Industry Ecosystems

Low

Rate of Technological Change

4. Creative Destruction

High

3. Steady Evolution y y y y y y Stable industry structure Well-established competitors Few opportunities for product differentiation Scale and size important Cost efficiency predominates Knowledgeable customers

y Rise of technological change y New entrants from other industries y New technologies reshape underlying value proposition y Established firms face market share loss

Lifecycle

Mature

1. Fast Growth y Focus on developing core product concept y Rivals attempt to differentiate from one another y Emphasis on scalability, replicable business models y Value proposition seeks to build customer loyalty

2. Wild, Wild West y Market boundaries uncertain y Multiple competing technologies and standards y Numerous entrants from a wide number of industries y Value propositions in flux y Need to establish customer lock-in

Growth

Source : Lei & Slocum, AME, Vol.19 (2005), No.1:33

Archetypes and Strategies

Low 3. Consolidators Arenas: Vehicles: Mature Distinguishing Features: Staging: Broad-line markets/wide product lines Long-term supplier relationships, selective mergers & acquisitions Low cost, standardized offerings Outsourcing to reduce backward integration

Rate of Technological Change

4. Concept Learners Arenas: Vehicles: Distinguishing Features: Staging:

High

Mature markets impacted by disruption Skunkworks, incubation of new business, strategic alliances with related firms New product introduction, ease-of-use by customers Sequencing is difficult due to cannibalization

Lifecycle

Economic Logic: Attain maximun scale to reduce costs; strive for industry leadership 1. Concept Drivers Arenas: Vehicles: Growth Distinguishing Features: Staging: New market entry based on core product concept Internal development of product concepts; related acquisitions Customization, fast innovation, branding Penetration and development of related products and neighboring geographic markets

Economic Logic: Premium prices based on new products or low cost to serve large markets 2. Pioners Arenas: Vehicles: Distinguishing Features: Staging: New products, new core technologies Internal development and external licensing to larger firms First-to-market, fast innovation, patents Quick speed of expansion into niche markets; develop sequential new technologies in R&D

Economic Logic: Superior pricing through customer loyalty or proprietary features

Source : Lei & Slocum, AME, Vol.19 (2005), No.1:36

Economic Logic: Generate high royalties from proprietary technology/patents; premium pricing from niched products

Strengths and Weaknesses of Strategic Archeatypes

Low

Rate of Technological Change 4. Concept Learners

Strengths: y Highly decentralized y Customer focused y Adaptation

High

3. Consolidators
Strengths: y Market share y Operations & logistical sophistication y Distribution networks y Marketing y Outsourcing Weaknesses: y Vulnerable to high fixed costs y May face rising supplier power y Excessive focus on standardization y Products lack distinctive attributes y Overconfidence of brand y Bureaucracy

Weaknesses: y Must unlearn older business model y Risk of culture clashes y May lose customers in the wake of realigning operations y Resource allocation conflicts

Lifecycle

Mature

1. Concepts Drivers
Growth Strengths: y Innovation y Value chain drivers centralized y Marketing Weaknesses: y Diffculty in sharing resources among business units y Duplication of costs and functions y Proliferation of products y May confuse the customer

2. Pioneers
Strengths: y Organic structure; small size y Finding new niches y Visionary CEO y R&D leadership y Flexible production facilities y Outsource manufacturing Weaknesses: y Reliance on external funding or venture capital y Technological overkill y Overcommitment to a particular design approach y Potential ego-driven CEO

Source : Lei & Slocum, AME, Vol.19 (2005), No.1:40

Managing Venture Growth: How our understanding has evolved

Perspectives on Growth
Venture growth is characterized by a series of life cycle stages; rapid growth is often one of these stages

Key Insights
y Firms evolve through a predictable life cycle, but these stages are not always linear. The time spent in each phase varies considerably among firms. y Different success factors are associated with different stages of growth. y Each of the various stages of the life cycle is preceded by a crisis. Survival and success depend on managing these crises. y Firms should focus on developing strategy in the relatively stable phases so that they can cope with the challenges and turmoil of the transition phases. y These challenges include: instant size; a sense of infallibility; internal turmoil; and need for extraordinary resources to support growth. y Effective responses include: instilling a clear sense of vision; making organizational changes in advance of a crisis of performance; and holding onto past practices while getting bigger. y Growth produces increased managerial complexity. y High-growth firms need to undertake organizational changes in order to cope with complexity. There are a variety of different approaches, but no one best approach. y There are common patterns in the defining transitions of high-growth ventures. Each has different resource requirements. These resources must be developed ahead of time. y High-growth firms can improve their ability to manage rapid growth by reducing the cycle time between major growth transitions. y Transitions cannot always be managed from the top. They can also occur through a self-organized process.

Rapidly-growing ventures face unique managerial challenges

Managing transitions in high-growth firms is critical to success.

Source : Nicholas-Nixon, AME, Vol.19 (2005), No.1:79

Deep Structure, Self Organization and the Management of Rapid Growth

Dimensions of Deep Structure Business logic Description and Implications A few simple rules about what should be done Establish a clear sense of vision and values that guide action in the absence of formal rules and procedures. Stay receptive to alternative viewpoints, to encourage exploration of new directions. A few simple rules about how it should be done Create an infrastructure that facilitates more innovative and faster responses by (a) providing access to real time information on key performance metrics and (b) ensuring that the information is widely shared. Facilitate connections between people within and across organizations to enhance identification of problems and opportunities and to develop creative and timely responses to their resolution. Minimize the effects of disruptive politics in order to foster employees' willingness to engage in informal, voluntary and cooperative interactions. Link to Management Practices Soap box the vision. Focus on milestones, not process.

Encourage experimentation Give decision making autonomy.

Principles of organizing 1. Capture and share information

Define, measure, and share key performance metrics. Use information systems to build competence, not establish control. Create opportunities for informal communication.

2. Build relationships

Use cross-functional work teams. Support work-life balance Inject a sense of fun into the organization.

3. Manage organizational politics

Establish norms of acceptable behavior. Recruit based on mindset and values as well as skills and experience. Provide fair and meaningful opportunities for advancement Use power to arbitrate, not dictate. Support experimentation . Embrace change and chaos rather than trying to control it

4. Leadership style

Focus on facilitating, rather than directing or controlling individual actions and interactions.

Source : Nicholas-Nixon, AME, Vol.19 (2005), No.1:86

Characteristics of the Burnout Syndrome

Characteristics
Excessive Growth

Indicators
y Sales growth significantly above the Sustainable Growth Rate (SGR) y Expansion fueled through large number of acquisitions y High financial leverage due to intensive investment in growth areas

Uncontrolled Change

y Endless reorganizations and loss of control due to overly aggressive diversification y Deterioration of core business due to management focus on problems in new areas y Loss of identity and orientation due to radical change of corporate business model

Autocratic Leadership

y Autocratic position of CEO due to missing opposition and weak board control y CEO hubris with over-ambitious and perilous visions and goals y Top-down culture marked by blind faith in leaders and lack of skeptical questioning

Excessive Success Culture

y Culture of strong competition between employees (i.e. up-or-out; bonus programs) y High degree of employee stress due to heavy workload and aggressive climate y Poor communication due to mistrust and lack of confidence between employees

Source : Probst & Raisch, AME, Vol.19 (2005), No.1:93

Characteristics of the Premature Aging Syndrome

Characteristics Stagnating Growth Indicators y Sales growth constantly below the Sustainable Growth Rate (SGR) y Sales growth constantly below market growth, leading to market share losses y History of failed growth initiatives (such as acquisitions or new ventures) Tentative Change y Strong resistance to change / Clinging to proven success patterns y Outdated product offering due to missing innovations y High costs compared to the competition due to lack of restructuring initiatives Weak Leadership y Weak position of CEO relative to lower-level managers, unions and/or employees y Change-resistant leaders blocking any attempt at change y Heavy executive turnover hindering a consistent change process Lacking a Success Culture y Failure to downsize on time due to culture of guaranteed lifetime employment y Bureaucratic organization and old-fashioned mindset hinder innovation y Culture of underperformance (i.e., fixed pay; promotions according to tenure)
Source : Probst & Raisch, AME, Vol.19 (2005), No.1:97

The Balanced Organization

Corporate Governance
Early Warning Consolidation Growth Expansion

Burnout Syndrome

Premanture Aging Syndrome

Stability Change Participation Leadership Community Culture

Dynamism

Autocracy

Competition

Transformation
Source : Probst & Raisch, AME, Vol.19 (2005), No.1:100

Stabilzation