Chapter 8

Question 1

The Industry Lifecycle Model

Answer 1

• Introduction
• Growth
• Maturity
• Decline

Question 2

Introduction phase
The introduction phase is characterized by:

Answer 2

-high fragmentation

-entrepreneurial

-high degree of -innovation

-many small –competitors

-lots of R&D

-customers willing to pay a premium

-uncertainty about the market

lack of legitimacy

Question 3

Introduction Phase Examples

Answer 3

Examples:
A new technology - that may change the current industry
A new invention - creates a new industry or changes the old one
A new drug - creates a new industry or changes the old one
A change in a government regulation - that affects a new industry being created

Question 4

Growth phase
The growth phase is characterized by:

Answer 4

a dominant design (i.e. standard)

shakeout (firms exiting)

products appeal to wider market

economies of scale

lower prices

growing sales

new entrants

Question 5

de facto standard (GROWTH)

Answer 5

on the other hand, arises by virtue of common usage and is not officially sanctioned by any authority. It is a standard “in fact” or “in practice,” rather than in law. Microsoft Windows is the de facto standard for personal computer operating systems because over 90% of the market uses Windows.

Question 6

de jure standard (GROWTH)

Answer 6

When a standard is legally mandated and enforced by a government or standards organization

Question 7

shakeout

Answer 7

often occurs as a standard has been achieved. It is a natural process for an industry as it simply purges and weeds out the weaker competitors. The firms remaining after the shakeout emerge as strong competitors able to scale up production and serve the needs of a growing market.

Question 8

Growth Stage Examples

Answer 8

Cannabis Industry in Canada

Cannabis companies race to clinch an edge in pot industry’s next phase of growth: (With the global cannabis business expected to be worth $194 billion in seven years)

Question 9

Maturity phase
The maturity phase is characterized by:

Answer 9

Slow growth

Markets saturated

Competition
intensifies

Profitability

Price-conscious
consumers

Incremental
improvements (“new and improved”)

Lots of advertising

Price wars

Question 10

Mature
Examples:

Answer 10

Furniture
Clothing and shoes
Electronics
Hardware
Groceries
Sports
Burger restaurants
Cell phone

Question 11

how do you enter and compete in a mature industry that is already saturated and succeed?

Answer 11

Offer the customer something truly: different, something unexpected and something to take notice.

Differentiation strategy

Question 12

Decline phase

The decline phase is characterized by:

Answer 12

Declining “industry sales” due to one or more of the following:

Changes in demographics

Shifting consumer tastes

Technological substitution

(Remember: A decline in a “company” sales does not mean the entire industry is declining)

Question 13

Decline phase

Examples:

Answer 13

Tobacco industry

Cola (sugary pop) industry

Retail malls

Question 14

Characteristics of the Industry Life Cycle Model Stages

Question 15

Alternatives to manage the decline phase

Answer 15

Maintain a leadership stance

Pursue a niche strategy

Harvest profits

Exit early

Consolidate

Question 16

leadership strategy

Answer 16

requires a firm to continue investing in marketing, support, and product development, hoping that competitors will eventually exit the market. Despite declining sales and profit margins, there may still be opportunities to generate above-average returns for firms that remain the industry leaders during this phase.

Question 17

niche strategy

Answer 17

is to find a specific segment of the industry that may not decline as rapidly as the rest and where the firm can expect to possess some form of competitive advantage to discourage direct competition in the niche. For example, a tobacco firm facing declining cigarette sales may decide to focus exclusively on the more robust cigar market and defend that niche heavily against competitors by investing in marketing and sales support

Question 18

harvesting profits strategy

Answer 18

strategy requires squeezing as much remaining profit as possible from the industry by drastically reducing costs. The firm must eliminate or severely restrict investments in the industry and take advantage of existing strengths to generate incremental sales. This strategy is ultimately followed by the firm’s exit from the industry.

Question 19

exit early strategy

Answer 19

allows firms to recover some of their prior investments in the industry by exiting the market early in the decline phase, when assets may still be valuable to others and there is greater uncertainty concerning the speed of the decline. Some firms also choose to exit the industry during the mature phase to truly maximize the value from the sale of its assets. Once decline becomes evident, assets are worth much less to potential buyers, who are in a stronger bargaining position.

Question 20

consolidation strategy

Answer 20

involves acquiring at a reasonable price the best of the remaining firms in the industry. This allows the acquirer to enhance its market power and generate economies of scale and synergies to further reduce costs and make up for declining demand.

Question 21

Innovation and Technology: The evolution of technology

Answer 21

Radial innovations

Incremental innovations

Question 22

Radical innovations

Answer 22

are when new technical processes or advancements mark a significant departure from existing practices

they often create a whole new industry (such as automobiles or wireless phones have done).

These innovations are often referred to as discontinuous because they do not continue to build on the previous technological regime, but instead mark a shift to a completely new technology.

An example would be the shift to jet engines in aircrafts, which did not build on the previous propeller-based technology.

Question 23

Incremental innovations

Answer 23

occur when a company makes relatively minor improvements or modifications to an existing product or practice in the hopes of differentiating it from the competition. It is also a way to extend the life cycle.

Question 24

Innovation and Technology: A Cyclical Model of Technological Change

Answer 24

Era of Incremental Change -> Technological Discontinuity -> Era of Ferment -> Dominant Design -> Era of Incremental Change

Question 25

Examples of Old Technology

Answer 25

Typewriter
VHS Tape
Landline Phone
Film
Encyclopedia

Question 26

Examples of New Technology

Answer 26

Computer
DVD/Blueray
Smart Phone
Digital Imaging
Internet

Question 27

Examples of Old Technology

Answer 27

Technology allows us to automate the assembly line, so masses of unskilled labour are much less needed. Large firms are also outsourcing much of their activities. So, given that the conditions under which jobs were created have changed, we are redefining not just organizational structure, but also how work should be performed.