Industry Evolution and Strategic Change Team 2 - 11 a.m. Dylan, Bruno, Christopher, Nital

The only thing that stays the same is that things change. It is impossible for a business to operate the exact same way for eternity and survive. Change is brought unto an industry by a number of forces: Technology, consumer needs, politics, and economic growth, just to name a few. Fortunately, this change brings with it new opportunities for innovation and profit.

Improvise, Adapt, Overcome Tracing its roots back to the 1850s, Anheuser-Busch faced a serious hurdle when the U.S. made the sale of alcoholic beverages illegal in 1920. Q: How does a brewery survive when their primary product is criminalized? A: Sell ice cream! A-B had to sell ice cream, yeast, malt extract, and nonalcoholic brewed beverages to survive Prohibition. The moral of this story is that an adaptable company can overcome great challenges when put to the test.

Process & Product Innovation Dominant Design In many new markets, competition is between business models. Dominant designs can emerge in both products and processes. In industries where compatibility is important, meeting technical standards is a minimum for viability. Relevance to A-B InBev: Innovations mainly in cost-cutting and new flavors. Disclaimer: For your sake, we will provide a mix of generally applicable principles, but we will also point out how our industry differs from these.

Industry Life Cycle Follows the same pattern as the product life cycle, though it is longer. Many basic goods are exceptions to this pattern. Can be rejuvenated via product innovation or developing new markets. Relevance to A-B InBev: Beer is eternal! Or so we may think... Over time, it has been shown that product life cycles have become more compressed. The book refers to ‘competing on internet time,’ which has further compressed life cycles since new products, ideas, and innovations can be spread very rapidly.

Phases within a lifecycle Introduction Phase Typically features a wide variety of product types that reflect the diversity of technologies and designs and the lack of consensus over customer requirements. Gross margins can be high, but heavy investments in innovation and market development tend to depress return on capital. Growth Phase As demand grows, a dominant design usually emerges. The key challenge is scaling up. As the market expands, the firm needs to adapt its product design and manufacturing capability to large scale production, in order to fully utilize manufacturing capacity, access to distribution becomes critical.

Phases continued... Maturity Phase Competitive advantage is increasingly a quest for efficiency, particularly in industries that tend towards commoditization. Cost efficiency through scale economies, low wages and low overheads become the key success factors. Decline Phase The transition from maturity to decline can be a result of technological substitution, changes in consumer preferences, or foreign competition. Key features of declining industries: excess capacity, lack of technical change, a declining number of competitors, high average of both physical and human resources, and aggressive price competition

Barriers to organizational change Organizational Routines Social and Political Structures Conformity Limited search Complementarities between strategy, structure, and systems

Tools of strategic change management Creating perceptions of crisis Establishing stretch targets Creating organizational initiatives Reorganization and new blood

Dynamic Capabilities David Teece defined the term as a “firm’s ability to integrate and reconfigure internal and external competences to address rapidly changing environments”

Scenario Planning Companies must have the capacity to anticipate changes in their environments Scenario analysis is a way of thinking about how the future could unfold (different from forecasting) Herman Kahn defined scenarios as “hypothetical sequences of events constructed for the purpose of focusing attention on causal process and decision points” Qualitative vs quantitative scenario analysis

Shaping the future Tom Peters and Gary Hamel that the key to organizational change is not to adapt to change, but to initiate it Gary Hamel said that an organization that is slowly adapting to change is already going extinct An organization must eliminate the psychological and sociological norms in order to move forward During A-B Inbev’s early stage, they introduced artificial refrigeration, refrigerated railcars, rail-side ice houses

Integrating Resources to Create Capability Companies survive over long periods of time by creating new capabilities that they didn’t have before Components of developing new capabilities Processes Structure Motivation Organizational alignment

The 5 most common Competitive strategies A Low-cost provider strategy: states that the main focus is fixed on achieving lower costs than rivals on products/goods. A broad differentiation strategy:states that the objective is,seeking to differentiate the company’s product offering from rivals A focused low-cost strategy: states the main focus is on “narrow buyer segment” or market niche, striving to meet needs at lower costs than rivals A focus differentiation strategy: outcompeting rivals by offering members customized attributes that meet their tastes and requirements better than rivals products A best cost provider strategy: striving to incorporate upscale product attributes at a lower cost than rivals.