1. MKT 490 Innovation & New Venture Growth Mishari Alnahedh

2. INDUSTRY EVOLUTION

3. Can Industry Evolution be Anticipated?
Mishari Alnahedh
Can Industry Evolution be Anticipated?
Although every industry follows a unique development path, it is possible to detect some common patterns that are the result of common driving forces
The key is to identify these patterns of industry evolution, the forces that drive them, and their implications for competition and competitive advantage
Is the industry life cycle a valid and useful description of how industries evolve?
Does categorization of industries according to their stage of development serve any useful purpose?

4. Drivers of industry evolution:
The Industry Life Cycle
Mishari Alnahedh
Industry Sales
Introduction
Growth
Maturity
Decline
Time
Drivers of industry evolution:
Demand growth
Creation and diffusion of knowledge
© 2013 Robert M. Grant

5. Patterns of evolution differ across industries
How Typical is the Life Cycle Pattern?
Mishari Alnahedh
Patterns of evolution differ across industries
Some industries may retain features of emerging industries - Technology-intensive industries (e.g. pharmaceuticals, semiconductors, computers)
Some industries reach maturity, but never enter a decline phase - Especially those providing basic necessities, e.g. food processing, construction, apparel
Some industries may experience a rejuvenation of their life cycle - The world motorcycle industry, the TV monitor industry
Sales
Sales
Flat screen
Color
Portable
HDTV
B&W
MOTORCYCLES
TELEVISIONS
© 2013 Robert M. Grant

6. Industry Life Cycle
Mishari Alnahedh
To what extent do industries conform to the industry life cycle pattern?
The tendency over time has been for life cycles to become compressed
Competing on internet time
An industry is likely to be at different stages of its life cycle in different countries
Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre-determined pattern of industry development

7. Retailing Innovation & Renewal over the Industry Life Cycle
Mishari Alnahedh
Retailing
Warehouse clubs e.g. Sam’s Club
Internet Retailers e.g. Amazon
Mail order catalogue retailing e.g. Sears, Roebuck
Chain stores e.g. A&P
Discount stores e.g. WalMart
“Category Killers”, e.g. Toys R Us
1880s s s s s s
© 2013 Robert M. Grant

8. Demand growth as a driver of industry evolution
Mishari Alnahedh
The S-shaped growth curve
Introduction stage:
Sales are small and the rate of market penetration is low because the industry’s products are little known and customers are few
Growth stage:
Market penetration accelerates as product technology becomes more standardized and prices fall
Maturity stage:
Market saturates and demand is wholly for replacement
Decline stage:
The industry becomes challenged by new industries that produce technologically superior substitute products

9. Creation and diffusion of knowledge as a driver of industry evolution
Mishari Alnahedh
New knowledge in the form of product innovation is responsible for an industry’s birth
The dual processes of knowledge creation and knowledge diffusion have a major influence on the pattern of development
In the introduction stage, product technology advances rapidly. - Rival technologies and business models compete to become the dominant design
Then there is a shift from product innovation to process innovation - Firms seek to reduce costs and increase product reliability through large-scale manufacturing methods
Over the course of the life cycle, customers become increasingly informed.

10. Product and Process Innovation Over Time
Mishari Alnahedh
Product Innovation
Process Innovation
Rate of innovation
Time
© 2013 Robert M. Grant

11. The Driving Forces of Industry Evolution
Mishari Alnahedh
BASIC CONDITIONS
INDUSTRY STRUCTURE
COMPETITION
Customers become more knowledgeable & experienced
Customers become more price conscious
Quest for new sources of differentiation
Products become more standardized
Diffusion of technology
Production becomes less R&D and skill-intensive
Production shifts to low-wage countries
Price competition intensifies
Excess capacity reached
Bargaining power of distributors increases
Demand growth slows as market saturation approaches
Distribution channels consolidate
© 2013 Robert M. Grant

12. Changes in the Population of Firms Over the Industry Life Cycle
Mishari Alnahedh
US Auto Industry
Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.
© 2013 Robert M. Grant

13. Production shifts from advanced to emerging companies
The Driving Forces of Industry Evolution
Mishari Alnahedh
Introduction
Growth
Maturity
Decline
Demand
Early adopters and affluent buyers
Rapid increase in market penetration
Replacement/ repeat buying; price sensitive customers
Obsolescence – Knowledgeable customers
Technology
Competing technologies; rapid product innovation
Standardization; rapid process innovation
Diffused know how; incremental knowledge
Little innovation – Well-diffused technology
Products
Wide variety of features and designs
Design & quality improve; dominant design emerges
Commoditization; brand differentiation
Differentiation difficult
Manufacturing
Short-runs, skill intensive
Capacity shortage; mass production
Over-capacity emerges, deskilling
Overcapacity
Trade
Production shifts from advanced to emerging companies
Competition
Few companies
Entry, mergers exist
Shakeout and consolidation
Price wars and exit
KSFs
Product innovation
Design for manufacture; process innovation
Cost efficiency (scale economics low cost inputs)
Low overheads; rationalization
© 2013 Robert M. Grant

14. The Role of Scale Economies and Entry Barriers
Mishari Alnahedh
Scale economies and entry barriers play a key role in different paths of evolution between industries
Concentration increases substantially over the life cycle
When entry barriers rise due to increasing scale economies and capital requirements - Automobiles, commercial aircraft, telecommunications equipment
Or when entry barriers rise due to product differentiation and access to distribution channels - Soft drinks, ice cream, cosmetics
Concentration may decline
When entry barriers fall because technology becomes more accessible
Or when product differentiation declines - Credit cards, television broadcasting, frozen foods

15. The nature and intensity of competition at each stage of life cycle
Mishari Alnahedh
Introduction stage:
Competitors battle for technological leadership
Competition focuses on technology and design
Gross margin can be high, but heavy investments in innovation
Market development tend to depress return on capital
Growth stage
Market demand outstrips industry capacity – especially if incumbents are protected by barriers to entry
Maturity stage:
Maturity is associated with strong price competition
Increased product standardization increases the emphasis on price competition
Decline stage
Strong price competition may degenerate into destructive price wars and dismal profit performance

16. ROI at Different Stages of the Industry Life Cycle
Mishari Alnahedh

17. ROI at Different Stages of the Industry Life Cycle
Mishari Alnahedh
© 2013 Robert M. Grant

18. Adapting to faster rates of change
Mishari Alnahedh
At the heart of the business model is core strategy
Business mission
Product/market scope
A basis for differentiation
The foundations for competitive advantage are strategic resources and capabilities
What the firm knows (core competencies)
What the firm owns (strategic assets)
What the firm does (core processes)

19. The industry life cycle model is a useful approach to
Today’s Main Takeaway
Mishari Alnahedh
The industry life cycle model is a useful approach to
Explore the impact of temporal processes of market saturation, and technology development and dissemination, and
Their impact on industry structure and the basis of competitive advantage
The model acts as a shortcut in strategy analysis
Categorizing an industry according to its stage of development can alert us to the type of competition likely to emerge and the kinds of strategy likely to be effective
The model directs attention to the forces of change and direction of industry evolution
thereby helping us to anticipate and manage change