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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.
Industry Sales The Industry Life Cycle Introduction Growth Maturity Time Drivers of industry evolution : • demand growth • creation and diffusion of knowledge Decline
Product and Process Innovation Over Time Rate of innovation Product Innovation Process Innovation Time
Standardization of Product Features in Cars FEATURE INTRODUCTION Speedometer 1901 by Oldsmobile Automatic transmission 1 st installed 1904 GENERAL ADOPTION Circa 1915 Introduced by Packard as an option, 1938. Standard on Cadillacs early 1950 s Electric headlamps GM introduces, 1908 Standard equipment by 1916 All-steel body GM adoptes 1912 Standard by early 1920 s All-steel enclosed body Dodge, 1923 Becomes standard late 1920 s 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 1 st 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
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 B&W Color Portable HDTV ? 1900 ‘ 50 ‘ 60 ‘ 90 MOTORCYCLES 1930 50 60 TV’s 90 • Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, predetermined pattern of industry development.
Evolution of Industry Structure over the Life Cycle INTRODUCTION Affluent buyers GROWTH Increasing penetration TECHNOLOGY Rapid product innovation Product and Incremental process innovation PRODUCTS Wide variety, Standardization rapid design change Commoditization Continued commoditization MANUFACTURING Short-runs, skill intensive Deskilling Overcapacity DEMAND TRADE Capacity shortage, mass-production MATURITY Mass market replacement demand DECLINE Knowledgeable, customers, residual segments Well-diffused technology -----Production shifts from advanced to developing countries----- COMPETITION Technology- Entry & exit KSFs Product innovation Process technology. Design for Shakeout & consolidation Cost efficiency Price wars, exit Overhead reduction, rationalization, low cost sourcing
The Driving Forces of Industry Evolution BASIC CONDITIONS Customers become more knowledgeable & experienced INDUSTRY STRUCTURE Customers become more price conscious Products become more standardized Diffusion of technology COMPETITION Production becomes less R&D & skill-intensive Production shifts to low-wage countries Quest for new sources of differentiation Price competition intensifies Excess capacity increases Demand growth slows as market saturation approaches Distribution channels consolidate Bargaining power of distributors increases
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.
ROI at Different Stages of the Industry Life Cycle
Strategy and Performance at across the Industry Life Cycle Note: The figure shows standardized means for each variable for businesses at each stage of the life cycle.
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
Innovation & Renewal over the Industry Life Cycle: Retailing Mail order, catalogue retailing e. g. Sears Roebuck 1880 s Chain Stores e. g. A&P 1920 s Warehouse Internet Clubs Retailers e. g. Price Club e. g. Amazon; Sam’s Club Expedia Discount “Category Stores Killers” e. g. K-Mart e. g. Toys-R-Us, Wal-Mart Home Depot ? 1960 s 2000
BCG’s Strategic Environments Matrix FRAGMENTED Many SOURCES OF ADVANTAGE Few 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 microprocessors Small Big SIZE OF ADVANTAGE
BCG’s Analysis of the Strategic Characteristics of Specialization Businesses low ABILITY TO SYSTEMATIZE CREATIVE EXPERIMENTAL fashion, toiletries, magazines general publishing food products PERCEPTIVE ANALYTICAL high tech luxury cars, confectionery paper towels high low ENVIRONMENTAL VARIABILITY