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OUTLINE
The industry life cycle Industry structure, competition, and success factors over the life cycle. Anticipating and shaping the future.
Industry Sales
Introduction
Growth
Maturity
Decline
Time Drivers of industry evolution : demand growth creation and diffusion of knowledge
Predictions of Product Life Cycle Theories About Strategy, Competition, and Performance
Predictions of Product Life Cycle Theories About Strategy, Competition, and Performance
Predictions of Product Life Cycle Theories About Strategy, Competition, and Performance
Evolutionary Processes
There are some predictable (and interacting) dynamic processes that occur in every industry in one form or the other, though their speed and direction will differ from industry to industry: long-run changes in growth; changes in buyer segments served; buyers learning; reduction of uncertainty; diffusion of propriety knowledge
Product Innovation
Rate of innovation
Process Innovation
Time
FEATURE
INTRODUCTION
GENERAL ADOPTION
Circa 1915 Introduced by Packard as an option, 1938. Standard on Cadillacs early 1950 Electric headlamps GM introduces 1908 Standard equipment by 1916 All-steel body GM adoptes 1912 Standard by early 1920s All-steel enclosed body Dodge 1923 Becomes standard late 1920s Radio Optional extra 1923 Standard equipment, 1946 Four-wheel drive Appeared 1924 Only limited availability by 1994 Hydraulic brakes Introduced 1924 Became standard 1939 Shatterproof glass 1st used 1927 Standard features in Fords 1938 Power steering Introduced 1952 Standard equipment by 1969 Antilock brakes Air bags Introduced 1972 GM introduces 1974 Standard on GM cars in 1991 By 1994 most new cars equipped with air bags
1900 50 90 07 MOTORCYCLES
1930
50 70 TVs
90
07
Life cycle model can help us to anticipate industry evolutionbut dangerous to assume any common, predetermined pattern of industry development
DEMAND
Wide variety, Standardization rapid design change Short-runs, skill intensive Capacity shortage, mass-production
-----Production shifts from advanced to developing countries----TechnologyProduct innovation Entry & exit Process technology. Design for Shakeout & consolidation Cost efficiency Price wars, exit Overhead reduction, rationalization, low cost sourcing
INDUSTRY STRUCTURE
COMPETITION
Customers become more price conscious Quest for new sources of differentiation
Products become more standardized Diffusion of technology Production becomes less R&D & skill-intensive Production shifts to low-wage countries
Excess capacity increases Demand growth slows as market saturation approaches Bargaining power of distributors increases
Changes in the Population of Firms over the Industry Life Cycle: US Auto Industry 1885-1961
250 200 150 100 50 0
No. of firms
1895
1905
1915
1925
1935
1945
1955
J&P Coates
Pullman Royal Dutch Shell Anaconda General Electric Singer American Brands Navistar
0.29
0.20 0.19 0.18 0.17 0.17 0.17 0.16
Microsoft
Citigroup BP Bank of America Royal Dutch Shell Wal-Mart Stores Toyota Motor Gazprom
281
239 233 212 211 197 197 196
BAT
De Beers
0.16
0.16
HSBC
Procter & Gamble
190
190
25 20 15 ROI (%) 10 5 0
Growth Maturity Decline Real annual growth rate <3% Real annual growth rate 3-6% Real annual growth rate >6%
12 10 8 6 4 2
Value Added/Revenue Product R&D/Sales Advertising/Sales ROI Age of Plant & Equip. Investment/Sales Technical Change New Products % Sales from New Products
Note: The figure shows standardized means for each variable for businesses at each stage of the life cycle.
Preparing for the Future : The Role of Scenario Analysis in Adapting to Industry Change
Stages in undertaking multiple Scenario Analysis: Identify major forces driving industry change Predict possible impacts of each force on the industry environment Identify interactions between different external forces Among range of outcomes, identify 2-4 most likely/ most interesting scenarios: configurations of changes and outcomes Consider implications of each scenario for the company Identify key signposts pointing toward the emergence of each scenario Prepare contingency plan
1880s
1920s
1960s
2000