To accompany contemprory strategy analysis concepts techiniques application chapter10slides

Industry
Industry Evolution
Evolution
OUTLIN
E
• The industry life cycle
• Industry structure, competition, and
success factors over the life cycle.
• Anticipating and shaping the future.


Industry Sales

The
The Industry
Industry Life
Life Cycle
Cycle

Introduction

Growth

Maturity

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

Decline

Product
Product and
and Process
Process Innovation
Innovation Over
Over Time
Time

Rate of innovation

Product Innovation

Process Innovation

Time


Standardization
Standardizationof
ofProduct
ProductFeatures
Featuresin
inCars
Cars

FEATURE
INTRODUCTION
Speedometer

1901 by Oldsmobile
Automatic transmission 1st installed 1904

GENERAL ADOPTION
Circa 1915
Introduced by Packard as an
option, 1938. Standard on
Cadillacs early 1950s
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


How
How Typical
Typical is
is the
the Life
Life Cycle
Cycle Pattern?
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 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
Evolutionof
of Industry
Industry Structure
Structureover
overthe
theLife
Life Cycle
Cycle
INTRODUCTION
Affluent buyers

GROWTH
Increasing
penetration

TECHNOLOGY

Rapid product
innovation

Product and
Incremental
process innovation innovation

PRODUCTS

Wide variety,
Standardization
rapid design change

MANUFACTURING

Short-runs, skill
Capacity shortage, Deskilling
intensive
mass-production

DEMAND

TRADE

MATURITY
Mass market
replacement
demand

Commoditization

DECLINE
Knowledgeable,
customers, residual segments
Well-diffused
technology
Continued
commoditization
Overcapacity

-----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
The Driving
Driving Forces
Forces of
of Industry
Industry Evolution
Evolution
BASIC CONDITIONS
Customers become
more knowledgeable
& experienced

INDUSTRY STRUCTURE

Customers become
more price conscious

Products become
more standardized
Diffusion of
technology

Production
becomes less
R&D

& skill-intensive

Production shifts
to low-wage
countries

Excess capacity
increases
Demand growth
slows as market
saturation approaches

COMPETITION

Distribution channels
consolidate

Quest for new
sources of
differentiation

Price competition
intensifies

Bargaining power
of distributors
increases


Changes

Changesin
inthe
thePopulation
Populationof
ofFirms
Firmsover
overthe
the
Industry
IndustryLife
LifeCycle:
Cycle:US
USAuto
Auto Industry
Industry1885-1961
1885-1961
250
200
150
No. of firms

100
50
0

1895 1905 1915 1925 1935 1945 1955

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

ROI
ROIat
atDifferent
DifferentStages
Stagesof
of the
the Industry
IndustryLife
LifeCycle
Cycle
25
20
ROI (%)

15

Real annual
growth rate <3%

10

Real annual
growth rate 3-6%
Real annual
growth rate >6%

5
0

Growth Maturity Decline

Strategy
Strategyand
andPerformance
Performanceat
atacross
acrossthe
theIndustry
IndustryLife
LifeCycle
Cycle

12
Growth
Maturity
Decline

10
8
6
4

Advertising/Sales

Investment/Sales

Age of Plant &
Equip.

Product
R&D/Sales

% Sales from
New Products

New Products

Technical
Change

Value
Added/Revenue

0

ROI

2
Note: The figure
shows
standardized means
for each variable for
businesses at each
stage of the life cycle.


Preparing
Preparing for
for the

the Future
Future :: The
The Role
Role of
of Scenario
Scenario
Analysis
Analysis in
in Adapting
Adapting to
to Industry
Industry Change
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
Innovation && Renewal
Renewal over

overthe
the
Industry
Industry Life
Life Cycle:
Cycle:Retailing
Retailing

Mail order,
catalogue
retailing
e.g. Sears
Roebuck

1880s

Chain
Stores
e.g. A&P

1920s

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

?

1960s

2000


BCG’s
BCG’s Strategic
Strategic Environments
Environments Matrix
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
Small

microprocessors
Big
SIZE OF ADVANTAGE

BCG’s
BCG’sAnalysis
Analysis of
of the
the
Strategic
Strategic Characteristics
Characteristics of
of
Specialization
Specialization Businesses
Businesses

low
ABILITY TO
SYSTEMATIZE

CREATIVE

EXPERIMENTAL

fashion,

toiletries, magazines

general publishing

food products

PERCEPTIVE

ANALYTICAL

high tech

luxury cars, confectionery

high

paper towels

high

low

ENVIRONMENTAL VARIABILITY