Strategies for surviving a shakeout

Shakeouts are a fact of life in almost every industry-witness the shrinking number of players in areas as diverse as banking, software, and hospital supply distribution. The key to survival is sensing your industry's shakeout before the competition does. And the first hurdle for managers to overcome is the belief that it can't happen to them. It can and it probably will. George Day describes two shakeout syndromes that affect different types of industries. A boom-and-bust shakeout afflicts hot emerging markets or highly cyclical businesses. A glut of competitors enter the market during boom times, but many of them fail when growth slows or a dominant design emerges. A seismic-shift shakeout strikes mature industries that have enjoyed years of protected prosperity as a result of, for example, local regulations or import barriers. But deregulation, globalization, or technological change can pull the rug out from under them. Day outlines how companies can detect the early warning signs of a shakeout. He explains how adaptive survivors, such as Dell Computer, successfully adjust their businesses in the midst of a bust, and how aggressive amalgamators, such as Arrow Electronics, cut costs and acquire smaller rivals in order to remain standing after a seismic shift. But the fact remains that most companies will get squeezed out during a consolidation. Although it is enormously difficult for executives to come to terms with the grim news, the sooner they do so, the better. And, as Day points out, all is not necessarily lost: with the right timing, also-rans can make a profitable exit from an industry.