14.6 The dominant logic of peripheral firms

A surprising discovery of our research was that at the beginning the dominant logic of companies that later lost their chance in the market place had been very coherent and almost mature, and that its evolution had resembled Siggielkow s (2000) ˜thin to thick model. In terms of orientation the founders and managers had a balanced perception of the business environment as consisting of opportunities but also threats and problems to be solved . Eventually however, as their firms had lost ground to industry leaders , they had focused less on opportunities than on events and trends that might have a negative impact on the industry as a whole and on their firms in particular. They perceived competitors as ruthless or unfair, customers as fickle and the general business climate as bad.

In general, in terms of routines losers formalize their activities and introduce standard operational procedures much faster than do winners. Their structures are centralized and rigid compared with the structures of leading firms. Whereas leading firms formalize and standardize activities that are critical in terms of overall productivity or have to be standardized by law (for example accounting), peripheral firms do it because they have limited trust in their employees . They centralize decisions at the top management level as a response to what is perceived as an ˜unfriendly environment, and the organizational culture is shallow .

Few strategic decisions are taken by peripheral firms, and those which are taken are made very early in their life cycle. In spite of changes in the business environment the owners of peripheral firms stick to their original strategy, as predicted by organizational ecology theory (Hannan and Freeman, 1989). However as our research showed, in turbulent markets agility and experimentation pay off “ sticking to the original strategy does not. For example in our study Janysport (the producer of high-quality backpacks and climbing equipment) failed to introduce new models and colours, and did not attempt to follow or set trends in the way that Alpinus did. Likewise the owner of Baza, which was established at the same time as its competitor Optimus, did not modify his original strategic decision to limit the product range to computers and peripheral products, despite the industry trend towards the integration of computers, software and services. In addition his initial decision to structure the firm as a federation of regional offices may have enabled Baza to grow rapidly at the beginning, but it eventually precluded synergy, cooperation and integrated effort, and by 1997 its regional offices were closing one after the other. Meanwhile Demoskop s continuing commitment to public and social research and ˜scientific methodology meant that it lost the opportunity to grow. In all of these cases, conscious strategic decisions were made with regard to markets, products and sources of competitive advantage, but the strategies were not successful in the long run because they were rigidly maintained rather than adapted to the changing environmental situation.

Finally, the most striking feature of the peripheral firms in our study was that they almost never learned from their experiences. One would have thought that after a decade of limited growth or decline the owners or managers would have been able to describe at least two difficult situations as learning experiences. Instead some had difficulty identifying even one problem (Management Focus and Baza) or blamed their problems on a conflict between the owners (Demoskop and Janysport) or on a crisis in the Russian market (Dax). Hence peripheral firms do not learn easily and if any learning does occur it merely reinforces the existing dominant logic in terms of perceiving of the environment as hostile , the correctness of earlier strategic choices and the limited value of routines.