Strategic Management in Converging Industries

This paper provides a discussion of the consequences of digital convergence on strategic management. The process of digital convergence was initiated a few years ago by the rapid progress in digital technologies and has gained increased practical importance since then. In order to show its multiple effects on strategic management we choose a three-steps approach for this analysis. In a first step we investigate the implications on industry structure based on Porter’s concept of structural analysis of industries. Due to digital convergence three competitive forces are supposed to increase while two others are affected indifferently. This shift in the strengths of these five forces leads to an overall increase of competition in the information and communication industry (INFOCOM) industry. Following the structure-conduct-performance-paradigm we infer that the profitability of the industry will decline. The second step of our analysis aims at investigating the implications on critical success factors. For this purpose we examine four major critical success factors: costs, differentiation, flexibility, and time. We notice direct and indirect shifts in the strategic importance of major critical success factors. While the strategic importance of costs and quality is decreasing that of flexibility and time is substantially enhanced. These implications on major critical success factors have significant consequences on Porter’s widely used generic strategies. Therefore, in a third step we analyze the implications of digital convergence on these strategies. Our analysis reveals major conceptual drawbacks of Porter’s generic strategies and shows a reduced effectiveness of these strategies in the INFOCOM industry. These drawbacks make it virtually impossible for a company to position itself uniquely in INFOCOM by pursuing the generic strategies. Therefore, we introduce the Dynamic Product Differentiation Strategy which considers the implications of digital convergence. This strategy stresses the notion of gaining a competitive edge by focusing on costs, differentiation, flexibility, and time simultaneously. Thus, it enables companies to respond to the high complexity and dynamics of INFOCOM by reacting to changes in customer needs in a fast and cost effective manner and still providing a high level of quality. Strategic Management in Converging Industries 1 -