1. Chapter 5: Industry Evolution & Strategic Change
Troy Harris
Homar Builtron
Nicholas Sharp
Nicholas Dieter

2. What do you think management’s greatest challenge is?

3. Management's greatest problem is CHANGE
Managers need to ensure that the enterprise adapts to its environment and to the changes occurring within that environment.

5. Change in the industry is driven by the forces of:
Technology
Consumer Need
Politics
Economic Growth
In some industries, these forces for change combine to create massive, unpredictable changes.

6. Changes in Google’s Industry
Technology: Unprecedented changes in Google’s industry has caused massive growth in profits
Consumer Need: Consumer need has caused products to become more portable, easier to use, and compatible with other devices
Politics: The political situations in China and the European Union will make Google and other companies change their business strategy
Economic Growth: With more money in consumers pockets, consumers are more willing to spend money on luxurious products. This is evidenced with the recent growth in the stock market.

7. Change is a good thing; however, it is difficult to ensure the adaption of the firm to these changes.
Blockbuster, Polaroid, and Hastings failed to adapt to the changes in their respective industries. GameStop is struggling right now because they failed to see that consumers wanted digital downloads for games. They are having to have sales on newer games and expanded their digital download choices. They finally adapted to their industry’s change, but it may have been to little to late.

8. Implications of the Lifecycle for Competition and Strategy
Changes in demand growth and technology over the cycle have implications for industry structure, competition and the sources of competitive advantage
Categorizing industries according to their stages of development alerts to the types of competition likely to emerge and the strategies that are likely to be effective

9. The Introduction Phase
The number of firms in an industry increases rapidly during the introduction phase of an industry’s lifecycle
New entrants often have very different origins
Start-up companies
Established firms diversifying from related industries
Typically features a wide variety of product types that reflect the diversity of technologies and designs and the lack of consensus over customer requirements.
During this phase, gross margins can be high, but heavy investments in innovation and market development tend to depress return on capital

10. The Growth Phase As demand grows, a dominant design emerges
As the market expands, the firm needs to adapt its product design and manufacturing capability to large-scale production
To utilize manufacturing capacity, access to distribution becomes critical
Financial resources also become important as investment requirements grow
Production and assembly eventually may shift away from the advanced countries and these countries may start to import

11. The Maturity Phase
Competitive advantage is increasingly a quest for efficiency, particularly in industries that tend towards commoditization
The number of firms begins to fall as product standardization and excess capacity stimulate price competition
Industries go through one or more ‘shakeout’ phases during which the rate of firm failure increases sharply
With maturity comes the commoditization and de-skilling of production processes, and production eventually shifts to developing countries where labour costs are lowest

12. The Decline Phase
The transition from maturity to decline can be a result of technological substitutions
Shrinking market demand gives rise to acute strategic issues
Key features of declining industries:
Excess capacity
Lack of technological change
A declining number of competitors
Aggressive price competition

13. Managing Organizational Adaptation and Strategic Change
The sources of organizational inertia:
Organizational routines
Social and political structures
Conformity
Limited search
Complementarities

14. Coping With Technological Change
Competence-enhancing technological change
Competence-destroying technological change
Architectural and component innovation
Disruptive technologies

15. Managing Strategic Change
Duel Strategies- positioning for the present and adapting for the future
Requires short-term and long-term planning
Almost always focus on short term
Hard to deal with disruptive technology

16. Ambidextrous Organization
Two kinds of ambidexterity
Structural ambidexterity
Contextual ambidexterity

17. Structural Ambidexterity
Different parts of the organization take part in exploitative activities.
Easier to foster change in a new organizational unit rather than the existing organization
This is done in separate units
Ex: IBM and personal computers

18. Contextual Ambidexterity
Involves the same organizational units and members pursuing innovation
Use existing products while trying to add creativity
Ex: Google gives employees 20% free time to work on exploratory products
This is effective because engineers do not have to wait for approval

19. Tools for Strategic Change Management
Creating perceptions of crisis
Releases the status quo
Establishing stretch targets
Create organizational initiatives
Reorganization and new blood

20. Dynamic Capabilities
How to integrate, build, and reconfigure internal and external competences to address rapidly changing environments
Google’s Dynamic Capabilities:
Engineering skill in computer science
Science based expertise in human capital
Leadership that focuses on innovation culture and emphasis on people

21. Google’s Unorthodox Management Model
Dynamic capabilities
A continuously changing organization
A people-centric approach
An ambidextrous organization.
An open organization that networks with its surroundings
A systems approach to work differs from the conventional linear way of working

22. Shaping the Future
Adapting to external change is how to fall behind and play catch-up, but creating the future is how to accrue competitive advantages
Google:
Revolution is required for a company to not go extinct, which requires changing the psychological and sociological norms of an organization that hinder innovation (next slide)
BMW- survived two world wars and transformed
Burberry- from raincoats and mountain gear to global fashion
Amazon- from books to a full organization
Enron-Utility and pipeline to trader/market-maker in energy futures, to collapse
Vivendi-multimedia empire built on french water and waste utility fell apart
Nokia-Able to change from forest products and cable manufacturer to biggest supplier of wireless handsets, but could not sustain it
sharp

23. Shaking the Foundations
sharp

24. Developing New Capabilities
Adapting to a changing world requires developing the capabilities needed to renew competitive advantage
Google created the algorithms that make a user’s searches bring up the most relevant articles or websites from the internet, which leads to Google being the most used search engine in the world
Certain capabilities are Path Dependent: meaning that they are as a result of its history
Walmart distribution
Exxon and Royal Dutch Shell
Established capabilities are a big barrier to creating new ones
Dell direct sales vs. retail outlets
sharp

25. Integrating Resources to Create Capability
Many companies are able to create capabilities which is a good thing, and is done through a process
Combining different resources and skills of members in the organization
Success depends on the presence of suitable:
Processes- efficient, repeatable, reliable
Structure- the parts of a capability need to be located in the same unit if they want to achieve higher performance
Motivation- with it, people will set aside their own aspirations to help the team as a whole
Organizational alignment- all the pieces need to fit together and point in one direction in the context of the broader organization
sharp

26. Developing Capabilities Sequentially
Go from one or a few capabilities being created, to another set
This helps with resource allocation including manager’s time
Ensures that a new capability fits into the four pieces of processes, structure, motivation, and alignment before moving on to another project
Helpful to not focus on the organizational capabilities themselves when developing them, but focus on developing and supplying the products that use those capabilities and this leads to a better understanding of the capability itself
Very effective when developing an entirely new area of business
The key being that each stage of development is to be linked to a clearly defined set of capabilities and not to a specific product
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27. Hyundai Motor: Developing capabilities through Product Sequencing
Each phase of development was characterized by a clear objective in terms of product outcome, tight deadline, empowered development team, clear recognition of the desired capabilities, and a plan B.
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28. Summary It is hard to ensure if firms will adapt to change
Several factors cause industries to change
It is hard to ensure if firms will adapt to change
Strategic change requires building new capabilities
To understand how to build a capability, it is necessary to understand how resources are integrated into said capability, which points to the advantage of using a sequential approach to developing a capability