Business Life Cycles and Five Elements Theory

This paper proposes a five-stage life cycle model to describe business development from birth to death with the five elements theory. A five-stage model, including birth, survival, success, decline, and renewal, is developed in terms of interactions of business functions, which are classified into the Chinese five elements. Each stage of the business life cycle could be characterized by the different combinations of the Water-Fire, Fire-Metal, and Earth-Water effects. The Water-Fire effect marks the beginning and direction of business development, the Fire-Metal effect indicates a firm’s competitiveness in the industry, and the Earth-Water effect signifies its capabilities of organizational learning and innovation. The business life cycle could be more clearly understood and explained by means of these three effects. At the birth stage, firms create a profitable and sustainable vision (a new Water-Fire effect). As firms move into the survival stage, they seek to grow by developing their learning capacities (the Earth-Water effect) and increasing their competitiveness in cost. The success stage could be illustrated mainly by the strong Fire-Metal effect, which is manifested by the increasing profit and competitiveness. The decline stage is characterized by deteriorating profits and a loss of market share (the weak Fire-Metal effect) and by lack of learning capabilities. The renewing firms have to rebuild their learning and innovative capabilities (the Earth-Water effect) and shape a new profitable direction for business. The contribution of this research lies in the attempt to link interactions of business functions and business life cycles. It provides a tool to diagnose holistically problems of business development in the new economy.