Industry Logics: Beliefs, Values, and Behavioral Norms

494 • Chapter 14 • Environment, Power, and Culture

example, higher education) will develop stronger sets of common beliefs than sectors subject to continual regulatory and technological change or constant combination with other sectors (for example, entertainment). Out of these common beliefs come common ideas and practices regarding what managers should do, how changes should occur, how business should be transacted, and what types of innovations are worthwhile. These interrelated beliefs, values, material practices, and norms of behavior that exist in an industry at any given time are referred to as industry logics.

Paradoxically, to the extent that they are commonly held in stable contexts, industry logics have relatively little strategic importance since they concern what firms take for granted. If most firms share a common logic, then that logic does not provide a basis for competition advantage among the firms but is more of an implied requirement for reaching consensus performance expectations. Competitive advantage must come on some other dimension. Given the dynamic nature of markets, it is common for some firms not to share the industry logic. Fairly continual changes, even if small, in competitive dynamics, technologies, and regulations can lead to situations in which competitors see alternative logics as plausible. Alternative logics can also stem from the entry of foreign firms into an industry or the experience of an industry incumbent in a foreign market. There may be strategic advantage to be had in such situations, and the innovators and entrepreneurs present in many industries are those that are pursuing alternative logics.

In start-up industries, all of the logics are alternative logics, at least until a dominant logic is established. This was the case with the rise of various Internet-related industries in the late 1990s. Michael Lewis’s account of serial entrepreneur Jim Clark captures this perfectly when he notes that Clark’s strategy was to compete in a new industry aggressively until Microsoft showed up, after which time he would exit the industry, suggesting that Microsoft was going to impose a new dominant logic on the industry that the start-ups would not be able to match.44

At some point, the alternative logics may prove themselves to be successful and may even lead their adherents to aspire to industry dominance. If that shift in logic occurs, then other competitors may view it as necessary to adopt the new logic or risk being left behind. This is akin to the processes by which structural and process innovations diffuse through industries. For example, as M-form structures proved their efficiency for large industrial firms, they diffused throughout affected industries, neutralizing the competitive advantage in adopting the structure but making all firms adopters more efficient.

Changes in industry logics can stem from changes in industry regulations or conditions that force incumbents to dramatically alter their routines and develop new logics. The subprime mortgage lending business, and the related securitization of the resultant mortgages into more complex financial products such as leveraged buyout deals (LBOs) and collateralized debt obligations (CDOs), provides a good example of the rush to adopt new industry logics. When these products were originally introduced into the market, they were seen as a fringe product that respectable institutions would not sell. This attitude changed rapidly as the market for these products developed. Large and well-established institutions, such as Citigroup, came to compete aggressively by initiating these securities to distribute to structured security markets rather than initiating them to hold, as had been traditional industry practice. In November 2007, Citigroup’s CEO Chuck Prince stepped down at a special board meeting in response to Citi’s continuing billion dollar write-downs of assets as a result of losses in the escalating financial crisis that was engulfing the U.S. financial industry. Earlier that year, Prince had given an interview to the Financial Times in which he