills and ... time What are the most important competences required to survive in environments characterized by competitive turbulence?
The most important skills required for survival and success in the kind of uncertain, rapidly evolving world in which we live are: 1) skill in anticipating the shape of an uncertain future; 2) skill in generating alternatives for operating efficiently in changed environments; and 3) skill in implementing new plans rapidly and efficiently. These skills have to take a central place in the strategic planning process (H. A. Simon 1993).

 Competitive advantage is a synonym for differential of success of an enterprise compared with the other enterprises, which can be assessed in terms of greater output and market share of a product/service (or even greater profitability) compared with those of direct competitors, due to: cost leadership, or leadership in the differentiation of product/service, or leadership in technological and/or organizational innovation.
N.B.: Many different athletes compete in different heats and may have success, but only three step on to the podium!

Excellence derives from the advantage which creates exemplarity and inspires imitative strategies on the part of followers.

SECOND PART
MODELS OF SUCCESS AND GROWTH OF THE NEWBORN ENTERPRISE

Index From the model of the product life cycle to the models of the enterprise life cycle: Levitt model Steinmetz model Parks model Dewhurst and Burns model Scott model Pettigrew model

MODELS

We start from the model of product life cycle that has been discussed by Theodore Levitt in an article published in 1965 in the Harvard Business Review.

We then examine models of the mono-product enterprise life cycle, which have been discussed by various authors during the 70s and 80s. Such models are based on Levitts proposal of a product life cycle from its start up to its possible crisis and decline.

LEVITT MODEL (I)

(in Harvard Business Review 1965)

The product life cycle curve

Sales

curve of the production of the sector P curve of the sales of the "original" producer (pioneer or imitator) I
0

II

III

IV Time

LEGEND STAGE I: markets development and take off; STAGE II: markets growth; STAGE III: markets maturity; STAGE IV: markets decline; P = market stretching point.

HOW TO USE THE MODEL to foresee the form and length of each evolutionary phase of the market of a product to enter the market with ones own product to wonder how one must behave in each phase

N.B.: Although owners/managers know that a new product will follow this cycle, they are not sure when each phase will start and for how long each one will last.

LEVITT MODEL (II)

OPEN PROBLEMS Introduction: The depicted pattern can become the basis for important life-giving policies and practices concerning the product. The length of the market development stage depends on the products complexity, its degree of newness, its fit into the customer needs, and the presence of competitive substitutes. The more unique is the newness of the product, the longer it does generally take to get the product successfully off the ground. Stage recognition: Perhaps the best way of seeing the current stage of the product is to try to foresee the next stage and work backwards. This approach has several virtues: 1. 2. It forces one to look ahead; Looking ahead gives more perspective to the present than looking at the present alone;

On planning: when a company develops a new product or service, it should try to plan at the very outset a series of actions to be employed at various subsequent stages in the products existence. Planning in advance does have a great potential as an instrument of long-term product strategy.

LEVITT MODEL (III)

Extending the product life cycle

Subsequent extensions of life cycle Sales C

A Original uses

Time Point A shows the hypothetical point at which the product curve flattens out. Point B, C and D show the points at which the product life cycle might be extended, if specific actions were taken. Some examples of extending strategies 1. Promoting more frequent usage of the product among current users. 2. Developing more varied usage of the product among current users. 3. Creating new users for the product by expanding the market. 4. Finding new uses for the basic material.

LEVITT MODEL (IV)

() The importance of pre-planning extension strategies 1. They generate an active rather than a reactive product policy.

2. They lay out a long-term plan designed to infuse new life into the product at the right time, with the right degree of care, and with the right amount of effort.

3. Perhaps the most important benefit of engaging in advance preintroduction planning for sales-extending, market-stretching activities is that this practice forces a company to adopt a wider view of the nature of the product it is dealing with.

() The Product Life Cycle Trap

(Roger C. Bennett and Robert G. Cooper, in Business Horizons 1984)

Many of the Americas most successful companies have gone through a life cycle similar to the product life cycle. They began as innovators, and then grew to be giants in their markets. But, as their products mature, they need new products to continue companys growth. However, by focusing strictly on the non-product variables, the firm loses some of its ability to develop genuine new products And so the companys major marketing strengths lie not in its ability to deliver new products, but rather in its ability to position, promote and sell variations of the old products as though they were new ones. Clearly the firm must continue to manage its mature productsBut the firm must also be poised to enter new and promising businesses. In short, the firm must acquire a dual mode of operation one mode for existing businesses, a second and very different approach for new, embryonic businesses.

() Rejuvenating the Life Cycle Concept

(Robert U. Ayres and Wilbur A. Steger, in The Journal of Business Strategy 1985)

Traditionally, it has been thought that a product life cycle is as irreversible as biological life cycle. That is, a product inevitably moves from birth to adolescence, maturity and death.

Now there is mounting evidence that a turnabout in management thinking is under way. The new thinking is that it is actually possible to reverse the product life cycle.

The key lies in introducing technological considerations into the planning process from the beginning.

Three necessary conditions for reversal of the product life cycle are clearly identifiable:

a. Potential for accelerated technological change b. Management flexibility c. Manufacturing flexibility

STEINMETZ MODEL
(in Business Horizons 1969)

Management problems of the monoproduct enterprise undergoing a few growth phases, beyond which decline starts.
N.B.: the model is applied to the enterprise that keeps on being a monoproduct firm in the course of time.

Sales

START UP

TAKE OFF

RAPID SLOW MATURITY DECLINE GROWTH GROWTH

I
0

II

III

IV

VI Time

LEGEND STAGE I: to live or to die (simple division of labour and direct control of the owner); STAGE II: probably you have to know how to coordinate different parts and participants; STAGE III: you got what you wanted! Now you have to create departments and delegate. Indirect control through the managers; STAGE IV: problems of market stretching emerge. Either the firm has to differentiate the product or it has to diversify its business; STAGE V: you are in a stage of maturity. Downsizing or alliances to keep your market share? STAGE VI: now your market share is declining. Anti-crisis policies and strategies have to be found. HOW TO USE THE MODEL to prevent the emergence of important organizational and management problems; to understand when and how to change policies and strategies.

PARKS MODEL
(in Journal of Small Business Management 1977)

The enterprise grows through a complex hurdle race

D Sales C1

E E'

F G

H C

A O START UP TAKE OFF

I II GROWTH III MATURITY IV DECLINE V

Time

PARKS MODEL LEGEND

OH CURVE = normal curve of the enterprise life cycle; OTHER CURVES = variants of the normal cycle. ----------------------------------------------------------OA CURVE OB CURVE OC CURVE start up hurdle (it is not possible to promote demand, consumers do not like output); cash flow hurdle (caused by excessive optimism about sales); a) financing hurdle to further growth (too rapidly expanding firm: it may alternatively be convenient to sell it); b) leadership hurdle (decentralization of authority, if you dont want a sell off); OC1 CURVE OD CURVE success in financing/innovating strategy and structure; overestimation of ones own market, followed by success in overcoming difficulties (first steps towards integration or diversification); market-stretching hurdle: but a) capability to extend the product life cycle, without altering strategy; b) or change of strategy (more steps towards either integration or diversification); succession hurdle: a) crisis and decline; b) from crisis to recovery with some technological innovation; decline hurdle: downsizing and recovery with a few new ideas; turnaround possible; hurdle from incapability/impossibility of stopping decline; towards closing down.

OE CURVE and OE1 CURVE OF CURVE OG CURVE OH CURVE

HOW TO USE THE MODEL to anticipate governance and/or management hurdles; to interpret the variety of strategic alternatives.

RADICAL CHANGE OF THE PRODUCT AND THE ENTERPRISE

On one hand, some established companies have achieved radical change: Nokia underwent a metamorphosis from a manufacturer of paper and rubber goods into the worlds leading supplier of mobile phones. British Petroleum transformed itself from a bureaucratic stateowned oil company to one of the most flexible and innovative of the supermajors. On the other hand, some others failed: Enrons transformation from a utility and pipeline company to a trader and market-maker in energy futures and derivatives ended in disaster in 2001. Vivendis multimedia empire built on the base of French water and waste utility fell apart in 2002. N.B.: The perils of strategic change are not difficult to understand. Competitive advantage depends on the deployment of superior organizational capabilities and these capabilities develop slowly. Strategic changes that take a company beyond its competence domain involve massive risks.

STRATEGIC AND ORGANIZATIONAL CHANGE

On one hand, the firms change can be fostered by external pressures. On the other hand, it can be triggered by the endogenous movement of some variables within the firm itself. Change can concern the relationship between a firm and its external environment (strategic change) or the interaction between the intra-firm variables (organizational change). On one hand, strategic change affects the ways through which a firm competes and interacts with the other competitive forces in the environment. On the other hand, organizational change affects the differentiation and integration of the variables within the firm. Both might be radical or local.

THE SOURCES OF ORGANIZATIONAL INERTIA

Common to all the different analyses of organizational change is the recognition that for organizations as for individuals radical change is difficult and painful. Indeed, change is more difficult for firms than for individuals because change upsets patterns of social interaction and requires coordinated action among multiple individuals.

Change

External pressures

Opportunism Bounded rationality

Internal factors

Internal triggers

Inertias

External factors

Continuity

DEWHURST & BURNS MODEL

(in Small Business Finance & Control, McMillan 1983)

A possible evolution of the economic and financial equilibrium of the firm

START UP

TAKE OFF

GROWTH

MATURITY

Sales Cash Flow

DECLINE

NEW ENTRANTS E F

Sales curve

D A R&D O C Marketing SUCCESS Time Cash flow curve B New plants

DEWHURST AND BURNS MODEL

LEGEND A, B, C: new entrants do not come out of the blue; every new product requires planning, design and involves pre-birth investments, which influence negatively the cash flow of the firm. C: while post-birth sales increase, also cash flow increases, but its probable that cash flow values are not positive in the first years of firms life. D, E: only in a more advanced life cycle of the firm, the sales curve and the cash flow curve assume similar configurations. F: when the sector matures and the end market declines, cash flow deteriorates as well.

HOW TO USE THE MODEL It is possible to plan the sales trend of a firm, but it is very important to take also into account the possible financial trend of the same firm, especially in pre-birth and maturity phases, in order to be successful and avoid decline.

SCOTT MODEL
(in Harvard Business Review 1971)

Enterprises undergo historical evolution. They change the relationship between growth strategy and organizational structure according to well defined phases.
N.B.: This model is derived from the study by Alfred D. Chandler, 1962.
EVOLUTION First phase: start up and take off ; we find small firms not so rapidly growing Second phase: growth by rationalization of the use of resources MANAGEMENT CHARACTERISTICS simple decision-making processes and few functional areas separation between ownership and management creation of the structure Third phase: growth by internal reinvestment of profits and intensive use of resources (scale economies) Fourth phase: growth by external investment; the multi-product firm with intense market relations (scope economies) emerges top managers emerge structural complexity internal coordination and integration of different production functions to make or to buy? divisionalization cross subsidization diversification by product or by geographic area upstream and/or downstream integration GROWTH PATH/STRATEGIES concentric

horizontal expansion and differentiation

HOW TO USE THE MODEL to foresee the enterprises virtuous growth, up to its internationalization; to identify organizational problems emerging when strategy is changed.

PETTIGREW MODEL
(in Administrative Science Quarterly 1979)

The enterprise life cycle consists of a series of governance and management dramas

Intensity of dramas (DRAMA 1)

(DRAMA 8) (DRAMA 7) (DRAMA 5) (DRAMA 2) (DRAMA 3) (DRAMA 4) (DRAMA 6)

Extinction Closing down routine 0 Birth routine routine routine id. id. id.
Time

PETTIGREW MODEL
LEGEND drama 1: enterprises birth, thanks to the founders business idea; drama 2: the founder leaves; a successor emerges; drama 3: it is necessary to delegate, separating ownership from management; drama 4: strategy changes: either the enterprise differentiates its product or it integrates upstream and/or downstream; drama 5: growth continues, but the internal relationships among owners/shareholders can change; drama 6: from a change in strategy to a change in the organizational structure; for example: diversification involves divisionalization; drama 7: a crisis emerges; what managerial solutions to survive?; the controlling shareholder may change; drama 8: from incapability to impossibility of finding solutions and closing down.

HOW TO USE THE MODEL To work out the enterprises evolution through a longitudinal analysis of socioeconomic events which determine corporate dramas. To answer the dilemma: to continue or to change? What are the costs of strategicstructural change compared with the costs of conservation of the governance and management structures temporarily given?

THIRD PART

Index: The Industry Life Cycle How General is The Life Cycle Pattern?

Main reference: Grant R.M. (2010), Contemporary Strategy Analysis, 7th ed., John Wiley and Sons, Chichester, United Kingdom, (Ch. 11).

THE INDUSTRY LIFE CYCLE

The industry life cycle is the supply-side equivalent of the product life cycle (Levitt, 1965). To the extent that an industry produces a range and sequence of products, the industry life cycle is likely to be of longer duration than that of a single product. As in the seminal model by Theodore Levitt (1965), the industry life cycle comprises four phases: introduction (or emergence), growth, maturity and decline. Among the forces that drive industry evolution, two factors are fundamental: demand growth and the production and diffusion of knowledge.

Demand growth
In the introduction stage, sales are small and the rate of market penetration by enterprises is low because the industrys products are little known and customers are few. Customers for new products tend to be affluent, innovation-oriented, and risktolerant. The growth stage is characterized by accelerating firms market penetration, as product technology becomes more standardized and prices fall. Ownership spreads from higher income customers to the mass market. Increasing market saturation causes the onset of the maturity stage and the slowing down of growth as new demand gives way to replacement demand. Once saturation is reached, demand is wholly for replacement, either direct (customers replacing old products with new products) or indirect (new customers replacing old ones). Finally, as the industry becomes challenged by new industries that produce technologically superior substitute products, the industry enters its decline stage.

Creation and diffusion of knowledge

The second driving force of the industry life cycle is knowledge. New knowledge in the form of innovation is responsible for industrys birth. The dual processes of knowledge creation and knowledge diffusion exert a major influence on industry evolution. In the introduction stage, product technology advances rapidly. There is no dominant product technology, and rival technologies compete for attention. Competition is primarily between alternative technologies and design configurations. Dominant designs and technical standards: The outcome of competition between rival designs and technologies usually converges towards a dominant design, that is a product architecture that defines the look, functionality and production method for the product and becomes accepted by the industry as a whole. From product to process innovation: Once an industry coalesces around a leading technology and design, theres a shift from radical to incremental product innovation. This transition may be necessary to inaugurate the industrys growth phase. The shift in emphasis from design to manufacture typically involves increased attention to process innovation, as firms seek to reduce costs and increase product reliability through largescale production methods.

HOW GENERAL IS THE LIFE CYCLE PATTERN? (I)

The duration of the life cycle varies greatly from industry to industry. Some examples:
The introduction stage of the US automobile industry lasted about 25 years, from the 1890 until growth took off in 1913-15. Maturity, in terms of slackening growth, set in during the mid-1950s. In personal computers, the introduction phase lasted only about four years before growth took-off in 1978. Toward the end of 1984, the first signs of maturity appeared. Digital audio players (MP3 players) were first introduced in 1997. With the launch of Apples iPod in 2001 the industry entered its growth phase. By 2007, the industry appeared to be entering its mature phase.

N.B: the tendency over time has been for life cycles to become compressed. This is evident for all consumer electronic products, communication products, and also pharmaceuticals. In e-commerce, life cycles have become even more compressed. Such time compression has required a radical rethink of strategies and management processes.

HOW GENERAL IS THE LIFE CYCLE PATTERN? (II)

Patterns of evolution also differ. Industries supplying basic necessities such as residential construction, food processing, and clothing may never enter a decline phase because obsolescence is unlikely for such needs. Furthemore, some industries may experience a rejuvenation of their life cycle. In the 1960s, the world motorcycle industry, in decline in the US and Europe, re-entered its growth phase as Japanese manufacturers pioneered the recreational use of motorcycles. These rejuvenations of the product life cycle are not natural phenomena. They are typically the result of companies resisting the forces of maturity through breakthrough product innovations or developing new markets. An industry is likely to be at different stages of its life cycle in different countries (e.g. although the US auto market is in the early stages of its decline phase, markets in China, India, and Russia are in their growth phases). Multinational companies can exploit such differences: developing new products and introducing them into the advanced industrial countries, then shifting attention to other growing markets once maturity sets in.

FOURTH PART

Index The growing enterprise: from a small to a large and internationalized enterprise. A model of the internationalization process.

FIRST STEPS TOWARDS THE FIRMS INTERNATIONALIZATION

The newborn firm seldom possesses the characteristics of an internationalized enterprise. Still, a number of global born enterprises are emerging. The small firm can soon become indirectly internationalized, by serving a larger organization that exports or produces abroad. In the meantime, it acquires competences. The above mentioned firm finds autonomously clients abroad; it becomes an exporting firm, i.e. it becomes explicitly internationalized. The exporting firm can operate abroad either through its own foreign sales offices, or through intermediaries (either of its own country or from other countries).

DIRECT OR INDIRECT INTERNATIONALIZATION OF THE FIRM

Domestic market

Foreign market

A C

D5 D4 D3 D2 B2

B1

D1

LEGENDA A and B1 : indirectly internationalized SMEs; C B2 D1,2... : medium-sized/large exporting firm; : enterprise that has become an exporting firm; : foreign clients.

FURTHER STEPS TOWARDS A VIRTUOUS INTERNATIONALIZATION

The multinational firm indicates a radical shift in the enterprises life cycle. The already internationalized firm sets up its own plants or offices abroad. It was previously only an exporting firm, now it adopts a new way of doing its business and makes a direct investment abroad.
N.B.: this growth (abroad) takes place through any strategic path (horizontal expansion, integration, diversification, conglomeration).

The multinational group, which controls or cooperates with local firms , derives from the evolution of the old enterprise into a new system of enterprises, which includes a controlling company (with its headquarters) and a number of controlled companies (subsidiaries).

TRANSNATIONAL CORPORATIONS

The transnational enterprise in the era of globalization is typical of the present day large internazionalized enterprise system. Its controlling shareholder can have his headquarters everywhere in the world; his investments can be made in every country. His managers have no peculiar national identity. The term transnationalization refers to the enterprise that looks for effective and efficient production not only (and not so much) through replication, on an international scale, of Fordist models of organization worked out in the central area of capitalism (the U.S.) but also, and above all, through the modification and selective adaptation of such models to specific and differentiated demands from a number of national socio-cultural contexts.
The transnational enterprise that can be based in any country

and operates at global level differs from classic multinationals in the way it interacts with host socio-cultural contexts, cooperating with those environments and not dominating them.