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Industry Evolution The industry life cycle Industry structure, competition, and success factors over the life cycle. Anticipating and shaping the future.

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Presentation on theme: "Industry Evolution The industry life cycle Industry structure, competition, and success factors over the life cycle. Anticipating and shaping the future."— Presentation transcript:

1 Industry Evolution The industry life cycle Industry structure, competition, and success factors over the life cycle. Anticipating and shaping the future. OUTLIN E

2 The Industry Life Cycle Drivers of industry evolution : demand growth creation and diffusion of knowledge Introduction Growth Maturity Decline Industry Sales Time

3 Product and Process Innovation Over Time Time Rate of innovation Product Innovation Process Innovation

4 Standardization of Product Features in Autos FEATURE INTRODUCTIONGENERAL ADOPTION Speedometer 1901 by OldsmobileCirca 1915 Automatic transmission 1st installed 1904Introduced by Packard as an option, Standard on Cadillacs early 1950s Electric headlamps GM introduces, 1908Standard equipment by 1916 All-steel body GM adoptes 1912Standard by early 1920s All-steel enclosed body Dodge, 1923Becomes standard late 1920s Radio Optional extra 1923Standard equipment, 1946 Four-wheel drive Appeared 1924Only limited availability by 1994 Hydraulic brakes Introduced 1924 Became standard 1939 Shatterproof glass 1st used 1927Standard features in Fords 1938 Power steering Introduced 1952Standard equipment by1969 Antilock brakes Introduced 1972Standard on GM cars in 1991 Air bags GM introduces, 1974By 1994 most new cars equipped with air bags

5 How Typical is the Life Cycle Pattern? Technology-intensive industries (e.g. pharmaceuticals, semiconductors, computers) may retain features of emerging industries. Other industries (especially those providing basic necessities, e.g. food processing, construction, apparel) reach maturity, but not decline. Industries may experience life cycle regeneration. Sales Sales MOTORCYCLES TVs Life cycle model can help us to anticipate industry evolutionbut dangerous to assume any common, pre- determined pattern of industy development. Color B&W Portable HDTV ?

6 Evolution of Industry Structure over the Life Cycle INTRODUCTION GROWTH MATURITY DECLINE DEMANDAffluent buyersIncreasingMass market Knowledgeable, penetrationreplacement customers, resi- demand dual segments TECHNOLOGYRapid productProduct and Incremental Well-diffused innovation process innovation innovation technology PRODUCTS Wide variety, Standardization Commoditiz- Continued rapid design changeation commoditization MANUFACT-Short-runs, skill Capacity shortage, Deskilling Overcapacity URING intensive mass-production TRADE -----Production shifts from advanced to developing countries----- COMPETITION Technology-Entry & exit Shakeout & Price wars, consolidation exit KSFs Product innovation Process techno- Cost efficiency Overhead red- logy. Design for uction, ration- alization, low cost sourcing

7 The Driving Forces of Industry Evolution Customers become more knowledgeable & experienced Diffusion of technology Demand growth slows as market saturation approaches Customers become more price conscious Products become more standardized Distribution channels consolidate Production shifts to low-wage countries Price competition intensifies Bargaining power of distributors increases BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION Excess capacity increases Production becomes less R&D & skill-intensive Quest for new sources of differentiation

8 ROI at Different Stages of the Industry Life Cycle

9 Note: The figure shows standardized means for each variable for businesses at each stage of the life cycle. Strategy and Performance at across the Industry Life Cycle

10 Preparing for the Future : The Role of Scenario Analysis in Adapting to Industry Change Stages in undertaking multiple Scenario Analysis: Identify major forces driving industry change Predict possible impacts of each force on the industry environment Identify interactions between different external forces Among range of outcomes, identify 2-4 most likely/ most interesting scenarios: configurations of changeforces and outcomes Consider implications of each scenario for the company Identify key signposts pointing toward the emergence of each scenario Prepare contingency plan

11 1880s 1920s 1960s 2000 Mail order, catalogue retailing e.g. Sears Roebuck Chain Stores e.g. A&P Discount Stores e.g. K-Mart Wal-Mart Category Killers e.g. Toys-R-Us, Home Depot Internet Retailers e.g. Amazon; Webvan Warehouse Clubs e.g. Price Club Sams Club Innovation & Renewal over the Industry Life Cycle: Retailing Innovation & Renewal over the Industry Life Cycle: Retailing

12 BCGs Strategic Environments Matrix Small Big SIZE OF ADVANTAGE Many Few SOURCES OF ADVANTAGE FRAGMENTEDSPECIALIZATION apparel, housebuildingpharmaceuticals, luxury cars jewelry retailing, sawmillschocolate confectionery STALEMATEVOLUME basic chemicals, volumejet engines, food supermarkets grade paper, ship owningmotorcycles, standard (VLCCs), wholesale bankingmicroprocessors

13 BCGs Analysis of the Strategic Characteristics of Specialization Businesses high low ENVIRONMENTAL VARIABILITY ABILITY TO SYSTEMATIZE low high CREATIVE EXPERIMENTAL fashion, toiletries, magazines general publishing food products PERCEPTIVE ANALYTICAL high tech luxury cars, confectionery paper towels


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