Chapter 8: Technology

Question 1

Define the Industry Life-Cycle model

Answer 1

A theory about how industry grows, develops, declines and (maybe) die
The graph is upside down U-shaped

Question 2

Industry Life-Cycle Model: Descibe the Introduction Phase and give examples of scenarios

Answer 2

• Beginning stages of a product
  ○ High fragmentation
  ○ Entrepreneurial
  ○ High degree of innovation
  ○ Many small competitors
  ○ Lots of R&D (research and development)
  ○ Customers wiling to pay a premium to get the product early
  ○ Uncertainty about the market
  ○ Lack of legitimacy
• 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 3

Introductory Phase: Define Organizational legitimacy, Sociopolitical legitimacy, and Cognitive legitimacy

Answer 3

Organizational legitimacy: a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system or norms, values, beliefs, and definitions

○ Sociopolitical legitimacy: the endorsement of an industry, activity, or organizational form by key stakeholders and intuitions, such as the state and governmental officials, opinion leaser or general public

○ Cognitive legitimacy: the level of public knowledge about a new industry and its conformity to established norms and methods reflected in the extent to which it is taken for granted as a desirbale and appropriate activity

Question 4

Industry Life-Cycle Model: Define the Growth Phase

Answer 4

• Dominant design (i.e. standard)
• Shakeout (firms existing, some firms entering)
• Products appeal to wider market
• Economies of scale
• Lower prices
• Growing sales
• New entrants - rivalry is intense

Question 5

Growth Phase: what is the De Jure standard and the De Facto standard

Answer 5

• De jure standard: When a standard is legally mandated and enforced by a government or standards organization
  ○ Ex. gauge of a railroad track, a light bulb socket, and an electrical outlet
• A de facto standard: 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.

Question 6

Industry Life-Cycle Model: Define the Maturity Phase

Answer 6

• Growth in aggregate demand begins to slow
• Markets start to become saturated
• Competition intensifies more
  ○ Firms spend large amounts of money on advertising and enter into damaging price wars to lure customers from competition
  ○ Patents may have expired
  ○ “New and improved” versions of their products and differentiating their products form their competitors
• Very profitable period
• Consumers are knowledgeable about the market and are price-conscious
• Little entry
• Companies outsourcing to developing countries to benefit from lower labour costs
• Adopt a mechanistic structure

Question 7

Industry Life-Cycle Model: Define the Decline Phase

Answer 7

• As an industry enters the decline stage, sales begin to fall
• Competition is high
• Sales decline because:
  
  1. Change in demographics
  2. Shifting consumer tastes and needs
  3. Technological substitution
• Decline does not equal death of the industry
• Decline of sales over a period of time

Question 8

What are the five strategies to improve the Decline Phase

Answer 8

1. Maintain a leadership stance - a firm continuing to invest in marketing, support, and product development hoping competitors will exit the market
2. Peruse a niche strategy - finding a specific segment of the industry that is not declining rapidly
3. Harvest profits - squeezing as many remaining profits from the industry by drastically reducing costs
4. Exit early - allows firms to recover some of their prior investments in the industry
   
   • Firms may experience high costs due to labour settlements
   • The social costs of closing a plant in a region that is economically dependent on the industry
   • Perceived as a sign of failure, and managers have a strong emotional identification to the industry
5. Consolidate - acquiring at a reasonable price the best of the remaining firms of the industry, to further reduce costs
   Ex. Newspaper industry

Question 9

What are the two types of innovation?

Answer 9

Radical Innovations and Incremental Innovations

Question 10

Define Radical innovations

Answer 10

Radical Innovations
When a technological process or advancement marks a significant departure from existing practices, they often create a whole new industry

Question 11

Define Incremental innovations, Component innovations, Architectural innovations, and Competence-enhancing innovations

Answer 11

Incremental innovations: Making relatively minor improvements or modifications to an existing product or practice in the hopes of differentiating it from competition
○ Extends the life cycle of the product

• Component/modular innovations: innovations that involve changes to the product’s components but leave the overall configuration of the system intact
  ○ Ex. Changes in the materials used in automobile bodies from steel to lighter-weight aluminum
• Architectural innovations: innovation that alters the system’s architecture or how the components interact and are linked with each other
• Competence-enhancing innovations: technological innovations that build on a firm’s existing knowledge and skills in certain areas