Week 9 / Chapter 9: Evolution of Industries Flashcards
Grant, Robert ((2013). Contemporary strategy analysis
Grant, Robert ((2013). Contemporary strategy analysis
Change in the industry environment is driven by the forces of
Technology, consumer needs, politics, economic development, and a host of other influences
Life cycle of firms are much ______ than the life cycles of industries
Shorter
Changes at the industry level tend to occur through the death of existing firms and the birth of new firms
Product life cycle
Products are born Their sales grow They reach maturity They go into decline And then the product dies
Industry life cycle
1) Introduction (emergence)
2) Growth
3) Maturity
4) Decline
Two factors are fundemental:
1) Demand growth
2) Production and diffusion of knowledge
Demand Growth
The life cycle and the stages within it are defined primarily by changes in an industry’s growth rate over time
Introduction stage
Sales are small, and rate of market penetration is low:
- products are little known
- customers are few
High costs and low quality:
- Novelty of technology
- Small scale of production
- Lack of Experince
Customer are:
- Affluent
- innovation-orientated
- risk-tolerant
Growth stage
Characterized by accelerating market-penetration as technical improvements and increased efficiency opens up the mass market
Maturity stage
One saturation is reached, demand is wholly for replacement
Decline stage
Industry becomes challenged by new industries that produce technologically superior substitute products
Knowledge
Second industry driver
-new knowledge in the form of product innovation is responsible for industry birth, and duel processes of knowledge creation and knowledge diffusion exert a major influence on industry evolution
Dominant design
Product architecture that defines the look, functionality, and production method for the product and becomes accepted by the industry as a whole
examples: McDonald’s in 1955, limited menu, no waiter service, eat-in and takeout
The overall configuration of a product or system
May or may not embody a technical standard
Technical standard
technology or specification that is important for compatibility
Network effects
The need for user to connect in some way with one another
Example: Choosing an iPhone so they can facetime and use iMessage, don’t want to feel stranded
Product differentiation
Introduction stage typically features a wide variety of product types that reflect the diversity of technologies and designs - and the lack of consensus over customer requirements
Convergence around a dominant design is often followed by commoditization during the mature phase unless producers develop new dimensions for differentiation
Examples of commodity items
Personal computers, credit cards, online financial services, wireless communication services
Organizational ecology
Analyses the population of industries and the process of founding and selection that determine entry and exit
Findings from Organizational ecology
1) Number of firms in an industry increases rapidly during the early stages of industry’s life
2) With the onset of maturity, the number of firms begin to fall
Shakeout phase
The rate of firm failure increases sharply
Implications for competition:
1) Shift from non-price competition to price competition
2) Margins shrink as the intensity of competition grows
Rothaermel, Frank (2021). Strategic management (5th ed.).New York: McGrawHill
Rothaermel, Frank (2021). Strategic management (5th ed.).New York: McGrawHill
Industry life cycle (definition #2)
The five different stages- introduction, growth, shakeout, maturity, and decline- that occur in the evolution of an industry over time
Stylized industry life cycle
Horizontal axis = Time (in years)
Vertical axis = Market size
S shaped graph first going up and than down for decline
Introduction stage
When an individual inventory or company launches a successful innovation, a new industry may emerge
Core competency is R&D
Usually high price for inventor and high price for buyer
Barriers to entry are high, generally only a few firms are active in the market
Growth is slow, market size is small
Network effects
The positive effect (externality) that one user of a product or service has on the value of that product for other users
Growth stage
Demand increases rapidly as first-time buyers rush to enter the market
-standard emerges (bottom up or top down[govt]
-Due to high demand both efficient and inefficient firms do well
production costs begin to fall
Distribution channels are expanded
-Moves from product innovation to process innovations
Standard
An agreed-upon solution about a common set of engineering features and design choices
Government / other standard setting agencies
Institute of Electrical and Electronics Engineers (IEEE)
Process innovations
New ways to produce existing products or to deliver existing services
Product innovations
New or recombined knowledge embodied in new products
Examples: Jet airplane, electric vehicle, smartphone, wearable computer
Shakeout stage
- Rate of growth declines
- Firms begin to complete directly against each other for market share
- Weaker firms are forced out at competition grows
- Only the strongest survive as prices cut and more services are offered
- Firms are either acquired or bankrupted
Maturity stage
-Turns into a oligopoly with only a few large firms
-Demand consists of repeat or replacement purchases
-Market reached maximum size
-Process innovations maximizes, aiming for lowest cost possible
-
Decline stage
- Market contracts further as demand falls
- Leader have four strategic options
Four strategic options for Decline
1) Exit
2 Harvest
3) Maintain
4) Consolidate
Exit
Forced to exit due to bankruptcy or liquidation
example: US textile industry
Harvest
Reduces investments in product support and allocates a minimum of human and other resources
(Examples: IBM, Olivetti offering typewriters)
Maintain
Continuing to support marketing efforts at a given level despite consumption is declining
Consolidate
Buying other firms to attain monopoly, albeit in an declining industry
