10Slide - Competitive Advantage and Industry Evolution.ppt
- 1. Industry Evolution • The industry life cycle • Industry structure, competition, and success factors over the life cycle. • Anticipating and shaping the future. OUTLIN E
- 2. The Industry Life Cycle Drivers of industry evolution : • demand growth • creation and diffusion of knowledge Introduction Growth Maturity Decline Industry Sales Time
- 3. Product and Process Innovation Over Time Time Rate of innovation Product Innovation Process Innovation
- 4. Standardization of Product Features in Cars FEATURE INTRODUCTION GENERAL ADOPTION Speedometer 1901 by Oldsmobile Circa 1915 Automatic transmission 1st installed 1904 Introduced by Packard as an option, 1938. Standard on Cadillacs early 1950s 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 by1969 Antilock brakes Introduced 1972 Standard on GM cars in 1991 Air bags GM introduces, 1974 By 1994 most new cars equipped with air bags
- 5. How Typical is the Life Cycle Pattern? • Technology-intensive industries (e.g. pharmaceuticals, semiconductors, computers) may retain features of emerging industries. • Other industries (especially those providing basic necessities, e.g. food processing, construction, apparel) reach maturity, but not decline. • Industries may experience life cycle regeneration. Sales Sales 1900 ‘50 ‘60 ‘90 1930 50 60 90 MOTORCYCLES TV’s • Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre- determined pattern of industry development. Color B&W Portable HDTV ?
- 6. Evolution of Industry Structure over the Life Cycle INTRODUCTION GROWTH MATURITY DECLINE DEMAND Affluent buyers Increasing Mass market Knowledgeable, penetration replacement customers, resi- demand dual segments TECHNOLOGY Rapid product Product and Incremental Well-diffused innovation process innovation innovation technology PRODUCTS Wide variety, Standardization Commoditiz- Continued rapid design change ation commoditization MANUFACT- Short-runs, skill Capacity shortage, Deskilling Overcapacity URING intensive mass-production TRADE -----Production shifts from advanced to developing countries----- COMPETITION Technology- Entry & exit Shakeout & Price wars, consolidation exit KSFs Product innovation Process techno- Cost efficiency Overhead red- logy. Design for uction, ration- alization, low cost sourcing
- 7. The Driving Forces of Industry Evolution Customers become more knowledgeable & experienced Diffusion of technology Demand growth slows as market saturation approaches Customers become more price conscious Products become more standardized Distribution channels consolidate Production shifts to low-wage countries Price competition intensifies Bargaining power of distributors increases BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION Excess capacity increases Production becomes less R&D & skill-intensive Quest for new sources of differentiation
- 8. 0 50 100 150 200 250 1895 1905 1915 1925 1935 1945 1955 No. of firms Changes in the Population of Firms over the Industry Life Cycle: US Auto Industry 1885-1961 Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.
- 9. 0 5 10 15 20 25 ROI (%) Growth Maturity Decline Real annual growth rate <3% Real annual growth rate 3-6% Real annual growth rate >6% ROI at Different Stages of the Industry Life Cycle
- 10. 0 2 4 6 8 10 12 ROI Value Added/Revenue Technical Change New Products % Sales from New Products Product R&D/Sales Age of Plant & Equip. Investment/Sales Advertising/Sales Growth Maturity Decline Note: The figure shows standardized means for each variable for businesses at each stage of the life cycle. Strategy and Performance at across the Industry Life Cycle
- 11. 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
- 12. 1880s 1920s 1960s 2000 Mail order, catalogue retailing e.g. Sears Roebuck Chain Stores e.g. A&P Discount Stores e.g. K-Mart Wal-Mart “Category Killers” e.g. Toys-R-Us, Home Depot Internet Retailers e.g. Amazon; Expedia Warehouse Clubs e.g. Price Club Sam’s Club Innovation & Renewal over the Industry Life Cycle: Retailing ?
- 13. BCG’s Strategic Environments Matrix Small Big SIZE OF ADVANTAGE Many Few SOURCES OF ADVANTAGE FRAGMENTED SPECIALIZATION apparel, housebuilding pharmaceuticals, luxury cars jewelry retailing, sawmills chocolate confectionery STALEMATE VOLUME basic chemicals, volume jet engines, food supermarkets grade paper, ship owning motorcycles, standard (VLCCs), wholesale banking microprocessors
- 14. BCG’s Analysis of the Strategic Characteristics of Specialization Businesses high low ENVIRONMENTAL VARIABILITY ABILITY TO SYSTEMATIZE low high CREATIVE EXPERIMENTAL fashion, toiletries, magazines general publishing food products PERCEPTIVE ANALYTICAL high tech luxury cars, confectionery paper towels