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Industry Evolution. OUTLINE. The industry life cycle Industry structure, competition, and success factors over the life cycle. Anticipating and shaping the future. The Industry Life Cycle. Drivers of industry evolution : demand growth creation and diffusion of knowledge. Industry Sales.

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Industry evolution l.jpg

Industry Evolution

OUTLINE

  • The industry life cycle

  • Industry structure, competition, and success factors over the life cycle.

  • Anticipating and shaping the future.


The industry life cycle l.jpg

The Industry Life Cycle

Drivers of industry evolution :

  • demand growth

  • creation and diffusion of knowledge

Industry Sales

Introduction GrowthMaturityDecline

Time


Product and process innovation over time l.jpg

Product and Process Innovation Over Time

Product Innovation

Process Innovation

Rate of innovation

Time


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Standardization of Product Features in Cars

FEATUREINTRODUCTIONGENERAL ADOPTION

Speedometer1901 by OldsmobileCirca 1915

Automatic transmission1st installed 1904Introduced by Packard as an option, 1938. Standard onCadillacs early 1950

Electric headlampsGM introduces 1908Standard equipment by 1916

All-steel body GM adoptes 1912Standard by early 1920s

All-steel enclosed bodyDodge 1923Becomes standard late 1920s

RadioOptional extra 1923Standard equipment, 1946

Four-wheel driveAppeared 1924Only limited availability by 1994

Hydraulic brakesIntroduced 1924 Became standard 1939

Shatterproof glass1st used 1927Standard features in Fords 1938

Power steeringIntroduced 1952Standard equipment by1969

Antilock brakesIntroduced 1972Standard on GM cars in 1991

Air bagsGM introduces 1974By 1994 most new cars equippedwith air bags


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How Typical is the Life Cycle Pattern?

  • Technology-intensive industries (e.g. pharmaceuticals, semiconductors, computers) may retain features of emerging industries.

  • Other industries (especially those providing basic necessities, e.g. food processing, construction, apparel) reach maturity, but not decline.

  • Industries may experience life cycle regeneration.

    Sales Sales

    1900 50 90 07 1930 50 70 90 07

    MOTORCYCLES TV’s

  • Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre-determined pattern of industry development

Color

Portable

B&W

HDTV ?


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Evolution of Industry Structure over the Life Cycle

INTRODUCTION GROWTH MATURITY DECLINE

DEMANDAffluent buyersIncreasingMass market Knowledgeable,

penetrationreplacement customers, resi-

demand dual segments

TECHNOLOGYRapid productProduct and Incremental Well-diffused

innovation process innovation innovation technology

PRODUCTS Wide variety, Standardization Commoditiz- Continued rapid design changeation commoditization

MANUFACT-Short-runs, skill Capacity shortage, Deskilling Overcapacity

URING intensive mass-production

TRADE -----Production shifts from advanced to developing countries-----

COMPETITION Technology-Entry & exit Shakeout & Price wars,

consolidation exit

KSFs Product innovation Process techno- Cost efficiency Overhead red- logy. Design for uction, ration- alization, low

cost sourcing


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The Driving Forces of Industry Evolution

BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION

Customers become

more knowledgeable

& experienced

Customers become

more price conscious

Quest for new

sources of

differentiation

Products become

more standardized

Diffusion of

technology

Price competition

intensifies

Production

becomes less R&D

& skill-intensive

Production shifts

to low-wage

countries

Excess capacity

increases

Bargaining power

of distributors

increases

Demand growth

slows as market

saturation approaches

Distribution channels

consolidate


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Changes in the Population of Firms over the

Industry Life Cycle: US Auto Industry 1885-1961

Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.


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The World’s Biggest Companies, 1912 and 2006

(by market capitalization)


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ROI at Different Stages of the Industry Life Cycle


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Strategy and Performance across the Industry Life Cycle

Note: The figure shows

standardized means for each variable for businesses at each stage of the life cycle.


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Preparing for the Future : The Role of Scenario Analysis in Adapting to Industry Change

Stages in undertaking multiple Scenario Analysis:

  • Identify major forces driving industry change

  • Predict possible impacts of each force on the industry environment

  • Identify interactions between different external forces

  • Among range of outcomes, identify 2-4 most likely/ most interesting scenarios: configurations of changes and outcomes

  • Consider implications of each scenario for the company

  • Identify key signposts pointing toward the emergence of each scenario

  • Prepare contingency plan


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Innovation & Renewal over the

Industry Life Cycle: Retailing

Warehouse

Clubs

e.g. Price Club

Sam’s Club

Internet

Retailers

e.g. Amazon;

Expedia

Discount

Stores

e.g. K-Mart

Wal-Mart

“Category

Killers”

e.g. Toys-R-Us,

Home Depot

Mail order,

catalogue

retailing

e.g. Sears

Roebuck

?

Chain

Stores

e.g. A&P

1880s1920s1960s 2000


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OLD BRICK

NEW BRICK

Top management is responsible

for setting strategy

Everyone is responsible

for setting strategy

Gary Hamel: Shaking the Foundations

Getting better, getting faster

is the way to win

Rule-busting innovation

is the way to win

Unconventional business concepts

create competitive advantage

IT creates competitive advantage

Being revolutionary is high risk

More of the same is high risk

We can merge our way to

competitiveness

There’s no correlation between

size and competitiveness

Innovation equals new products

and new technology

Innovation equals entirely new

business concepts

Strategy is the easy only if you’re

content to be an imitator

Strategy is the easy part,

Implementation the hard part

Change starts with activists

Change starts at the top

Our real problem is execution

Our real problem is execution

Big companies can become gray-haired

revolutionaries

Big companies can’t innovate


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BCG’s Strategic Environments Matrix

FRAGMENTED SPECIALIZATION

apparel, housebuildingpharmaceuticals, luxury cars

jewelry retailing, sawmillschocolate confectionery

STALEMATEVOLUME

basic chemicals, volumejet engines, food supermarkets

grade paper, ship owningmotorcycles, standard

(VLCCs), wholesale bankingmicroprocessors

Many

SOURCES

OF

ADVANTAGE

Few

Big

Small

SIZE OF ADVANTAGE


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BCG’s Analysis of the Strategic Characteristics of Specialization Businesses

CREATIVE EXPERIMENTAL

fashion, toiletries, magazines

general publishing food products

PERCEPTIVE ANALYTICAL

high tech luxury cars, confectionery

paper towels

low

ABILITY TO

SYSTEMATIZE

high

high low

ENVIRONMENTAL VARIABILITY


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