Test 2 - chpt 11
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| Can industry evolution be anticipated? | Although every industry follows a unique development path, it is possible to detect some common patterns that are the result of common driving forces.
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| Can industry evolution be anticipated? | The key is to identify these patterns of industry evolution, the forces that drive them, and their implications for competition and competitive advantage
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| Drivers of industry evolution : | Demand growth,
Creation and diffusion of knowledge
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| Demand growth as a driver of industry evolution | The S-shaped growth curve (Introduction stage, growth stage, maturity stage, and decline stage)
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| Introduction stage: | Sales are small and the rate of market penetration is low because the industry’s products are little known and customers are few
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| Growth stage: | Market penetration accelerates as product technology becomes more standardized and prices fall
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| Maturity stage: | Market saturates and demand is wholly for replacement
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| Decline stage: | The industry becomes challenged by new industries that produce technologically superior substitute products
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| Creation and diffusion of knowledge as a driver of industry evolution | New knowledge in the form of product innovation is responsible for an industry’s birth
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| Creation and diffusion of knowledge as a driver of industry evolution | The dual processes of knowledge creation and knowledge diffusion have a major influence on the pattern of development
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| In the introduction stage, product technology advances rapidly. | Rival technologies and business models compete to become the dominant design
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| Then there is a shift from product innovation to process innovation | Firms seek to reduce costs and increase product reliability through large-scale manufacturing methods
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| Over the course of the life cycle... | customers become increasingly informed.
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| Patterns of evolution differ across industries | Some industries may retain features of emerging industries
Some industries reach maturity, but never enter a decline phase
Some industries may experience a rejuvenation of their life cycle
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| To what extent do industries conform to the industry life cycle pattern? |
•The tendency over time has been for life cycles to become compressed
•An industry is likely to be at different stages of its life cycle in different countries
•Life cycle model can help us to anticipate industry evolution—but dangerous to assume alwa
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| The role of scale economies and entry barriers | Scale economies and entry barriers play a key role in different paths of evolution between industries
• Concentration increases substantially over the life cycle
• Concentration may decline
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| Concentration increases substantially over the life cycle | When entry barriers rise due to increasing scale economies and capital requirements (Automobiles, commercial aircraft)
Or when entry barriers rise due to product differentiation and access to distribution channels (Soft drinks, cosmetics)
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| Concentration may decline | -When entry barriers fall because technology becomes more accessible
-Or when product differentiation declines
(Credit cards, television broadcasting, frozen foods)
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| The nature and intensity of competition at each stage of life cycle (Intro stage) | -Competitors battle for technological leadership
-Competition focuses on technology and design
-Gross margin can be high, but heavy investments in innovation
-Market development tend to depress return on capital
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| The nature and intensity of competition at each stage of life cycle (Growth stage) | Market demand outstrips industry capacity – especially if incumbents are protected by barriers to entry
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| The nature and intensity of competition at each stage of life cycle (Maturity Stage) | -Maturity is associated with strong price competition
-Increased product standardization increases the emphasis on price competition
(Less efficient firms removed from the industry)
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| The nature and intensity of competition at each stage of life cycle (Decline Stage) | Strong price competition may degenerate into destructive price wars and dismal profit performance
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| Adapting to change and shaping the future | Strategic inflection point
Innovator’s dilemma
Competing for the future: New strategy paradigm
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| Strategic inflection point | When an organization makes a decision to change its corporate strategy to pursue a different direction and avoid the risk of decline.
Intel: Microprocessors vs. memory chips
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| Innovator’s dilemma | Technological changes in hard-disk drivers
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| Competing for the future: New strategy paradigm | The key is not to anticipate the future, but to create the future
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| At the heart of the business model is core strategy | -Business mission
-Product/market scope
-A basis for differentiation
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| The foundations for competitive advantage are strategic resources and capabilities | -What the firm knows (core competencies)
-What the firm owns (strategic assets)
-What the firm does (core processes)
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| Boost profits by taking advantage of | -Increasing returns through learning, and positive feedback
-Competitor lockout through preemption and customer lock-in
-Strategic economies through economies of scale and scope
-Flexibility through agility, portfolio breadth, and low breakeven levels
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| The industry life cycle model is a useful approach to | -explore the impact of temporal processes of market saturation, and technology development and dissemination, and
-their impact on industry structure and the basis of competitive advantage
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| The model acts as a shortcut in strategy analysis | Categorizing an industry according to its stage of development can alert us to the type of competition likely to emerge and the kinds of strategy likely to be effective
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| The model directs attention to the forces of change and direction of industry evolution | thereby helping us to anticipate and manage change
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