Chapter 10 - The industry context Flashcards
what is the industry context about? Elaborate on the issue of industry development
The industry context is about shaping rather than adapting. Set the rules of the industry.
what can we say about the rules of the industry?
Porters five forces are highly relevant.
how can we define industry development?
We define industry development as a change in one or more of the factors that Porter has described as the forces.
elaborate on significant industry developments
1) Convergence - divergence. Are business models becoming more similar? More distignguoshed? The element of competition is important here. Are firms competing at the same areas, or are they more differentiated.
2) concentration - fragmentation. This is about market share and the number of participants. Few participants mean more concentrated.
3) Vertical integration-fragmentation. This is about how participants are either more involved in the entire industry column or not.
elaborate on inhibitors of industry development
It is easy to say that we want to shape an industry rather than follow its rules, but this is not always easily done.
Many industries have underlying conditions that makes it extremely difficult to make changes. For instance, in industries where economies of scale are required, this is difficult. Other underlying factors can be demand type. Certain industries have demand that favor differnetiation, while others are price based.
We can also have industry dependences. In cases where one industry depend on others, it is extremely difficult to make changes to it, as it also require changes to the other industries as well.
Challenging the current rules is risky. Many are risk averse, which lower the wish to try sto make changes.
introduce the paradox
The paradox is about following the rules vs trying to make up new ones.
We know there is a lot of inhibitors. Changing an industry is extremely difficult, yet can have insane rewards.
elaborate on the demand for firm complience
Ignoring the rules is dangerous. We know that the most common cause of corporate death is misalignment between the organization and the environment. The safe road is to follow the rules.
Misalignment can happen quickly, and most firms have enough with following this.
in order to succeed with the adaptation, firms needs to be market oriented, listen to needs, and take a heavy “pull” approach. Do not assume that we know better than the market. Listen to it.
elaborate on the demand for stategic choice
The core idea is that by following the rules, it is very difficult to gain a significant advantage over competitors.
Elaborate on the two perspectibves
1) The industry dynamic perspective.
2) The industry leadership perspective
THE INDUSTRY DYNAMICS PERSPECTIVE
The industry dynamics perspective believe that firms are small pieces in the industry puzzle, and have very little influence. Those who do, do so by luck, like the lottery winners.
Advocators of the industry dynamics perspective argue that the approach suitable for prospering is that of a biological view - We adapt, and if we dont, we are weeded out.
Firms may have some impact, but not enough to shape the rules.
The foundation for the dynamics perpsective is that the industry shape the firms. Not the other way around.
The perpsective is motivated mainly by how the risk of trying ot change the game is insanely large, and not necessary.
This view is also inherently pessimistic. If you are in a poor industry, you are destined to limited profits.
Advocators of this view argue that the way to receive more profits than the average, is by adapting more rapidly or anticipating changes more skillfully.
THE INDUSTRY LEADERSHIP PERSPECTIVE
Advocators of this perspective argue that industries without a clear leader is a result of weakness in the incumbents. No one has had the ability or creativity to take it.
elaborate on paths of industry development
The point is that industry development happen at different levels, usually depending on the industries.
For instance, we can have gradual development, continuous development, discontinuous development and hypercompeittive developåment.
These all refer to how the business model is changed. This is crucial to understand, as it decides the rules of the games which the participants has to follow, to a certain extent.
The gradual development is marked by how the current business model is slowly changed. There is almost no change in business model, but it is rather adjusted slightly if at all.
Understand what this means: A strong player can leverage scales to set the rules.
In the cases where the business model is changed more continuously, there is a greater benefit at being great at adaptation. There is a pressure to follow with the changes, but the changes are rarely extremely large.
then we have the discontinuous development. This refer to major changes in the business model, but not very often. There is a large advantage in having the new model.
Hypercompetitive development has continuous discountinuous development, making it extremely difficult to gain a compeittive advantage.
