Industry Evolution

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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.

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The Industry Life Cycle
Industry Sales
Introduction Growth
Maturity Decline
Time

• Drivers of industry evolution
• demand growth
• creation and diffusion of knowledge

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Product and Process Innovation Over Time
Product Innovation
Process Innovation
Rate of innovation
Time
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Standardization of Product Features in Cars
FEATURE INTRODUCTION GENERAL
ADOPTION Speedometer 1901 by
Oldsmobile Circa 1915 Automatic transmission
1st installed 1904 Introduced by Packard as an
option, 1938. Standard on
Cadillacs early 1950 Electric headlamps
GM introduces 1908 Standard equipment by
1916 All-steel body GM adoptes 1912 Standard
by early 1920s All-steel enclosed body Dodge
1923 Becomes standard late 1920s Radio
Optional extra 1923 Standard equipment,
1946 Four-wheel drive Appeared 1924 Only
limited availability by 1994 Hydraulic brakes
Introduced 1924 Became standard
1939 Shatterproof glass 1st used
1927 Standard features in Fords 1938 Power
steering Introduced 1952 Standard equipment
by 1969 Antilock brakes Introduced
1972 Standard on GM cars in 1991 Air bags GM
introduces 1974 By 1994 most new cars
equipped with 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
  TVs
• Life cycle model can help us to anticipate
  industry evolutionbut dangerous to assume any
  common, pre-determined pattern of industry
  development

Color
Portable
BW
HDTV ?
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Evolution of Industry Structure over the Life
Cycle

• INTRODUCTION GROWTH
  MATURITY DECLINE
• DEMAND Affluent buyers Increasing Mass market
  Knowledgeable,
• penetration replacement customers,
  resi-
• demand dual segments
• TECHNOLOGY Rapid product Product and
  Incremental Well-diffused
• innovation process innovation innovation
  technology
• PRODUCTS Wide variety,
  Standardization Commoditiz-
  Continued rapid design change ation
  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

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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 shifts to low-wage countries
Production becomes less RD skill-intensive
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 Worlds 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 Sams 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. AP
1880s 1920s 1960s 2000
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Gary Hamel Shaking the Foundations
OLD BRICK
NEW BRICK
Top management is responsible for setting
strategy
Everyone is responsible for setting strategy
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
Theres 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 youre 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 revolutionari
es
Big companies cant innovate
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BCGs Strategic Environments Matrix
FRAGMENTED SPECIALIZATION apparel,
housebuilding pharmaceuticals, luxury
cars jewelry retailing, sawmills chocolate
confectionery STALEMATE VOLUME basic
chemicals, volume jet engines, food
supermarkets grade paper, ship owning motorcycles,
standard (VLCCs), wholesale banking microprocess
ors
Many
SOURCES OF ADVANTAGE
Few
Big
Small
SIZE OF ADVANTAGE
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BCGs 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