The relationship between market share and return on investment has long been established, leading to recognition of the former as one of the key determinants of profitability. Any factors contributing to profitability from market share including market power, economies of scale, and quality of organizational management, are of critical importance to any CEO or practitioner (Buzzell, Gale, & Sultan, 1975). Technology, which may incorporate all of the above factors, can have a direct or indirect impact on the market share of the firm internally or externally. The importance of technology was noted in Tassey (1997) where it was established that in research and development industries and other parts of the economy, technology accounted for between one-third and over a half of the US GDP growth and over two-thirds of productivity growth. Growth in productivity is directly related to growth in market share, but the realization of the benefits depends on whether the firm in question adopts institute's organizational structure and culture that allow a progressive change in this era of technology. This paper examines the inevitability of falls in market share of even the most risk-averse companies due to technology by linking organizational competitive environment to its culture and technology driven change.
The Role of Competitive Environment, Organizational Culture, and Technology
The fall in market share can obviously a negative impact of technology, but it is crucial to understand the concepts leading to such developments before drawing conclusions. According to Bloom, Schankerman, and Van Reenen (2013), the last three decades have seen focus centralized on spillovers from R&D aiding growth. However, the dominant area of emphasis relates to the two countervailing spillovers that affect firms’ performance: “a positive effect on technology (knowledge) spillovers and a negative business stealing effects from product market rivals” (Bloom, Schankerman, & Van Reenen, 2013). Understanding the influence of these spillovers requires knowledge of the firm’s position in technology space and product market space respectively. Such positions are determined by the competitive environment and organizational culture, which have an immense influence on the firm’s perception of the role of technology in its performance.
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New technologies and innovations are the onus for competitiveness and growth for managers and policy makers, even though it may not directly reflect the success envisioned. In a study by Koellinger (2008) examining the relationship between technology innovation and performance of the firm, it was established that all technologies and innovations, whether internet-based or not, have a positive effect on turnover and growth. However, worth noting are the findings that technology is not necessarily associated with profitability, contradicting an earlier the argument in Tassey (1997) that the two are always positively associated. The contradiction can be explained by revisiting Bloom, Schankerman, and Van Reenen (2013) spillover concept, specifically in reference to the negative effects from rivals stealing from the business.
It is paramount for firms to acknowledge that their competitive environment is highly sophisticated, and technologies central to organizational processes are vulnerable to theft from rivals. For instance, a competitor may decide to adopt and perfect a technology used by the firm in question, such as new software for processing incoming orders that can revolutionize product and service delivery to customers. Under the circumstances, the firm that innovated the technology may lose its advantage to the competitor, and subsequently, its market share as the competitor is able to provide better and efficient product and service delivery. According to Buzzell, Gale, and Sultan (1975), market leaders innovate unique competitive strategies that allow them to be cost leaders as customers are willing to pay extra for their higher-quality products and services, unlike small market share businesses. The observation points to the fact that regardless of whether the firm invests in R&D and innovations, it is of no use if it cannot employ the resultant technologies to achieve a competitive advantage. The conclusion one can draw from such practice is that organizational culture in relation to adoption and implementation of technology plays a crucial role in the growth of market share and subsequent profitability, which can prove elusive even for the most cautious companies.
Organizational culture has been linked to firm’s competitiveness through the study of successful companies in the global market such as Born Global Firms, which has realized success through an organizational culture that capacitates information technology and performance (Zhang, M, & Tansuhaj, 2007). Despite organizational cultures being crucial in supporting organizational innovative orientation, Naranjo-Valencia, Jiménez-Jiménez, and Sanz-Valle (2011) observed that they can foster or inhibit organizational use of technology by limiting innovation and imitation. Therefore, it is important to understand that a firm may be competitively placed in relation to all other factors, but if its organizational culture is not geared towards the same goal, it faces an inevitable fall in market share.
The Need for Technological Change
The number of company that have experienced falls in market share due to technology despite every effort to stay abreast of the competition and enabling organizational cultures is uncountable. Recent reports indicated some of the most notable technological giants have lost their market share. For instance, in 2016, Apple’s Chinese market share fell for the first time, Sony also lost its market dominance, Samsung is facing a similar predicament due to its malfunctioning smartphone, and a number of private firms have been reported to go down the same route. All the above developments are directly related to technology. In the case of Apple, the drop in market share is attributed to the emergence of competitors who have taken a large market share, not just of its smartphones, but also of its MacBooks (Graham, 2017). In the case of Sony, the fall in market share was attributed to failure to recognize the need for change from cathode ray technology to LED one (Harrison, 2017), which also points to organizational cultures bent towards stability rather than growth. Many other notable companies have faced a similar predicament, all due to technology and organizational cultures that act as resistance to change (Jones, 2010).
The highlighted case studies reflect how failure to recognize the need for change can be detrimental to a firm. According to Jones (2010), change is an inevitable phenomenon in all organizations, implying that even the most stable or successful firms must implement change in one way or another, or risk suffering. The current competitive market is defined by technology, and change processes in most firms revolve around it. Abazi-Alili (2014) established that organizational change in relation to technology was incentivized by the size of the firm, the existence of foreign ownership, R&D intensity, skilled workforce, competition, and export activity. One can argue that firms operating in environments with cut-throat competition are more likely to invest on these incentives to avoid the curse of technology. In explaining organizational technological mediated change, Allen, Brown, Karanasios et al. (2013) posit that it is crucial to use an activity theory, such as the implementation of a highly disruptive technology, for example, LED technology in the case of Sony, to illustrate its contribution to critical realism. This is the only way a firm can ensure it is not caught up in its own comfort zone as the competition for market share intensifies.
References
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Bloom, N., Schankerman, M., & Van Reenen, J. (2013). Identifying technology spillovers and product market rivalry. Econometrica , 81 (4), 1347-1393.
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Graham, L. (2017, February). Apple’s market share in China falls for first time. Retrieved 17/02/2017 from: http://www.cnbc.com/2017/02/06/apples-market-share-in-china-falls-for-first-time.html.
Harrison, D. (2017). Lessons learned: Sony falls from market dominance. Retrieved 17/02/2017 from: http://www.cssp.com/CD0613a/SonyFallsFromMarketDominanace/.
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Tassey, G. (1997). The economics of R&D policy . Connecticut: Greenwood Publishing Group.
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