Industry Evolution and Strategic Change

No company ever stops changing … each new generation must meet changes- in the automotive market, in the general administration of the enterprise, and the involvement of the corporation in a changing world. The work of creating goes on. Alfred P. Sloan, President and Chairman of GM

Industry Life-Cycle refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry 5-3

Industry Life-Cycle Strategies In the Introduction Stage: Products are unfamiliar to consumers Market segments not well defined Product features not clearly specified Competition tends to be limited

Industry Life-Cycle Strategies The Growth Stage is: Characterized by strong increases in sales Attractive to potential competitors For the Growth Stage: Brand recognition Differentiated products Financial resources to support value-chain activities

Industry Life-Cycle Strategies In the Maturity stage: Aggregate industry demand slows Market becomes saturated, few new adopters Direct competition becomes predominant Marginal competitors begin to exit

Industry Life-Cycle Strategies In the Decline Stage: Industry sales and profits begin to fall Strategic options become dependent on the actions of rivals For the Decline Stage Maintaining Exiting the market Harvesting Consolidation

STRATEGIES FOR DIFFERENT PHASES OF THE INDUSTRY LIFE CYCLE ArenasVehiclesDifferentiatorsStagingEconomic Logic LocalInternal development Alliances to secure missing inputs or distribution access Target basic needs, minimal differentiation Tactics to gain early footholds Prices tend to be high. Costs are also high Focus is on securing additional capital to fund growth phase. Penetration into adjacent markets Alliances for cooperation Acquisitions in targeted markets Increased efforts toward differentiation Low cost leaders emerge through gaining experience advantages and scale Integrated positions require choice of focusing first on cost or differentiation Margins can improve rapidly because of experience and scale Price premiums accrue to successful differentiators Globalization Diversification Mergers and acquisitions result in consolidation More stable positions emerge across competitors Choosing international markets and new industry diversification; need rational sequencing Consolidation results in fewer competitors (favoring higher margins) but declining growth demands cost containment and rationalization of operations. Some arenas may be abandoned if decline is severe Focus on segments which provide most profitability Acquisitions for diversifying moves Divestitures to exit for some competitors Rationalizing cost 10 Decline Mature Embryonic Growth Phases of industry life cycle

First mover and late-mover advantage First-mover advantage is the advantage gained by the initial significant occupant of a market segment. Sometimes the first mover is not able to capitalize on its advantage, leaving the opportunity for another firm to gain second-mover advantage.

Example of first mover advantage: Amazon

Target: an example of “late mover” advantage

Understanding and predicting changes in the industry environment is only one aspect of the management challenge. By far the greater challenge is ensuring and the adaptation of the firm to these changes.

Companies that achieved radical change Nokia changed from a manufacturer of paper and rubber goods into the world’s leading supplier of mobile phones

Companies that achieved radical change successfully BP transformed itself from a bureaucratic state- owned oil company to of of the most flexible and innovative of the super majors

Companies whose change efforts for radical change resulted in disaster Enron’s transformation from a utility and pipeline company to a trader and market-maker in energy futures and derivatives ended in its demise in 2001