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This paper describes how firm characteristics evolve in different industries. In particular, it reports on relationships between industry performance and competitor diversity in the American economy from 1981 to 1997. Industry performance is measured using a prospective measure of performance (Tobin's q) and a measure of performance that reflects historical competence (accounting profitability). Competitor diversity is characterized by differences in size, operating margin, asset composition, and asset utilization. The results indicate significant diversity among competitors in both high- and low-performance industries. The study suggests that low industry performance may be associated with processes of transition in competitor characteristics.

The central organizing principle for this volume – the industry life cycle model – is so widely accepted and its basic premises so taken for granted that it has become conventional wisdom in business. Executives in a range of industries use the model to guide their thinking about when and how to invest in various industries. Diversification decisions, for example, are often made on the basis of life cycle logic, especially as large, established companies seek high-growth opportunities for investment.

New industries are created from the pioneering activities of a few firms. These firms generally face great uncertainty and risk, but also stand to benefit from early mover advantages due to the preemption of resources. Based on an empirical analysis of a diverse set of consumer and industrial innovations introduced in the U.S. over the past 100 years, we find that entrants during the pre-firm take-off stage (termed Creators) have higher survival rates than later entrants that enter between the firm and sales take-off (termed Anticipators), and both of these entrant types have higher survival rates than firms that enter after the sales take-off (termed Followers). Notably, survival rates for Creators and Anticipators do not depend on entry time within the cohort group, i.e. what matters is whether an entrant enters before or after the take-off, not whether it entered first in its cohort. Our results indicate that there is no real option value in waiting when one considers survival as a performance measure, which bodes well for firms interested in creating new industries.

Although studies of “core competence” appear frequently, the concept lacks a clear definition that allows one to operationalize it and use it to develop falsifiable predictions. We propose a definition based on the phenomenon that core competence is typically applied to – adaptations to different external context. Sourcing insight form the paradigm of organizational ecology, we develop arguments rooted in theories of structural inertia and environmental imprinting. Empirical analyses of failure rates of entrants in the Italian automobile industry confirm our propositions that core competence is a source of competitive advantage when industry entry is based on relevant capabilities and a source of inertia and obsolescence when core competences need to be substantially altered. We conclude that whether core competence materializes as a dynamic capability or exposes the firm to liability to selection and obsolescence is a random process. Its outcome hinges on environmental variation and the resulting firm-environment (mis)alignment and is thus largely beyond managerial control.

This article considers the relationship between consumers’ valuation of performance improvements and technology development over the technology life cycle. Presenting a demand-based perspective, it explores how the character of life cycle maturity, the nature of competitive threats, and firms’ innovation incentives all change when consumer demand for performance matures in advance of a technology’s performance trajectories. It characterizes demand maturity by introducing the idea of a demand S curve as a complement to the traditional technology S curve. In doing so, it offers a new lens for assessing firms’ prospects of achieving superior performance through the commercialization of new technologies.

The quest to explain how incumbents respond to changes in their industry is affirming the role that managerial cognition plays in those decisions. Recent empirical evidence suggests that anticipating the nature and timing of industry changes could increase the likelihood that the organization develops an effective response. Mounting evidence suggests also that such ability to anticipate and respond may depend on decision-makers’ prevailing and emerging cognitive frames. This raises a number of questions about the nature of those cognitive frames and how they impact the decision making processes and ultimately organizational response. In this paper we report the findings from three case studies of how established incumbents respond to changes to their industries brought about by the emergence of the Internet.

Case studies of four important automobile firms are used to understand how the performance of both diversifying and new entrants into the automobile industry was conditioned by their pre-entry experience. Various conjectures based on the four firms are then tested using a unique data source on the pre-entry backgrounds of all entrants into the automobile industry from the commercial inception of the industry in 1895 through 1966. In addition to analyzing the types of pre-entry experiences that affected the longevity of entrants, the analysis also focuses on the conduits by which pre-entry experience influenced the performance of entrants and the extent to which pre-entry experience had enduring effects.

Managers of corporations that are facing fading product-market domains are often inertial in their response to such decline or engage in endgame strategies within these markets. For managers operating in dynamic markets, however, such responses are often ineffective. Rather, such markets often demand a corporate entrepreneurship response whereby managers move their businesses into new market opportunities as the value of current market domains inevitably begins to fade. The emphasis is on exiting from declining markets while simultaneously capturing and exploiting opportunities in more promising markets. In this chapter, we describe the recombinative organizational form (i.e. structure and process) by which this can occur. We focus on the modular organizational structure (i.e. modularity, relatedness, and loose-coupling) and corporate dynamic capabilities (i.e. probing, patching, and recoupling processes) by which managers can cope with the inevitable decline that is the nature of dynamic industries. An example from recent empirical research provides an illustration of such corporate entrepreneurship.