14.5 The dominant logic of leading firms

Both leading and peripheral firms in the Polish market place have a coherent dominant logic, but the elements and dynamics of their logics differ , as even our brief comparison of firms in the cosmetic industry has shown. In a nutshell , winners follow simple rules and use them to maximize their opportunities. They are flexible and quick. The dominant logic of winners is developed in a similar way to Siggielkow s (2000) patch-to-patch mode of behaviour.

The most common feature of managers paradigm is external orientation. They focus on environmental trends and events and perceive them as a set of opportunities to be exploited. They are oriented towards marketing their products and services by means of optional marketing strategies, experiments and innovations, and quick entries and exits in search of an opportunity to create a standard and/or brand. In our study the key role in this respect was played by the owners , who were natural, passionate and optimistic leaders .

In terms of routines, leading firms are pragmatic and opportunistic . They introduce new routines only when it is necessary and only when they think they will benefit from them. They do not respect formal structural arrangements. Rather they rely on trial and error to evolve into a flexible but centralized organization, where there is limited formalization and standardization and leaders can bend rules and procedures.

On average, leading firms also make more strategic choices than do peripheral firms. For example the managers of Eris decided to focus on quality, to use imported ingredients , to construct a new factory adapted to the needs of disabled workers, to risk entry into luxury segments, to reorganize their distribution channels and to diversify into related markets. Most of these choices were made rapidly , but with a reasonable degree of analysis and calculation.

Finally, leading firms readily acknowledge that they experience difficult situations, but they treat these as learning experiences. For the market research institute SMG/KRC it was the departure of the whole department of quantitative analysts, and the loss of a major client. The consultancy firm WGK lost some large and important contracts, as well as being confronted by accusations of professional misconduct and a long legal suit, and had to close its human resources practice. Eris went through several learning experiences, including an up-market move, problems with its distribution network and an expensive effort to diversify.

Traumatic and difficult experiences in leading firms inevitably trigger structural or procedural changes, and are used to remind managers of possible problems and pitfalls. The synthesis of paradigms , choices, experiences and routines create a dominant logic with simple rules of action that enable leading firms to operate in a confusing and turbulent environment. In our research we did not encounter the comprehensive set of methodological , boundary, priority, timing and exit rules proposed by Eishenhardt and Sull (2001) because in a turbulent environment no firm can have a priori knowledge of what will make sense and what will not. Therefore winning firms develop their rules piecemeal in response to difficult experiences and choices.

The two main rules of leading firms are ˜be optimistic and ˜move fast . The managers of winning firms perceive the business environment as offering a set of opportunities to be seized and exploited. A natural extension of this is the development of an organizational culture that emphasises action, risk taking, initiative and allowance for errors. All leading firms behave like inquisitive children and are always ready to experiment with something new, even though this means making more (and more costly) mistakes than peripheral firms. However leading firms eventually mature. The owners of all the firms we studied introduced routines for key processes, and most of them eventually hired professional managers. However none of them formalized and standardized their operations to the same degree as did peripheral firms.

The second strategic rule of leading firms “ ˜move fast “ means entering fast, growing fast or exiting fast. In our study we observed a clear passion to fight, to win and to be a leader. The founders established the boundaries of their firms strategic domain and set priorities, but then allowed their managers to experiment. Leading firms sometimes institutionalized innovations and offered symbolic or financial rewards. Over time SMG/KRC entered all possible research markets (political, social and marketing) and offered all styles of service “ customized, joint and so on. It introduced special awards for innovative thinking: Virtuti Researcheri (a special decoration modelled after the Polish military famous decoration Virtuti Militari), dinner with the president, a bonus of one month s pay and so on. Alpinus, the leading producer of equipment and clothing for outdoor sports, experimented with all possible product lines, most of which proved unsuccessful in terms of profitability. Optimus (the leading computer hardware and software producer) strived from the very beginning to attain a dominant position in the industry and used rapid product upgrades, alliances with Microsoft, Intel and Lockheed Martin, and frequent new offerings (computer consultancy services, integration services, B2B (business to business), portals, vortals) to maintain its first mover advantage. At the time of the research Optimus had developed into a group of 29 firms, headed by a core firm.