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What is an Attractive Industry?

Author

Listed:
  • Birger Wernerfelt

    (J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60201)

  • Cynthia A. Montgomery

    (J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60201)

Abstract

Business Portfolio Planning techniques often suggest that firms should invest in industries with high profitability, high growth, or other attractive characteristics. Critiquing this view, we suggest that the same factors which lead to high profitability in an industry may cause its inefficient participants to earn lower profits. Higher growth, on the other hand, may benefit inefficient firms while reducing the gains of efficient competitors. The paper offers theory and evidence to support this view of performance dependencies for the special case of diversified firms.

Suggested Citation

  • Birger Wernerfelt & Cynthia A. Montgomery, 1986. "What is an Attractive Industry?," Management Science, INFORMS, vol. 32(10), pages 1223-1230, October.
  • Handle: RePEc:inm:ormnsc:v:32:y:1986:i:10:p:1223-1230
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    File URL: http://dx.doi.org/10.1287/mnsc.32.10.1223
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    Citations

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    Cited by:

    1. Giovanni. Gavetti & Daniel A. Levinthal, 2004. "50th Anniversay Article: The Strategy Field from the Perspective of Management Science: Divergent Strands and Possible Integration," Management Science, INFORMS, vol. 50(10), pages 1309-1318, October.
    2. Park, Namgyoo K. & Cho, Dong-Sung, 1997. "The effect of strategic alliance on performance," Journal of Air Transport Management, Elsevier, vol. 3(3), pages 155-164.
    3. López Iturriaga, Félix & Marti­n Cruz, Natalia, 2008. "Antecedents of corporate spin-offs in Spain: A resource-based approach," Research Policy, Elsevier, vol. 37(6-7), pages 1047-1056, July.
    4. Cunha, Rita Campos e & Cunha, Miguel Pina e & Morgado, Antonio & Brewster, Chris, 2002. "Market forces, strategic management, HRM practices and organizational performance, a model based in european sample," FEUNL Working Paper Series wp415, Universidade Nova de Lisboa, Faculdade de Economia.
    5. Timsit, Jean-Philippe & Castiaux, Annick & Truong, Yann & Athaide, Gerard A. & Klink, Richard R., 2015. "The effect of market-pull vs. resource-push orientation on performance when entering new markets," Journal of Business Research, Elsevier, vol. 68(9), pages 2005-2014.
    6. J. Kapler, 2000. "Measuring the Economic Rate of Return on Assets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(4), pages 457-463, December.
    7. Choi, Young Rok & Zahra, Shaker A. & Yoshikawa, Toru & Han, Bong H., 2015. "Family ownership and R&D investment: The role of growth opportunities and business group membership," Journal of Business Research, Elsevier, vol. 68(5), pages 1053-1061.
    8. Duysters, Geert & Hagedoorn, John, 1996. "The effect of core competence building on companies performance," Research Memorandum 010, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    9. Peneder, Michael, 2010. "Technological regimes and the variety of innovation behaviour: Creating integrated taxonomies of firms and sectors," Research Policy, Elsevier, vol. 39(3), pages 323-334, April.
    10. Cannon, Alan R., 2008. "Inventory improvement and financial performance," International Journal of Production Economics, Elsevier, vol. 115(2), pages 581-593, October.
    11. Holm, Ulf & Sharma, D. Deo, 2006. "Subsidiary marketing knowledge and strategic development of the multinational corporation," Journal of International Management, Elsevier, vol. 12(1), pages 47-66, March.
    12. Matthias Fink & Rainer Harms & Isabella Hatak, 2012. "Nanotechnology and Ethics: The Role of Regulation Versus Self-Commitment in Shaping Researchers’ Behavior," Journal of Business Ethics, Springer, vol. 109(4), pages 569-581, September.

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