Industry Evolution Flashcards
Why do Industries evolve?
Because various forces, competitive and otherwise, create pressures that drive change.
Porter, Competitive Strategy — P. 209.
When is Environmental Change Strategically Significance?
When it is likely to affect any of the Five Forces; otherwise, it is only tactically significant.
Porter, Competitive Strategy — P. 204.
Why is the Product Life Cycle a poor model for Industry Evolution?
It fails to consistently predict the growth patterns of Industries, namely because it does not incorporate structural elements in its analysis.
[We cannot]… predict when it will hold and when it will not.
Porter, Competitive Strategy — P. 205.
Essentially, its problem is that it tries to describe an invariable evolutionary pattern for all Industries without providing an underlying rationale for why associated competitive changes will occur.
Which Processes drive Industry Evolution?
These are dubbed ‘Evolutionary Processes’.
- Buyer learning.
- Entries and exits.
- Greater certainty.
- Process innovation.
- Product innovation.
- Marketing innovation.
- Experience accumulation.
- Evolution in Adjacent Industries.
- Diffusion of proprietary knowledge.
- Trends in Industry scale.
- Trends in government policy.
- Trends in Buyer Groups served.
- Trends in input and currency costs.
- Trends in long-run Industry growth.
These Processes are interrelated and must be analysed holistically.
Porter, Competitive Strategy — P. 211.
An Adjacent Industry is any Industry from which the Firm buys or to which it sells.
How does Long-Run Industry Growth affect Industry Evolution?
- It determines rivalrousness by setting the pace of expansion required to maintain market share;
- Thereby influencing the demand-supply balance and attractiveness of entry.
Porter, Competitive Strategy — P. 211.
This is far and away the most important Evoluationary Process.
What determines Long-Run Industry Growth?
All other Evolutionary Processes combined.
Porter, Competitive Strategy — P. 215.
How do Trends in Buyer Groups Served affect Industry Evolution?
Because Buyers Groups are heterogenous, which ones become prominent affects the potential profitability of any given strategy.
Porter, Competitive Strategy — P. 217.
How does Buyer Learning affect Industry Evolution?
It increases Buyer bargaining power by:
- Blunting Differentiation;
- Raising price consciousness, and
- Raising demand for non-price attributes.
Porter, Competitive Strategy — P. 217-218.
Changing the product and the way it is sold or used are helpful mitigants.
How does Greater Certainty affect Industry Evolution?
It increases rivalrousness by:
- Reducing information opacity and asymmetry; and
- Validating the strength of certain strategies; which
- Promotes imitation and attracts new Entrants.
Porter, Competitive Strategy — P. 217-218.
How does Diffusion of Proprietary Knowledge affect Industry Evolution?
It erodes Mobility Barriers built thereon by making imitation easier, which decreases Differentiation and increases rivalrousness.
Porter, Competitive Strategy — P. 220.
The more complex the technology, the more specialized the required technical personnel, the greater the necessary economies of scale in R&D, the slower knowledge will tend to diffuse. Meaningful and patentable innovation can neutralize this Process, although that is difficult to achieve.
How is Proprietary Knowledge diffused?
- Leaks.
- Patent expiration.
- Personnel turnover.
- Reverse engineering.
- Increased demand for technical experts.
Porter, Competitive Strategy — P. 220.
How does Experience Accumulation affect Industry Evolution?
It decreases unit costs, thereby increasing price competition and the pressure to Differentiate.
This does not necessarily apply to all Industries.
Porter, Competitive Strategy — P. 221.
Keeping experience proprietary is critical; otherwise, Rivals will be able to freeride off the investments made to acquire it.
How do Trends in Industry Scale affect Industry Evolution?
Greater scale increases the Industry’s absolute size, which increases rivalrousness by:
- Creating room for Entrants;
- Facilitating vertical integration;
- Increasing growth pressure on Firms; and
- Widening the set of available strategies.
Porter, Competitive Strategy — P. 223.
How do Increases in Input and Currency Costs affect Industry Evolution?
They increase the product’s price, thereby decreasing demand; if higher costs are instead internalised, profit decreases.
Porter, Competitive Strategy — P. 224.
How does Product Innovation affect Industry Evolution?
It:
- Widens Industry scope;
- Nullifies Buyer learning;
- Raises Mobility Barriers; and
- Increases Product Differentiation.
Porter, Competitive Strategy — P. 224.
