The survival of any firm in a certain market is very important and there are certain factors that affect survival. The probability of survival is dependent mostly on the attributes of the firm, its products and its life cycle. There are certain times when the hazard rates in the life cycle of a firm decline very much. However, there are times when the rates have different levels of influence on the survival of a firm (Wiseman 1995). Research has documented that more than ten percent of firms in a given market exit that market within the first year. This means that surviving in markets is not guaranteed because there are many random shocks that affect the life cycle in a given market. These random shocks that affect survival include competitiveness in the market, the demand curves and the dynamism of the technology.
As a market undergoes evolution from infancy to maturity, there are is a high level of volatility that affects the chances of survival. In the preliminary years, the chances of survival are usually high because there are very many opportunities for technological innovations. However, as the market undergoes maturity, these opportunities decline because the innovativeness of a firm shifts to focus on cost reduction instead of focusing on the improvement of its products. In this phase of the life cycle of a company, imitation takes the place of innovation to enhance survival. This is a scenario that is dictated by the competitiveness in the market (Moore, 2005).
Are companies able to survive in their respective markets as they maintain a culture of entrepreneurship that can support radical innovation and a customer focused incremental innovation? Can companies use cost conscious processes of innovation that will not hurt their place in the market? In the life cycle of a company, it can create innovation processes that can have disruptive consequences. Not all innovations are positive. Some firms have collapsed because of innovation processes that end up backfiring on their internal culture and strategies. However, innovation is an important continuous process is one of the factors that create a competitive advantage.
One of the most popular innovative strategies that have helped firms to survive the various phases of their life cycle is market segmentation. Market segmentation is the division of a market into various groups which are then served using customer preferences and purchasing power (Dundon, 2002). Market segmentation works alongside another business level strategy called differentiation. Differentiation strategy aims at creating different varieties of the same products to appeal to different classes of customers. For example, a milk processing company can have value added products for the high end customers, normal products for the low end customers and even special products for the health conscious customers. The differentiation of the products automatically segments the market and the company can proceed to use another business level strategy called the focus strategy to get deeper into each of these segments. Combining the two business level strategies often creates a competitive advantage and helps a company to cover a wider market. This is one of the most effective survival tactics because it tackles most of the five forces detailed by Michael Porter, including buyer power, threat of substitutes and barrier to entry. Any company that manages to tackle the Porter’s five forces can easily enhance its survival.
References
- Dundon, E. (2002). Seeds of Innovation – Cultivating The Synergy that Fosters New Ideas.New York: AMACM.
- Moore, G.A. (2005). Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Business. New York: Penguin.
- Wiseman, A. (1995). Turning Strategy into Decisive Action. London: Chapman & Hall