Industry Evolution & Industry Evolution & Strategic ChangeStrategic Change

IMBAIMBAMay 8, 2009May 8, 2009

Te-Kuang ChouTe-Kuang Chou

This chapter contains a This chapter contains a lot of propositions that lot of propositions that

you can test or elaborate you can test or elaborate in your thesis.in your thesis.

The greatest challenge of The greatest challenge of management is to ensure management is to ensure

that adaptation of the that adaptation of the enterprise matches the enterprise matches the

changes occurring within changes occurring within the business the business environment.environment.

Owing to organizational Owing to organizational inertia, the life cycle of inertia, the life cycle of firms tend to be much firms tend to be much

shorter than the life cycle shorter than the life cycle of industry. This implies of industry. This implies

that changes at the that changes at the industry level tend to occur industry level tend to occur

through the death of through the death of existing firms and birth of existing firms and birth of

new firms rather than new firms rather than through continuous through continuous

adaptation by a constant adaptation by a constant population of firms.population of firms.

Industry Evolution: the Industry Evolution: the Life CycleLife Cycle

Industry Evolution: Product Industry Evolution: Product and Process Innovation and Process Innovation

over Timeover Time

How general is the How general is the life cycle pattern?life cycle pattern?

Duration:Duration:The duration of life cycle The duration of life cycle varies greatly form industry varies greatly form industry to industry.to industry.

The industry life cycle tends The industry life cycle tends to be compressed nowadays. to be compressed nowadays.

How general is the How general is the life cycle pattern?life cycle pattern?

Pattern:Pattern:Some industries may never Some industries may never enter a decline phase.enter a decline phase.

Some industries may Some industries may experience a rejuvenation of experience a rejuvenation of their life cycle.their life cycle.

Innovation and renewal in Innovation and renewal in the industry life cycle: the industry life cycle:

retailingretailing

How general is the How general is the life cycle pattern?life cycle pattern?

Cross border comparison:Cross border comparison:An industry is likely to be An industry is likely to be at different stages of its at different stages of its life cycle in different life cycle in different countries.countries.

What’s up along the What’s up along the ILC?ILC?

Demand:Demand:Emergence:Emergence: only limited early adopters: high- only limited early adopters: high-income; vanguard.income; vanguard.

Growth:Growth: market penetration rapidly increased. market penetration rapidly increased.Maturity:Maturity: mass market mass market;; repeat or replacement repeat or replacement buying; price sensitive.buying; price sensitive.

Decline:Decline: obsolescence. obsolescence.

What’s up along the What’s up along the ILC?ILC?Technology:Technology:

Emergence:Emergence: Competing technologies. Rapid product innovation. Competing technologies. Rapid product innovation.Growth:Growth: Standardization around dominant technology. Rapid process Standardization around dominant technology. Rapid process

innovation.innovation.Maturity:Maturity: well-diffused technical know-how; request for improvement. well-diffused technical know-how; request for improvement.Decline:Decline: product or process innovation are rare. product or process innovation are rare.

What’s up along the What’s up along the ILC?ILC?Products:Products:

Emergence:Emergence: Poor quality. Wide variety of features. Poor quality. Wide variety of features. Frequent design.Frequent design.

Growth:Growth: Emergence of dominant design. Quality Emergence of dominant design. Quality improve.improve.

Maturity:Maturity: Trend to commoditization. Differentiate Trend to commoditization. Differentiate by branding, quality, bundling.by branding, quality, bundling.

Decline:Decline: differentiation difficult. differentiation difficult.

What’s up along the What’s up along the ILC?ILC?

Manufacturing & distribution:Manufacturing & distribution:Emergence:Emergence: Small scale production. Small scale production.

High-skilled labor content. Specialized High-skilled labor content. Specialized distribution channels.distribution channels.

Growth:Growth: Mass Production. Competition Mass Production. Competition for distribution. for distribution.

Maturity:Maturity: Overcapacity. Distributors Overcapacity. Distributors carry fewer lines.carry fewer lines.

Decline:Decline: Overcapacity. Specialty Overcapacity. Specialty channels.channels.

What’s up along the What’s up along the ILC?ILC?Trade:Trade:

Emergence:Emergence: Producers and consumers in Producers and consumers in advanced countries. advanced countries.

Growth:Growth: Exports from advanced countries to rest Exports from advanced countries to rest of the world.of the world.

Maturity: Maturity: Production shifts to newly Production shifts to newly industrializing countriesindustrializing countries. .

Decline:Decline: Exports from countries with lowest Exports from countries with lowest labor costs. labor costs.

What’s up along the What’s up along the ILC?ILC?

Competition:Competition:Emergence:Emergence: Few company. Few company.Growth:Growth: Entry, mergers, exits. Entry, mergers, exits. Maturity:Maturity: Shakeout. Price competition Shakeout. Price competition increases. increases.

Decline:Decline: Price war. Exits. Price war. Exits.

What’s up along the What’s up along the ILC?ILC?

Key success factors:Key success factors:Emergence: Emergence: Product innovationProduct innovation..Growth:Growth: Design for manufacture. Process Design for manufacture. Process

innovation. Access to distribution. Brand building.innovation. Access to distribution. Brand building.Maturity:Maturity: Cost efficiency through capital intensity, Cost efficiency through capital intensity,

scale efficiency, and low input cost. competition scale efficiency, and low input cost. competition increases. increases.

Decline:Decline: overheads. Rationalizing capacity. overheads. Rationalizing capacity.

Competitive Advantage Competitive Advantage fromfrom

responsiveness to responsiveness to ChangeChange EntrepreneurshipEntrepreneurship

As markets become As markets become increasingly turbulent, so increasingly turbulent, so responsiveness to external responsiveness to external change has become increasingly change has become increasingly important as a source of important as a source of competitive advantage.competitive advantage.

Time-based competition :Time-based competition : Key resource – informationKey resource – information Key capability – flexibility Key capability – flexibility

Porter’s generic Porter’s generic strategiesstrategies

Sources of competitive Sources of competitive advantageadvantage

The growth/share matrixThe growth/share matrix