Five Characteristics of Dynamic Industry Environment

Harvard Business Review on Managing Uncertainty (Harvard Business Review Paperback Series)Embryonic and Spin-off Firms: Dynamic environment has a greater proportion of newly formed companies compared to more stable industry environment. Related to the presence of these companies is that of many spin-off firms or firms created by personnel leaving firms in the industry to create their own firms.

Technological and Strategic Uncertainty
Usually there is s great deal of technological uncertainty in a dynamic industry environment. Alternate production technologies may be at R&D stage or experimental stage, all of which not be tried on a large scale. Related to the technological uncertainty, but on a broader scale, are a wide variety of strategic approaches often tried by the industries in dynamic environment. There is great deal of uncertainty about the strategies of the competitors with different firms following different approaches to product/market positioning, marketing, etc.

Scenario-Driven Planning: Learning to Manage Strategic UncertaintyHigh initial costs coupled with steep cost reduction
Small production volumes coupled with newness of technological/production process produce high costs in a dynamic environment relative to a more stable environment. But the steep learning curve is followed rapidly by a succession of ideas related to improved production procedures, plant layout, and employee productivity and so on. Additionally, increasing sales make major additions to the scale and accumulated volume of output produced by firms. If the gains due to learning are combined with increasing market opportunities, the initial high costs are eclipsed by the rapid decline in costs.
First-Time Buyers
Most of the buyers of the new product/services produced by embryonic industries in a dynamic market are first-time buyers. The task of a firm in a dynamic environment is thus of convincing the buyers and persuading them to try the new products or services instead of the existing ones.
Profiting from Uncertainty: Strategies for Succeeding No Matter What the Future BringsShort-Time Horizons
The pressure to develop customers or produce products to meet the demand is so great that problems are dealt expeditiously rather than relying on comprehensive analysis of future conditions.
The other features of a dynamic industry environment include inability of firms to obtain raw material and components, absence of required infrastructure, absence of product or technological standardization, erratic product quality, customers’ confusion, etc. In an environment described above, firms will have to craft a strategy to survive and thrive which radically differs from strategies adopted by firms in more stable conditions. The following are some of the generic strategic alternatives available to a firm.