Industry 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 Industry Life Cycle
Introduction
Growth
Maturity
Time
Drivers of industry evolution :
• demand growth
• creation and diffusion of knowledge
Decline
Product and Process Innovation Over Time
Rate of innovation
Product Innovation
Process Innovation
Time
Standardization of Product Features in Cars
FEATURE
INTRODUCTION
GENERAL ADOPTION
Speedometer
1901 by Oldsmobile
Automatic transmission 1st installed 1904
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
Introduced 1972
Standard on GM cars in 1991
Air bags
GM introduces 1974
By 1994 most new cars equipped
with air bags
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 90 07
MOTORCYCLES
Color
B&W
1930
50 70
TV’s
Portable
90
HDTV
?
07
• Life cycle model can help us to anticipate industry
evolution—but dangerous to assume any common, predetermined pattern of industry development
Evolution of Industry Structure over the Life Cycle
INTRODUCTION
Affluent buyers
GROWTH
Increasing
penetration
TECHNOLOGY
Rapid product
innovation
Product and
Incremental
process innovation innovation
PRODUCTS
Wide variety,
Standardization
rapid design change
Commoditization
Continued
commoditization
MANUFACTURING
Short-runs, skill
intensive
Deskilling
Overcapacity
DEMAND
TRADE
Capacity shortage,
mass-production
MATURITY
Mass market
replacement
demand
DECLINE
Knowledgeable,
customers, residual segments
Well-diffused
technology
-----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 Driving Forces of Industry Evolution
BASIC CONDITIONS
Customers become
more knowledgeable
& experienced
INDUSTRY STRUCTURE
Customers become
more price conscious
Products become
more standardized
Diffusion of
technology
COMPETITION
Production
becomes less R&D
& skill-intensive
Production shifts
to low-wage
countries
Quest for new
sources of
differentiation
Price competition
intensifies
Excess capacity
increases
Demand growth
slows as market
saturation approaches
Distribution channels
consolidate
Bargaining power
of distributors
increases
Changes in the Population of Firms over the
Industry Life Cycle: US Auto Industry 1885-1961
250
200
150
No. of firms
100
50
0
1895
1905
1915
1925
1935
1945
1955
Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.
The World’s Biggest Companies, 1912 and 2006
(by market capitalization)
1912
$ bn.
2006
$ bn.
US Steel
0.74
Exxon Mobil
372
Exxon
0.39
General Electric
363
J&P Coates
0.29
Microsoft
281
Pullman
0.20
Citigroup
239
Royal Dutch Shell
0.19
BP
233
Anaconda
0.18
Bank of America
212
General Electric
0.17
Royal Dutch Shell
211
Singer
0.17
Wal-Mart Stores
197
American Brands
0.17
Toyota Motor
197
Navistar
0.16
Gazprom
196
BAT
0.16
HSBC
190
De Beers
0.16
Procter & Gamble
190
ROI at Different Stages of the Industry Life Cycle
25
20
15
Real annual
growth rate <3%
10
Real annual
growth rate 3-6%
ROI (%)
Real annual
growth rate >6%
5
0
Growth Maturity Decline
Strategy and Performance across the Industry Life Cycle
12
Growth
Maturity
Decline
10
8
6
4
Advertising/Sales
Investment/Sales
Age of Plant &
Equip.
Product
R&D/Sales
% Sales from
New Products
New Products
Technical
Change
Value
Added/Revenue
0
ROI
2
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
Innovation & Renewal over the
Industry Life Cycle: 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
Gary Hamel: Shaking the Foundations
OLD BRICK
NEW BRICK
Top management is responsible
for setting strategy
Everyone is responsible
for setting strategy
Getting better, getting faster
is the way to win
Rule-busting innovation
is the way to win
IT creates competitive advantage
Unconventional business concepts
create competitive advantage
Being revolutionary is high risk
More of the same is high risk
We can merge our way to
competitiveness
There’s no correlation between
size and competitiveness
Innovation equals new products
and new technology
Innovation equals entirely new
business concepts
Strategy is the easy part,
Implementation the hard part
Strategy is the easy only if you’re
content to be an imitator
Change starts at the top
Change starts with activists
Our real problem is execution
Our real problem is execution
Big companies can’t innovate
Big companies can become gray-haired
revolutionaries
BCG’s Strategic Environments 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
microprocessors
Big
Small
SIZE OF ADVANTAGE
BCG’s Analysis of the Strategic Characteristics
of Specialization Businesses
low
ABILITY TO
SYSTEMATIZE
CREATIVE
EXPERIMENTAL
fashion,
toiletries, magazines
general publishing
food products
PERCEPTIVE
ANALYTICAL
high tech
luxury cars, confectionery
paper towels
high
high
low
ENVIRONMENTAL VARIABILITY