Strategic Management of Declining Industries - A Literature Review

Abstract

Declining industries are an important part of developed economies – for example in 1977 a tenth of US manufacturing output was accounted for by industries whose output had shrunk over the preceding ten years (Ghemawat and Nalebuff 1990). As declining demand for a product is often related to demographic changes (e.g. Harrigan 1980), the slowing and eventually negative population growth in the Western countries will cause a decline in demand in industries that supply goods to a local market. Despite the previous and expected occurrences, little research has been carried out in this field. The purpose of this study is to draw together what management scholars have stated about managing organizations in declining industries. The study is confined to decline that is caused by factors external to the organizations and that is not related to short term variations or discontinuities such as recessions, and is thus to some extent irreversible. Three approaches to decline were identified in the literature review: normative management literature, exit patterns and organizational ecology. We present what each category has to say about the behavior of declining industries and try to integrate the knowledge from all categories where possible. A unified framework of all three perspectives is presented.