HOW INDUSTRIES CHANGE

NEED TO UNDERSTAND CHANGE IN INDUSTRY Industry structure affects: Profitability Investors return Change in industry structure determines the strategy to be followed at a particular period of time.

INDUSTRY EVOLUTION Industry Scale and Time Introduction/Pioneering Growth Maturity Decline

Industry Life Cycle Sales Introduction Growth Maturity Decline e Years

CORE ACTIVITIES & CORE ASSETS activities that attract and retain suppliers and buyers and have historically generated profits for the industry Core assets – the resources, knowledge, and brand capital that make a firm more efficient at performing core activities and have historically made it unique.

CORE ACTIVITIES & CORE ASSETS Banking: Core activities: Receiving Deposits and Lending Non-fee based activities Core assets: Knowledge and resources needs to be updated ( Technology, consumers’ needs, brand etc.) Photography : Core activities: taking images Core assets: knowledge and resources changed, technology changed ( digital ), storing, transferring, saving

THREATS OF OBSOLESCENCE Core activities are threatened when they become less relevant to suppliers and customers due to some new outside alternative. Core assets are threatened if they fail to generate value as they once did.

TRAJECTORIES OF INDUSTRY CHANGE Radical : Where both core activities and core assets are threatened Progressive: Where both core activities and core assets are not threatened Creative: Where core activities are not threatened but core assets are threatened Intermediating: Where core activities are threatened but core assets are not threatened

Threat of Obsolescence Core Activities Threatened Not Threatened Threatened Radical Change Creative Change Core Assets Not Intermediating Change Progressive Change

RADICAL CHANGE Both the core assets and core activities are threatened by obsolescence. About 19% of US industries went through this between 1980s and 1990s Travel Business Airlines enhancing a system of direct price competition and customers go for web-enabled systems

RADICAL CHANGE Relatively unusual Industries often remain profitable for a long time Exit strategy may not always be necessary. PC and Main frame computer business In the long run firms abandon their established position and move into emerging line of business Typewriters and computers

PROGRESSIVE CHANGE Both core activities and core assets are not threatened. About 43 of US industries Industries are more stable. Progress and technology development occur but remaining within the exiting business framework Firms try for distinctive position in the industry Airline Business and Long route Travel Bus

INTERMEDIATING CHANGE Core activities are threatened by obsolescence but the core assets retain their value if used in new way. 32% of US industries Most challenging for Firms Firms need to restructure their relationship with the suppliers and customers while preserving their valuable assets. Auto dealership

INTERMEDIATING CHANGE Firms need to find unconventional ways to extract value from their core resources Initial return may be high and then drop Recording companies Customer and the activities have changed but the core resource i.e. recording ability to develop new artist remain unchanged

CREATIVE CHANGE Core assets are threatened but core activities remain stable. About 6 % of Us industries Pharmaceuticals Develop new medicines, research etc but the procurement and marketing activities remain almost same Oil and Gas exploration New exploration ventures but maintain same relationship with the refineries and distributors.

CORE ACTIVITIES & CORE ASSETS Music Industry: Core activities: selling records and songs changed Core assets: ability to develop new artists INTERMEDIATING Auto dealership: Core activities: traditional way of selling changed due to internet Core assets: Knowledge and brand remain same

CORE ACTIVITIES & CORE ASSETS Pharmaceuticals Core activities: Research and Development, test new drugs Core assets: change in distribution and marketing skills CREATIVE Film Production: Core activities: produce and distribution of films Core assets: technology and knowledge changes

CORE ACTIVITIES & CORE ASSETS Mail Delivery: Core activities: way of delivering mails changed Core assets: knowledge and techniques changed RADICAL Banking: Core activities: Receiving Deposits and Lending Non-fee based activities Core assets: Knowledge and resources needs to be updated ( Technology, consumers’ needs, brand etc.)

WHICH TRAJECTORY ARE YOU ON? Define your industry Competition and 5% rule (5% price fluctuation by one company causes suppliers and buyers to switch to another company – direct competitors) Define industry’s core assets and activities Core? If it were eradicated today, will the profit decline?

WHICH TRAJECTORY ARE YOU ON? Determine whether core assets and core activities are threatened with obsolescence. Does the threat make core assets and activities irrelevant to profitability Evaluate the phase of trajectory. Industry change is a long run phenomenon