Strategy and the Crystal Cycle
Strategy and the Crystal Cycle
John A. Mathews
ne of the unexplored areas of business dynamics is how the cyclical behavior of certain important industries poses strategic issues for incumbent firms as well as challengers. All frameworks used in strategy (such as the Porter’s “competitive forces” framework) attempt to capture the decisions made by businesses in the attempt to influence their “business landscape” (to use the language of Ghemawat).1 However, the frameworks rarely place these business decisions in a context where time matters—and in particular, in the dynamic setting of industry cycles. In such a setting, firms have to make rapid judgments as to whether they are in an upturn or a downturn and what might be the implications of this for their production, investment, and marketing operations. Their decisions about timing can give them a competitive edge or can set them back, perhaps irreparably. While the study of business cycles has a long scholarly pedigree,2 specific industry cycles and their link to strategic choices made by firms does not.3 Industry cycles have been demonstrated in many sectors—most notably in semiconductors, but also in such diverse sectors as shipbuilding, chemicals, and oilrig operations. Such industries are characterized by large investments, and it is the mismatches that occur between investment and production dynamics on the one hand, and market demand dynamics on the other, that appear to drive the cyclical behavior. In such industries, both incumbents and challengers must
The author would like to acknowledge the most helpful assistance of Dr. Mei-Chih Hu in the preparation of this article. Richard Langlois and John Cantwell gave me helpful comments as discussants at DRUID 2004. In Taiwan, useful data and discussions were secured from the Market Intelligence Center (MIC) of the Institute for Information Industry (III) and from the Industrial Economic and Knowledge Center (IEK) of the Industrial Technology Research Institute
John A. Mathews
ne of the unexplored areas of business dynamics is how the cyclical behavior of certain important industries poses strategic issues for incumbent firms as well as challengers. All frameworks used in strategy (such as the Porter’s “competitive forces” framework) attempt to capture the decisions made by businesses in the attempt to influence their “business landscape” (to use the language of Ghemawat).1 However, the frameworks rarely place these business decisions in a context where time matters—and in particular, in the dynamic setting of industry cycles. In such a setting, firms have to make rapid judgments as to whether they are in an upturn or a downturn and what might be the implications of this for their production, investment, and marketing operations. Their decisions about timing can give them a competitive edge or can set them back, perhaps irreparably. While the study of business cycles has a long scholarly pedigree,2 specific industry cycles and their link to strategic choices made by firms does not.3 Industry cycles have been demonstrated in many sectors—most notably in semiconductors, but also in such diverse sectors as shipbuilding, chemicals, and oilrig operations. Such industries are characterized by large investments, and it is the mismatches that occur between investment and production dynamics on the one hand, and market demand dynamics on the other, that appear to drive the cyclical behavior. In such industries, both incumbents and challengers must
The author would like to acknowledge the most helpful assistance of Dr. Mei-Chih Hu in the preparation of this article. Richard Langlois and John Cantwell gave me helpful comments as discussants at DRUID 2004. In Taiwan, useful data and discussions were secured from the Market Intelligence Center (MIC) of the Institute for Information Industry (III) and from the Industrial Economic and Knowledge Center (IEK) of the Industrial Technology Research Institute