1. 1 Lecture 4: Understanding common approaches to business strategy. What is the role of strategy and its connection to competitive and technological challenges The Challenges of Business: Case: Trouble Brewing in the Beer Industry

2. 2 Lecture 8: Management of Organizational Strategy: Competitive and Technological Forces Industrial and Technological Evolution How does competition evolve over time in industries? How does technological change and innovation affect competition? What are implications for business strategy? Case: Beer Industry, p.238

3. 3 INDUSTRIAL EVOLUTION – NUMBER OF COMPETITORS Number of competitors follows an inverted U- shaped curve Time Shakeout

4. Introduction Growth Maturity Decline Industry Sales Time INDUSTRIAL EVOLUTION – INDUSTRY SALES Main drivers of industry evolution: Demand growth Creation and diffusion of technology and knowledge

5. 5 NEW INDUSTRY CREATION & INNOVATION New industries emerge following innovations: Technological (e.g. biotechnology) Regulatory (e.g. satellite radio) Characterized by uncertainty and risk (e.g. satellite communications) Early entrants are small, entrepreneurial firms using technological innovation. Competitors search for the industry’s dominant design and standard

6. 6 New industries seek legitimacy through collective action and institutional entrepreneurship Despite increased competition, entry of large incumbent firms into new markets legitimizes the new industry Characteristics of the emergence phase: Low intra-industry rivalry Intense R&D Slow growth Organic structures NEW INDUSTRY CREATION & INNOVATION

7. 7 NEW INDUSTRY GROWTH & SHAKEOUT Growth stage begins with convergence around a dominant design or technical standard Organizations whose approach does not conform to the dominant model either change or exit during a shakeout High growth and reduced uncertainty of the market attracts larger, established firms into the industry Standardization of products and processes leads to economies of scale and less innovation as firms focus on sales and marketing to capture mkt share

8. 8 INDUSTRY MATURITY Market growth begins to slow down; very little entry and rivalry becomes fierce among remaining firms Market concentration increases with more exits and acquisitions Products become commoditized and undifferentiated and innovations are incremental and process improvements Successful firms are efficient and mechanistic Shift in successful strategy and structure explains why few firms survive as industry leaders

9. 9 THE DECLINE PHASE Industries begin to decline as a result of changes in: Demographics (e.g. baby food in the 1960s) Consumer needs/tastes (e.g. cigarettes) Technology (e.g. typewriters, VCRs) Firms can pursue different strategies to cope: Maintain industry leadership Target niche markets Harvest profits Exit early Consolidate the remaining industry players

10. 10 TECHNOLOGICAL INNOVATIONS Discontinuous / Radical / Breakthrough Mobile phones, cars, computers etc Continuous / Incremental Technological discontinuities can be: Competence-enhancing, or Competence-destroying Component / Modular / Material innovations Architectural innovations

11. 11 TECHNOLOGICAL EVOLUTION Technological innovation leads to the “creative destruction” (Schumpeter, 1942) of industries – old technologies are ‘swept away’ Abernathy and Utterback propose the technology lifecycle model to explain how rates of product and process innovation evolve during from the fluid, to transitional to specific phase of the technology (see exhibit 6.4, p, 232 – The Challenges of Business)

12. 12 (Utterback, 1994: p.17 ) Fluid PhaseTransitional Specific Phase Phase Product innovation Process innovation Rate of Major Innovation Dominant design TECHNOLOGICAL LIFECYCLE

13. 13 TECHNOLOGICAL EVOLUTION Technological discontinuities appear at rare and irregular intervals and can dramatically alter an industry’s structure Period of uncertainty (era of ferment) ends when a dominant design emerges and technical progress focuses on incremental improvements and process innovations (era of incremental change) until the next discontinuity A punctuated equilibrium model (Anderson and Tushman, 1990)

14. A CYCLICAL MODEL OF TECHNOLOGICAL CHANGE Technological Discontinuity Era of Ferment Era of Incremental Change Dominant Design (Adapted from Anderson and Tushman, 1990 )

15. FOSTER’S TECHNOLOGY S-CURVE Time or engineering effort Physical limits to technology’s performance Product performance Foster’s s-curves predicts new technological transition once the physical limits to the current technology reach a plateau

16. 16 SUCCESSIVE S-CURVES Product performance Time or engineering effort First Technology Second Technology Third Technology Time or engineering effort

17. 17 1880s 1920s 1960s 2000 Mail order, catalogue retailing e.g. Sears, Montgomery Ward Chain Stores e.g. A&P, JC Penney Discount Stores e.g. K-Mart, Wal-Mart “Category Killers” e.g. Toys-R-Us, Home Depot Electronic Commerce e.g. Amazon, Drugstore.com Warehouse Clubs e.g. Costco, Sam’s Club INNOVATION & RENEWAL IN RETAILING

18. 18 Stage Characteristic IntroductionGrowthMaturityDecline Market Growth SlowVery rapidModerateNegative Customers Affluent, early technology adopters Niche markets, increasing penetration Price conscious mass market, repeat buyers Late adopters, knowledgeable users, residual segments. Rivalry Low; technological competition Increasing; entry and exit; shakeout Intense; increased concentration; exit Price wars; exit; mergers and acquisitions; asset liquidation Critical Functional Areas Research & DevelopmentSales and Marketing Production and Manufacturing General Management and Finance Products Very wide variety of designs StandardizationCommoditizationContinued commoditization Technological Development Rapid product innovation Product and process innovation Incremental innovationVery little innovation Organizational Structure Organic Mechanistic Generic Strategies Product differentiation Cost LeadershipCost Leadership / Focus Key Objectives Increase awareness; achieve legitimacy; specify dominant design Create demand; capture market share Cost efficiency; extend lifecycle Market or niche leadership; cost reduction; consolidation; exit CHARACTERISTICS OF THE INDUSTRY LIFE-CYCLE STAGES

19. 19 ISSUES MANAGEMENT & STRATEGY An Issue: a matter that is in dispute between two or more parties, may involve controversy Must take into account multiple stakeholders – personal and organizational stakes come into play Involves multiple steps – may also be linked to organizational strategy and development

20. 20 THE ISSUES OF MANAGEMENT PROCESS IDENTIFICATION OF ISSUES ANALYSIS OF ISSUES RANKING OR PRIORITIZATION OF ISSUES FORMULATION OF ISSUE RESPONSES IMPLEMENTATION OF ISSUE RESPONSES EVALUATION, MONITORING & CONTROL OF RESULTS Taken from The Responsibilities of Business, p, 48

21. 21 FOR THE NEXT SESSION Confronting the Global Economy What is globalization? How does it impact business in Canada and around the world? What are the pros and cons of free trade agreements – particularly focusing on NAFTA?