DOMINANT DESIGNS AND THE SURVIVAL OF FIRMS

FERNANDO F. SUREZ, JAMES M. UTTERBACK

The economic, population ecology and strategic perspectives on firm survival are here
complemented by viewing the same phenomenon from the viewpoint of technology evolution as
well. The hypothesis tested is that the competitive environment of an industry, and therefore the
survival of firms in it, is substantially affected by the evolution of the technology on which it is
based. Survival analysis is applied to data from six industries. The results show that by explicitly
including technology as a dynamic and strategic variable our understanding of firms survival
potential and success can be enhanced.
INTRODUCTION
The question of why some firms die while others survive is one of the basic concerns of business
scholars. Survival or long-term viability has long been recognized as a basic goal for a business
organization (Barnard, 1938; Dertouzos, Lester, and Solow, 1989). Survival is, at least in the long
term, a prerequisite for success in other terms, such as market share and profitability.
The survival of firms has traditionally been studied indirectly through economics research on
industry business cycles and analysis of declining industries (see, for instance, Lieberman, 1990;
and Dunne, Roberts, and Samuelson, 1989). Firm survival has recently been studied more
systematically by researchers in strategy and population ecology. Advocates of population ecology
have argued that life chances of organizations are affected by the population density at time of
founding and throughout the life period of an organization. According to this argument,
organizations founded during periods of high density have persistently higher age-specific rates of
mortality than those founded during periods of low population density (Carroll and Hannan, 1989;
Hannan and Freeman, 1988). In other words, a firm entering a crowded field has a lower chance of
survival than one entering a less competitive field. Population ecologists have not only studied the
effect of density on the risk profile of an organization, but also on the founding rate of new
organizations. Currently, this research argues that the effect of density over birth and death of
organizations varies over time (Carroll and Swaminathan, 1992). In a related stream of literature,
researchers in strategy have proposed that a firm's survival is linked to factors such as entry timing
(Mitchell, 1991) and financial strength (Willard and Cooper, 1985).
We argue that the economic, population ecology and strategy perspectives on firm survival must
be complemented by a body of literature that has studied similar phenomena from the point of
view of technology evolution and cycles (Utterback and Abernathy, 1975; Abernathy and
Utterback, 1978; Utterback and Surez, 1993). The hypothesis we intend to test is that the
competitive environment of an industry, and therefore the survival of its firms, is substantially
affected by the evolution of the technology on which an industry is based, and particularly by the
emergence of what Utterback and Abernathy (1975) termed a 'dominant design'. An implication of
this idea is that population density could be thought of as being a reflection of underlying
technological changes that shape the form and level of competition, the attractiveness of entry,
and ultimately the structure of an industry. As we will see below, the number of firms in an
industrythe industry's densitywill be directly affected by the emergence of a dominant design

in a pattern that is common to all the industries we studied. Thus, population density seems to be
directly associated with the industry's technological evolution.
In this paper we explore the feasibility of our claims by applying survival analysis to data from six
industries, concentrating on one specific hypothesis derived from the model of technological
evolution advocated here. The results suggest that the emergence of a dominant design in an
industry has a strong and significant effect on firms' survival. The results also lend additional
support to some of the above-mentioned hypotheses of economists, strategists, and population
ecologists regarding firms survival.
WHAT IS A DOMINANT DESIGN?
The point of departure for our work is the idea that dominant designs occur which shift the terms
of competition in an industry. A dominant design is a specific path, along an industry's design
hierarchy, which establishes dominance among competing design paths (Utterback and Surez,
1993. See Figure 1 for an illustration of a design hierarchy). Recall from Clark (1985) that design
trajectories and paths are influenced by both technical and market factors. For the purposes of
this paper we define the occurrence of a dominant design in a given industry based on the
knowledge of industry experts. For each industry, an industry expert was given a rough idea of the
general model proposed here and without seeing our datahe or she identified that design
which could be considered the dominant one in the industry. Industry experts were also asked
about the date on which that design was introduced in the market; we further checked this date
with published sources. The results of this exercise are displayed in Table 1.
The importance of dominant designs for the strategy and survival of firms will become clear later
in the paper. For now, consider that one of our hypotheses is that the peak of the total population
curve for any industry manufacturing assembled produces in the U.S.A. will occur around the year
in which a dominant design emerges in that industry. A dominant design has the effect of
enforcing standardization so that production economies can be sought. Effective competition can
then take place on the basis of cost as well as product performance (Utterback and Abernathy,
1975). A dominant design will embody the requirements of many classes of users of a particular
product, even though it may not meet the needs of a particular class to quite the same extent as
would a customized design. Nor is a dominant design necessarily the one which embodies the
most extreme technical performance. A dominant design will, however, represent a milestone or
transition point in the life of an industry. Table 1 pro vides the sources from which we have
identified and surmised dates of the dominant designs for each industry considered in this paper.
We think that the emergence of a dominant design is the result of a fortunate combination of
technological, economic, and organizational factors. A dominant design is not always that design
which has greatest 'technological sweetness'. The notion of dominant design is related to the
notion of a 'standard' which has received a great deal of attention in the literature lately.
However, a standard is seen largely as the result of a battle among different technical alternatives
(such as different computer architectures), as opposed to the broader notion we have in mind
with the dominant design concept. When standards are defined broadly, such as 'that which is
accepted for current use through authority, custom or general consent' (Hemenway, 1975), the
two concepts come closer together. In such cases, and by implication, a dominant design becomes

the industry standard or, for complex assembled products with many parts, embodies a collection
of related standards. The notion of dominant design as industry standard opens the door for
factors other than technology to influence the adoption of a given design as dominant, in
particular:
1. possession of collateral assets;
2. industry regulation and government intervention;
3. strategic maneuvering at the firm level;
4. Existence of bandwagon effects or network externalities in the industry.
The evolution of technology seems related to each of the above factors in important ways.
Collateral or co-specialized assets (Teece, 1986) seem to have a two-way relationship with the
emergence of a dominant design. On the one hand, a firm in possession of collateral assets such as
market channels, brand image, and customer switching costs will have some advantage vis--vis its
competitors in terms of enforcing its product as the dominant design. The experience of IBM in
the personal computer industry is a case in point. On the other hand, the value of collateral assets
to a firm will be greater after a dominant design is in place. That is, there are more incentives for a
firm to acquire collateral assets after it knows its design has become dominant. Thus, the opposite
relationship may also hold: a dominant design will tend to stimulate the creation or acquisition of
collateral assets, which in turn will strengthen its dominance.
Industry regulation often has the power to enforce a standard, and thus define a dominant design.
For instance, the FCC's approval of the RCA television broadcast standard worked to the advantage
of RCA by establishing its design as dominant for the television industry. The role of the
government in the emergence of a dominant design need not be restricted to regulation.
Government purchases of a product in the early stages of an industry, for instance, may tilt the
balance in favor of the firm or firms producing it, and make this product more likely to become the
dominant design of the industry. Given the importance of industry standards to the fate and
prosperity of firms in an industry, government decisions that favor a given design often tend to be
accompanied by a political battle among the firms involved.
At the firm level, and apart from technology itself, there are also factors that can affect the
emergence of a dominant design. The type of strategy followed by a firm with respect to its
product vis--vis that of competitors may determine which firm's product becomes dominant. This
is what Cusumano, Mylonadis, and Rosenbloom (1992) have called strategic maneuvering'.
Indeed, VCRs are a crisp example of the importance of strategy. One of the reasons why the VHS
system backed by NC swept the VCR industry instead of Sony's Betamax is the different strategies
followed by these two firms. While NC followed a humble strategy establishing alliances first in
Japan and then in Europe and the U.S.A., Sony stressed reputation and deliberately avoided
alliances or contracts to be an OEM supplier. According to Cusumano, Mylonadis, and
Rosenbloom, it was primarily JVC's strategy, and not technological advantages, initial collateral
assets, or government regulation that finally made VHS the dominant design in the industry. In
fact JVC was a late comer, and until the mid-1970s it lagged technologically.
Prior to the appearance of a dominant design economies of scale will have little effect, because a
large number of variants of a product will be produced by the many competing entrants in an

industry, with each producing at a relatively small scale. Once a dominant design is created,
economies of scale can come into play with powerful effect, leading to rapid growth of those firms
which most competently master the development of products based on the dominant design, to
the detriment of those firms which are slower to adapt. In general, we think that economies of
scale are of primary importance after a dominant design is in place. In other words, traditional
microeconomic arguments hold more weight following the date of a dominant design. Our view is
that traditional economic assumptions about economies of scale are much more appropriate to
the period following a dominant design than to the period of experimentation and creative
turbulence which precedes it.
A notable exception to the previous statement is provided by cases in which significant
bandwagon effects or network externalities exist in the industry. Positive network externalities
arise when a good is more valuable to a user the more users adopt the same good or compatible
ones (Katz and Shapiro, 1985; Tirle, 1988). Thus, in the presence of bandwagon effects, volume
sales and economies of scale will indeed play a major role in the determination of a dominant
design. Firms which are able to achieve larger scale more quickly than their competitors may have
a better chance of winning the race to settle the standard. Moreover, the impact of strategic
maneuvering at the firm level on the determination of the industrys dominant design is greatly
enhanced by the existence of bandwagon effects in the industry. In the presence of bandwagon
effects, strategic maneuvering is a powerful force driving the emergence of a dominant design, as
the case of VCRs described above illustrates.