Chapter 5: Industry evolution and strategic change Apple, inc By: Paulo Santos, Aguinaldo Sebastiao, Ryan Gaddy,Carlos Becerra

Management Greatest Challenge Adaptation to the environment and to the changes occuring in the environment. Change result: external forces and competition Change can be more or less unpredictable depending on the industry: Telecommunications- very unpredictable; food processing more stable and predictable

Patterns of Change The chapter presents: Industry patterns of change that can help us predict how industries are likely to evolve over time Sources of resistance to change and how to overcome them

The evolution of PCs 1970- PC were programend by owners 1977- Pre-assembled, operating system and software launched by Apple and other companies 1981- IBM enter the market with an open system; increased competition Apple adapted a closed system focused on innovation (IPad, Iphone) pioneered the new era of the industry 2012-2013 PC sales declined by 16 %, and producers had to rethink their strategies

The Industry life cycle Industry Life Cycle: The supply side of product life cycle Four phases: Introduction, growth, maturity, and decline More generation of a product leads to longer industry life cycle Forces driving industry evolution: Demand growth, Production and the diffusion of knowledge

Demand Growth Introduction stage: sales are small, because the industry products are little known and customers are few. Growth stage: accelerating market penetration due to technical improvement and efficiency Maturity stage: market saturation. Decline stage: new industry producing technologically superior substitute products.

The production and diffusion of Knowledge New knowledge in the form of innovation is responsible for an industry birth. Growth- characterized by emergency of dominant designs and technical standards (network effect) Maturity- Process improvement, design modification and scale economics Industries supplying basic needs have almost never enter decline ( never become outdated) Industries are likely to be at different stages of lifecycle in different countries

Implications Of the lifecycle for competition and strategy Changes in demand growth and technology over the cycle have implications for industry structure, competition and the sources of competitive advantage. The Introduction Phase: Few companies and limited to early adopters and product innovation. Example: Apple, few years ago, in the computer‘s industry. 2. Growth Phase: the growth of the demand in the markets and the emergence of dominant design. Example: The American Locations, revenue for the third quarter of 2018 around 24.4 billion. 3. The maturity Phase: the key factors to maintaining competitive advantages: Example: Apple,leading the market jointly with HP, Dell and others.

4.The Decline Phase: leaving space for innovation in the market.

The key factors for declining phase: Excess capacity Lack of capacity A declining number of competitors High average age of both physical and Human Resources Aggressive price competition

Why is change so difficult? Organizational Routines: The more highly developed are an organization’s routines, the more difficult it is to develop new routines. Social and Political Structures: Change represents threat to the power of those in positions of authority. Conformity: Locks organizations into common structures and strategies that make it difficult for them to adapt to change. Limit search:Organizations tend to limit search to areas close to their existing activities.

Coping with technological change Competence-Enhancing and competence-destroying technical change Preserve the capabilities of the firm Obsolete the resources and capabilities of established firms Architectural and component innovation: Key factor to established firms in adapting to technological change… Disruptive technologies: the innovation of new different attributes than the existing technology EXAMPLE: APPLE when entered in the marked.

Managing Strategic Change Traditionally a distinct area of management Draws upon theories of psychology and sociology Top-down change

Dual Strategies and Ambidexterity Juggling act. Exploitation and Exploratory Structural Ambidexterity (Xerox’s Palo Alto Research Center) (Apple Industrial Design Team) Contextual Ambidexterity (Whirlpool)

Apple Industrial Design Studio Team of 20 industrial engineers Led by British designer Jony Ive Started in a separate building across the street from Apple HQ Compare to 1000’s of engineers at Samsung

Tools of Strategic Change Management Creating perceptions of Crisis (Jack Welch of GE) Establishing stretch targets Creating organizational Initiatives (motivating employees - slogans) Reorganization and new blood

Dynamic Capabilities The ability of a firm to adapt to change. Construction example (equipment rental)

Using Scenarios to Prepare for the Future Any decent corporation

Shaking the Foundation Shaping the Future The key to organizational change is not to adapt to external change but to create the future. Shaking the Foundation Old Brick New Brick Top Management is responsible for setting strategy Everyone is responsible for setting strategy Getting better, getting faster is the way to win. Rule-busting innovation is the way to win Innovation equals new products and new technology Innovation equals entirely new business concepts

Apple

Developing New Capabilities Processes Task performance is efficient, repeatable and reliable. Structure The people and the processes that contribute to an organizational capability need to be located within the same organizational unit if they are to achieve the coordination needed to ensure a high performance capability. Motivation “My job is not to be easy on people. My job is to take these great people we have and to push them and make them even better.” - Steve Jobs Organizational Alignment Excellent capabilities require the components of capability to fix with one another.