Industry Industry Evolution Evolution OUTLIN E • The industry life cycle • Industry structure, competition, and success factors over the life cycle • Anticipating and shaping the future Industry Sales The The Industry Industry Life Life Cycle Cycle Introduction Growth Maturity Time Drivers of industry evolution : • demand growth • creation and diffusion of knowledge Decline Product Product and and Process Process Innovation Innovation Over Over Time Time Rate of innovation Product Innovation Process Innovation Time Standardization Standardizationof ofProduct ProductFeatures Featuresin inCars Cars FEATURE INTRODUCTION Speedometer 1901 by Oldsmobile Automatic transmission 1st installed 1904 GENERAL ADOPTION Circa 1915 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 by 1969 Antilock brakes Introduced 1972 Standard on GM cars in 1991 Air bags GM introduces, 1974 By 1994 most new cars equipped with air bags How How Typical Typical is is the the Life Life Cycle Cycle Pattern? 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 B&W Color Portable HDTV ? 1900 ‘50 ‘60 ‘90 MOTORCYCLES 1930 50 60 TV’s 90 • Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, predetermined pattern of industry development Evolution Evolutionof of Industry Industry Structure Structureover overthe theLife Life Cycle Cycle INTRODUCTION Affluent buyers GROWTH Increasing penetration TECHNOLOGY Rapid product innovation Product and Incremental process innovation innovation PRODUCTS Wide variety, Standardization rapid design change MANUFACTURING Short-runs, skill Capacity shortage, Deskilling intensive mass-production DEMAND TRADE MATURITY Mass market replacement demand Commoditization DECLINE Knowledgeable, customers, residual segments Well-diffused technology Continued commoditization Overcapacity -Production shifts from advanced to developing countries - COMPETITION Technology- Entry & exit KSFs Product innovation Process technology Design for Shakeout & consolidation Cost efficiency Price wars, exit Overhead reduction, rationalization, low cost sourcing The The Driving Driving Forces Forces of of Industry Industry Evolution Evolution BASIC CONDITIONS Customers become more knowledgeable & experienced INDUSTRY STRUCTURE Customers become more price conscious 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 COMPETITION Distribution channels consolidate Quest for new sources of differentiation Price competition intensifies Bargaining power of distributors increases Changes Changesin inthe thePopulation Populationof ofFirms Firmsover overthe the Industry IndustryLife LifeCycle: Cycle:US USAuto Auto Industry Industry1885-1961 1885-1961 250 200 150 No of firms 100 50 1895 1905 1915 1925 1935 1945 1955 Source: S Klepper, Industrial & Corporate Change, August 2002, p 654 ROI ROIat atDifferent DifferentStages Stagesof of the the Industry IndustryLife LifeCycle Cycle 25 20 ROI (%) 15 Real annual growth rate 6% Growth Maturity Decline Strategy Strategyand andPerformance Performanceat atacross acrossthe theIndustry IndustryLife LifeCycle Cycle 12 Growth Maturity Decline 10 Advertising/Sales Investment/Sales Age of Plant & Equip Product R&D/Sales % Sales from New Products New Products Technical Change Value Added/Revenue ROI Note: The figure shows standardized means for each variable for businesses at each stage of the life cycle Preparing Preparing for for the the Future Future :: The The Role Role of of Scenario Scenario Analysis Analysis in in Adapting Adapting to to Industry Industry Change 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 Innovation Innovation && Renewal Renewal over overthe the Industry Industry Life Life Cycle: Cycle:Retailing Retailing Mail order, catalogue retailing e.g Sears Roebuck 1880s Chain Stores e.g A&P 1920s Warehouse Internet Clubs Retailers e.g Price Club e.g Amazon; Sam’s Club Expedia Discount “Category Stores Killers” e.g K-Mart e.g Toys-R-Us, Wal-Mart Home Depot ? 1960s 2000 BCG’s BCG’s Strategic Strategic Environments Environments Matrix Matrix FRAGMENTED Many SOURCES OF ADVANTAGE Few 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 Small microprocessors Big SIZE OF ADVANTAGE BCG’s BCG’sAnalysis Analysis of of the the Strategic Strategic Characteristics Characteristics of of Specialization Specialization Businesses Businesses low ABILITY TO SYSTEMATIZE CREATIVE EXPERIMENTAL fashion, toiletries, magazines general publishing food products PERCEPTIVE ANALYTICAL high tech luxury cars, confectionery high paper towels high low ENVIRONMENTAL VARIABILITY ... The Role Role of of Scenario Scenario Analysis Analysis in in Adapting Adapting to to Industry Industry Change Change Stages in undertaking multiple Scenario Analysis: • Identify major forces driving... Bargaining power of distributors increases Changes Changesin inthe thePopulation Populationof ofFirms Firmsover overthe the Industry IndustryLife LifeCycle: Cycle:US USAuto Auto Industry Industry1885-1961... B&W Color Portable HDTV ? 1900 ‘50 ‘60 ‘90 MOTORCYCLES 1930 50 60 TV’s 90 • Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, predetermined pattern