Lecture 4:
Understanding common approaches to business
strategy. What is the role of strategy and its
connection to competitive and technological
challenges
The Challenges of Business:
Case: Trouble Brewing in the Beer Industry
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Lecture 8: Management of Organizational
Strategy: Competitive and Technological Forces
Industrial and Technological Evolution
How does competition evolve over time
in industries? How does technological
change and innovation affect
competition? What are implications for
business strategy?
Case: Beer Industry, p.238
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INDUSTRIAL EVOLUTION – NUMBER OF
COMPETITORS

Number of competitors follows an inverted Ushaped curve
Shakeout
Time
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Industry Sales
INDUSTRIAL EVOLUTION – INDUSTRY
SALES
Introduction
Growth
Maturity
Decline
Time
Main drivers of industry evolution:


Demand growth
Creation and diffusion of technology and knowledge
NEW INDUSTRY CREATION &
INNOVATION




New industries emerge following innovations:

Technological (e.g. biotechnology)

Regulatory (e.g. satellite radio)
Characterized by uncertainty and risk (e.g.
satellite communications)
Early entrants are small, entrepreneurial firms
using technological innovation.
Competitors search for the
industry’s dominant design and
standard
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NEW INDUSTRY CREATION &
INNOVATION



New industries seek legitimacy through collective
action and institutional entrepreneurship
Despite increased competition, entry of large
incumbent firms into new markets legitimizes the new
industry
Characteristics of the emergence phase:

Low intra-industry rivalry

Intense R&D

Slow growth

Organic structures
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NEW INDUSTRY GROWTH
& SHAKEOUT




Growth stage begins with convergence around a
dominant design or technical standard
Organizations whose approach does not conform to
the dominant model either change or exit during a
shakeout
High growth and reduced uncertainty of the market
attracts larger, established firms into the industry
Standardization of products and processes leads to
economies of scale and less innovation as firms
focus on sales and marketing to capture mkt share
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INDUSTRY MATURITY





Market growth begins to slow down; very little entry
and rivalry becomes fierce among remaining firms
Market concentration increases with more exits and
acquisitions
Products become commoditized and
undifferentiated and innovations are incremental
and process improvements
Successful firms are efficient and mechanistic
Shift in successful strategy and structure explains
why few firms survive as industry leaders
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THE DECLINE PHASE


Industries begin to decline as a result of changes in:

Demographics (e.g. baby food in the 1960s)

Consumer needs/tastes (e.g. cigarettes)

Technology (e.g. typewriters, VCRs)
Firms can pursue different strategies to cope:

Maintain industry leadership

Target niche markets

Harvest profits

Exit early

Consolidate the remaining industry players
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TECHNOLOGICAL INNOVATIONS

Discontinuous / Radical / Breakthrough



Continuous / Incremental
Technological discontinuities can be:




Mobile phones, cars, computers etc
Competence-enhancing, or
Competence-destroying
Component / Modular / Material innovations
Architectural innovations
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TECHNOLOGICAL EVOLUTION


Technological innovation leads to
the “creative destruction”
(Schumpeter, 1942) of industries –
old technologies are ‘swept away’
Abernathy and Utterback propose
the technology lifecycle model to
explain how rates of product and
process innovation evolve during
from the fluid, to transitional to
specific phase of the technology
(see exhibit 6.4, p, 232 – The Challenges of Business)
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TECHNOLOGICAL LIFECYCLE
Product innovation
Rate of
Major
Innovation
Process innovation
Dominant design
Fluid Phase
Transitional
Phase
Specific Phase
(Utterback, 1994: p.17)
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TECHNOLOGICAL EVOLUTION


Technological discontinuities appear at rare
and irregular intervals and can dramatically
alter an industry’s structure
Period of uncertainty (era of ferment) ends
when a dominant design emerges and
technical progress focuses on incremental
improvements and process innovations (era
of incremental change) until the next
discontinuity

A punctuated equilibrium model (Anderson and
Tushman, 1990)
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A CYCLICAL MODEL OF TECHNOLOGICAL
CHANGE
Technological
Discontinuity
Era of
Incremental Change
Era of Ferment
Dominant Design
(Adapted from Anderson and Tushman, 1990)
FOSTER’S TECHNOLOGY S-CURVE
Product performance
Physical limits to technology’s performance
Foster’s s-curves predicts new
technological transition once
the physical limits to the current
technology reach a plateau
Time or engineering effort
Product performance
SUCCESSIVE S-CURVES
Third Technology
Second Technology
First Technology
Time or engineering effort
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INNOVATION & RENEWAL IN RETAILING
Warehouse
Clubs
e.g. Costco,
Sam’s Club
Mail order,
catalogue
retailing
e.g. Sears,
Montgomery
Ward
1880s
Chain
Stores
e.g. A&P,
JC Penney
1920s
Discount
Stores
e.g. K-Mart,
Wal-Mart
Electronic
Commerce
e.g. Amazon,
Drugstore.com
“Category
Killers”
e.g. Toys-R-Us,
Home Depot
1960s
2000
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CHARACTERISTICS OF THE INDUSTRY
LIFE-CYCLE STAGES
Stage
Introduction
Growth
Maturity
Decline
Market Growth
Slow
Very rapid
Moderate
Negative
Customers
Affluent, early technology
adopters
Niche markets, increasing
penetration
Price conscious mass
market, repeat
buyers
Rivalry
Low; technological
competition
Increasing; entry and exit;
shakeout
Intense; increased
concentration; exit
Price wars; exit; mergers
and acquisitions;
asset liquidation
Critical Functional
Areas
Research & Development
Sales and Marketing
Production and
Manufacturing
General Management and
Finance
Products
Very wide variety of
designs
Standardization
Commoditization
Continued commoditization
Rapid product innovation
Product and process
innovation
Incremental innovation
Very little innovation
Organizational
Structure
Organic
Organic
Mechanistic
Mechanistic
Generic Strategies
Product differentiation
Product differentiation
Cost Leadership
Cost Leadership / Focus
Key Objectives
Increase awareness;
achieve legitimacy;
specify dominant design
Create demand; capture
market share
Cost efficiency; extend
lifecycle
Characteristic
Technological
Development
Late adopters,
knowledgeable
users, residual
segments.
Market or niche
leadership; cost
reduction;
consolidation; exit
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ISSUES MANAGEMENT & STRATEGY



An Issue: a matter that is in
dispute between two or more
parties, may involve controversy
Must take into account multiple
stakeholders – personal and
organizational stakes come into
play
Involves multiple steps – may
also be linked to organizational
strategy and development
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THE ISSUES OF MANAGEMENT PROCESS
IDENTIFICATION OF ISSUES
ANALYSIS OF ISSUES
RANKING OR PRIORITIZATION
OF ISSUES
FORMULATION OF ISSUE
RESPONSES
IMPLEMENTATION OF ISSUE
RESPONSES
EVALUATION, MONITORING &
CONTROL OF RESULTS
Taken from The Responsibilities of Business, p, 48
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FOR THE NEXT SESSION
Confronting the Global Economy
What is globalization? How does it impact
business in Canada and around the
world? What are the pros and cons of free
trade agreements – particularly focusing
on NAFTA?
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