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Industry Evolution OUTLINE The industry life cycle

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1 Industry Evolution OUTLINE The industry life cycle
Industry structure, competition, and success factors over the life cycle. Anticipating and shaping the future. 37

2 The Industry Life Cycle
Industry Sales Introduction Growth Maturity Decline Time Drivers of industry evolution : demand growth creation and diffusion of knowledge 38

3 Product and Process Innovation Over Time
Product Innovation Process Innovation Rate of innovation Time 39

4 Standardization of Product Features in Autos
FEATURE INTRODUCTION GENERAL ADOPTION Speedometer by Oldsmobile Circa Automatic transmission 1st installed 1904 Introduced by Packard as an option, Standard on Cadillacs early 1950s Electric headlamps GM introduces, 1908 Standard equipment by 1916 All-steel body GM adoptes 1912 Standard by early 1920s All-steel enclosed body Dodge, Becomes standard late 1920s Radio Optional extra 1923 Standard equipment, 1946 Four-wheel drive Appeared 1924 Only limited availability by 1994 Hydraulic brakes Introduced Became standard 1939 Shatterproof glass 1st used Standard features in Fords 1938 Power steering Introduced 1952 Standard equipment by 1969 Antilock brakes Introduced 1972 Standard on GM cars in Air bags GM introduces, 1974 By 1994 most new cars equipped with air bags 41

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 1900 ‘50 ‘60 ‘ MOTORCYCLES TV’s Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre-determined pattern of industy development. Color Portable B&W HDTV ? 42

6 Evolution of Industry Structure over the Life Cycle
INTRODUCTION GROWTH MATURITY DECLINE DEMAND Affluent buyers Increasing Mass market Knowledgeable, penetration replacement customers, resi- demand dual segments TECHNOLOGY Rapid product Product and Incremental Well-diffused innovation process innovation innovation technology PRODUCTS Wide variety, Standardization Commoditiz Continued rapid design change ation 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 43

7 The Driving Forces of Industry Evolution
BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION Customers become more knowledgeable & experienced Customers become more price conscious Quest for new sources of differentiation Products become more standardized Diffusion of technology Price competition intensifies Production becomes less R&D & skill-intensive Production shifts to low-wage countries Excess capacity increases Bargaining power of distributors increases Demand growth slows as market saturation approaches Distribution channels consolidate 44

8 ROI at Different Stages of the Industry Life Cycle

9 Strategy and Performance at across the Industry Life Cycle
Note: The figure shows standardized means for each variable for businesses at each stage of the 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 Innovation & Renewal over the Industry Life Cycle: Retailing
Warehouse Clubs e.g. Price Club Sam’s Club Internet Retailers e.g. Amazon; Webvan Discount Stores e.g. K-Mart Wal-Mart “Category Killers” e.g. Toys-R-Us, Home Depot Mail order, catalogue retailing e.g. Sears Roebuck Chain Stores e.g. A&P 1880s s s

12 BCG’s Strategic Environments Matrix
FRAGMENTED SPECIALIZATION apparel, housebuilding pharmaceuticals, luxury cars jewelry retailing, sawmills chocolate confectionery STALEMATE VOLUME basic chemicals, volume jet engines, food supermarkets grade paper, ship owning motorcycles, standard (VLCCs), wholesale banking microprocessors Many SOURCES OF ADVANTAGE Few Big Small SIZE OF ADVANTAGE 45

BCG’s Analysis of the Strategic Characteristics of Specialization Businesses CREATIVE EXPERIMENTAL fashion, toiletries, magazines general publishing food products PERCEPTIVE ANALYTICAL high tech luxury cars, confectionery paper towels low ABILITY TO SYSTEMATIZE high high low ENVIRONMENTAL VARIABILITY 46

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