In the case of major industry disruption, successful companies survive through a well-orchestrated series of strategic moves. New research shows that the sequence and timing of those moves can make the difference between failure and success.
In 1980, the U.S. freight railroad industry was deregulated. Railroad companies now had the freedom to abandon unprofitable lines and acquire new ones. They were also no longer banned from owning other modes of transportation, notable road and water transportation; the companies thus gained access to previously inaccessible markets that had been reserved for road and water carriers.
A team of researchers used the U.S. railroad industry’s post-deregulatory period of 1980 to 2003 (the year the government declared a moratorium on acquisitions in the industry) to explore specifically whether the sequence and timing of a company’s response strategies following a major disruption impacts the success of a company’s strategy.
In the face of any major industry disruption, companies have four strategic responses to choose from:
Of the 39 U.S. railroad companies in existence before the 1980 deregulation, only nine companies would remain in existence in 2003. What did those nine companies do right? The answer, according to the study, lies not only in the choice of strategy but also in the sequence and the timing of those strategies. The study shows that the nine surviving companies:
In all these strategies, timing is as important as sequence. The longer that companies wait to move from one step to the next — whether because of managerial risk aversion perhaps or the mistaken perception that new strategies are not needed — the more likely their efforts will fail. Slow movers will find that competitors will have already acquired the best partner companies, and have established their reputations and loyal customer bases in the new markets.
Different industries will have different requirements for competitive positioning and growth. The argument of the authors of this study is not that the specific step-by-step sequence of strategies they describe applies to all industries. Instead, they argue that competitive strategy involves a series of strategic moves, and the order in which those strategic moves are made can mean the difference between failure and success. Strengthen your core competencies, managerial talents, and market position before tackling markets with greater complexity, but don’t let timidity cause opportunities to be missed. The key is to find the right balance between strengthening your foundation and taking the leap.
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