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Test 2 - chpt 11

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.
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
Drivers of industry evolution : Demand growth, Creation and diffusion of knowledge
Demand growth as a driver of industry evolution The S-shaped growth curve (Introduction stage, growth stage, maturity stage, and decline stage)
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
Growth stage: Market penetration accelerates as product technology becomes more standardized and prices fall
Maturity stage: Market saturates and demand is wholly for replacement
Decline stage: The industry becomes challenged by new industries that produce technologically superior substitute products
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
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
In the introduction stage, product technology advances rapidly. Rival technologies and business models compete to become the dominant design
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
Over the course of the life cycle... customers become increasingly informed.
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
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
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
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)
Concentration may decline -When entry barriers fall because technology becomes more accessible -Or when product differentiation declines (Credit cards, television broadcasting, frozen foods)
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
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
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)
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
Adapting to change and shaping the future  Strategic inflection point  Innovator’s dilemma  Competing for the future: New strategy paradigm
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
Innovator’s dilemma Technological changes in hard-disk drivers
Competing for the future: New strategy paradigm The key is not to anticipate the future, but to create the future
At the heart of the business model is core strategy -Business mission -Product/market scope -A basis for differentiation
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)
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
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
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
The model directs attention to the forces of change and direction of industry evolution thereby helping us to anticipate and manage change
Created by: srayoorozco1
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