Customer Value Propositions in Declining Industries: Differences between Industry Representative and High‐Growth Firms

• Published date: 01 September 2014
• Date: 01 September 2014
• Author: J. Christian Broberg,Thomas H. Allison,Gaylen N. Chandler
• DOI: http://doi.org/10.1002/sej.1181

CUSTOMER VALUE PROPOSITIONS IN DECLINING

INDUSTRIES: DIFFERENCES BETWEEN INDUSTRY

REPRESENTATIVE AND HIGH-GROWTH FIRMS

GAYLEN N. CHANDLER1, J. CHRISTIAN BROBERG1*, and

THOMAS H. ALLISON2

1W. Frank Barton School of Business, Wichita State University, Wichita, Kansas,

U.S.A.

2College of Business, Department of Management, Information Systems, and

Entrepreneurship, Washington State University, Pullman, Washington, U.S.A.

Using institutional theory and a business model perspective, we develop a framework and use

content analysis of company Web sites to examine differences in customer value propositions

among a sample of high-growth firms paired with two comparison samples of industry repre-

sentative firms in 18 declining industries in the United States. Our results indicate that

high-growth firms develop value propositions that differ substantially from industry represen-

tative firms. In addition, high-growth firms communicate their value propositions more clearly

and aggressively than do industry representative firms. Copyright © 2014 Strategic Manage-

ment Society.

INTRODUCTION

We compared the growth rates of individual compa-

nies on the Inc. Magazine list of the 5,000 fastest-

growing private companies in the United States

(2008) to the growth rates of their parent industries.

Wediscovered that while the vast majority of the Inc.

5000 firms were competing in growing industries,

there were 166 high-growth firms in declining indus-

tries. This sparked an interesting research question:

how do firms grow rapidly when they are competing

in declining industries?

To address this question we apply institutional

theory in general and legitimacy arguments in par-

ticular (Oliver, 1997; Scott, 1995). We apply con-

cepts from the ‘business model’ literature to analyze

institutional theory predictions. The central com-

ponent of the business model is the value propo-

sition for customers (Johnson, Christensen, and

Kagermann, 2008; Morris, Schindehutte, and Allen,

2005; Zott and Amit, 2010). We argue that the most

important institutions are those that directly impact

the delivery of the value proposition to customers.

We compare 166 high-growth firms to two matched

samples of firms that are representative of the same

industries. The first comparison is to firms matched

by size, while the second comparison is to firms

matched by age.

We make four significant contributions to the lit-

erature. First, we address an interesting question:

how do individual firms grow rapidly in declining

industries? Second, we use an institutional theory

lens supplemented by a business model approach.

There is a call to apply more institutional theory to

entrepreneurship (Bruton, Ahlstrom, and Li, 2010;

Tolbert, David, and Sine, 2011), and there has

been abundant discussion in entrepreneurship prac-

tice about business models, but the concept of the

Keywords: high-growth firms; institutional theory; valuepropo-

sitions; content analysis

*Correspondence to: Christian Broberg, W. Frank Barton

School of Business, Wichita State University, 1845 Fairmount,

Wichita, KS 67260-0147, U.S.A. E-mail: Chris.broberg@

wichita.edu

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Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 8: 234–253 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1181

Copyright © 2014 Strategic Management Society

business model analysis has only recently been dis-

cussed in the academic literature (Johnson et al.,

2008; Morris et al., 2005). Third, we use company

Web sites and other Internet sources, a source of data

that is readily available, but has not been used exten-

sively in the entrepreneurship literature. In doing so,

we demonstrate the value of using company Web

sites as a data source from which researchers can

infer important entrepreneurship constructs, such as

the value proposition. Finally, our results show that

high-growth firms have value propositions that focus

on customer benefits that are not addressed directly

by industry representative firms. They also com-

municate value to customers more expertly and

aggressively.

To begin, we synthesize institutional theory and

the core components of a business model. We then

select companies from three of the 18 industries in

our sample and qualitatively describe differences in

value propositions between the high-growth firms

and a matching sample of representative firms in

those same industries. Finally, we quantitatively

assess differences between how rapid-growth firms

and industry representative firms in all 18 declining

industries communicate their value propositions to

their customers through their Web sites.

THEORETICAL CONSIDERATIONS

Industry characteristics are important for under-

standing new venture emergence and performance

(e.g., Cooper, Gimeno-Gascon, and Woo, 1994;

Chandler and Hanks, 1994; McDougall, et al, 1994;

Dean and Meyer, 1996; Robinson and McDougall,

2001; Delmar, Davidsson, and Gartner, 2003), as

well as their survival and exit (e.g., Brüderl and

Schüssler, 1990; Thornhill and Amit, 2003; Bates,

2005). A recent variance decomposition study of

emerging firms (Short et al., 2009) provided evi-

dence that while individual firm factors explain the

greatest proportion of the variance in performance,

industry still accounted for a significant amount.

Indeed, the evidence is overwhelming that most

high-growth firms reside in high-growth industries

(McDougall et al., 1994; Mata and Portugal, 1994).

The fact that only 166 of the Inc. 5000 were com-

peting in declining industries provides supporting

evidence for that viewpoint. Thus, the question of

how firms that enter declining industries achieve

rapid sales growth is particularly intriguing.

To explore that question, we turn to institutional

theory. Although institutional theory can be applied

to many aspects of social life, it is particularly rel-

evant for firms and industries (Zucker, 1987). Insti-

tutions are the cultural-cognitive, normative, and

regulative elements that, together with associated

activities and resources, provide stability and

meaning to firms and industries (Scott, 2004). Insti-

tutional theory considers how patterns, rules, norms,

and routines become established as socially accepted

guidelines for behavior. Institutional theory is a key

explanatory theory for how stability and order

develop in organizations and industries (Zimmerman

and Zeitz, 2002). The definition of institution

implies permanency; yet institutions are subject to

both incremental and radical change processes

(DiMaggio and Powell, 1991).

In an emerging industry, innovative institutions

that provide customer value efficiently and effec-

tively in early adopting organizations are legitimized

(Meyer and Rowan, 1977). Zimmerman and Zeitz

(2002: 416) describe legitimacy as a ‘relationship

between the practices and utterances of the organiza-

tion and those that are contained within, approved of,

and enforced by the social system in which the orga-

nization exists.’ An institutional theory perspective

suggests that industries represent higher-order struc-

tures that define shared norms and rules that create

varying logics of accepted economic behavior

(Oliver,1997). In growing industries, emerging firms

tend to gain legitimacy by copying the successful

institutions of other firms that are having initial

success in the industry (Aldrich and Fiol, 1994).

Within an industry, firm practices and behaviors will

tend toward homogeneity over time because they

share a common social context that exerts confor-

mance pressures (Deephouse, 1996; DiMaggio and

Powell, 1983; Jepperson and Meyer,1991; Meyer and

Rowan, 1977; Oliver, 1988; Scott, 1987). Oliver

(1997) notes that industries reduce firm heterogeneity

by establishing shared norms, standards, and rules of

conduct—such as industry product quality standards

and industry-wide ethical codes of conduct—among

competing firms. Homogeneity of practice and

behavior within industries will tend to become more

prominent as industries develop (Navis and Glynn,

2010). When firms conform to industry norms of

accepted behavior,they are perceived to be legitimate

(Meyer and Rowan, 1977; Scott, 1995). Legitimacy

then endows firms with the social acceptance neces-

sary to obtain valuable resources that make the

achievement of a sustainable competitive advantage

Customer Value Propositions in Declining Industries 235

Copyright © 2014 Strategic Management Society Strat. Entrepreneurship J.,8: 234–253 (2014)

DOI: 10.1002/sej