1. Industry Evolution OUTLINE The industry life cycle
Industry structure, competition, and success factors over the life cycle.
Anticipating and shaping the future. 37

2. The Industry Life Cycle
Industry Sales
Introduction Growth Maturity Decline
Time
Drivers of industry evolution :
demand growth
creation and diffusion of knowledge 38

3. Product and Process Innovation Over Time
Product Innovation
Process Innovation
Rate of innovation
Time 39

4. Standardization of Product Features in Cars
FEATURE INTRODUCTION GENERAL ADOPTION
Speedometer by Oldsmobile Circa 1915
Automatic transmission 1st installed 1904 Introduced by Packard as an option, 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 Becomes standard late 1920s
Radio Optional extra 1923 Standard equipment, 1946
Four-wheel drive Appeared 1924 Only limited availability by 1994
Hydraulic brakes Introduced Became standard 1939
Shatterproof glass 1st used 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 41

5. 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
MOTORCYCLES TV’s
Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre- determined pattern of industry development
Color
B&W
Portable
HDTV ? 42

6. Evolution of Industry Structure over the Life Cycle
INTRODUCTION GROWTH MATURITY DECLINE
DEMAND Affluent buyers Increasing Mass market Knowledgeable,
penetration replacement customers, resi-
demand dual segments
TECHNOLOGY Rapid product Product and Incremental Well-diffused
innovation process innovation innovation technology
PRODUCTS Wide variety, Standardization Commoditiz Continued rapid design change ation commoditization
MANUFACT- Short-runs, skill Capacity shortage, Deskilling Overcapacity
URING intensive mass-production
TRADE Production shifts from advanced to developing countries-----
COMPETITION Technology- Entry & exit Shakeout & Price wars,
consolidation exit
KSFs Product innovation Process techno Cost efficiency Overhead red logy. Design for uction, ration alization, low
cost sourcing 43

7. The Driving Forces of Industry Evolution
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
Price competition
intensifies
Production
becomes less R&D
& skill-intensive
Production shifts
to low-wage
countries
Excess capacity
increases
Bargaining power
of distributors
increases
Demand growth
slows as market
saturation approaches
Distribution channels
consolidate 44

8. Changes in the Population of Firms over the
Industry Life Cycle: US Auto Industry
Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.

9. The World’s Biggest Companies, 1912 and 2006
(by market capitalization)
1912
$ bn.
2006
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
0.17
211
Singer
Wal-Mart Stores
197
American Brands
Toyota Motor
Navistar
0.16
Gazprom
196
BAT
HSBC
190
De Beers
Procter & Gamble

10. ROI at Different Stages of the Industry Life Cycle

11. Strategy and Performance across the Industry Life Cycle
Note: The figure shows
standardized means for each variable for businesses at each stage of the life cycle.

12. 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

13. Innovation & Renewal over the Industry Life Cycle: Retailing
Warehouse
Clubs
e.g. Price Club
Sam’s Club
Internet
Retailers
e.g. Amazon;
Expedia
Discount
Stores
e.g. K-Mart
Wal-Mart
“Category
Killers”
e.g. Toys-R-Us,
Home Depot
Mail order,
catalogue
retailing
e.g. Sears
Roebuck ?
Chain
Stores
e.g. A&P
1880s s s

15. 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
Unconventional business concepts
create competitive advantage
IT creates 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 only if you’re
content to be an imitator
Strategy is the easy part,
Implementation the hard part
Change starts with activists
Change starts at the top
Our real problem is execution
Our real problem is execution
Big companies can become gray-haired
revolutionaries
Big companies can’t innovate

16. BCG’s Strategic Environments Matrix
FRAGMENTED 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
Many
SOURCES OF
ADVANTAGE
Few
Big
Small
SIZE OF ADVANTAGE 45

17. ENVIRONMENTAL VARIABILITY
BCG’s Analysis of the Strategic Characteristics of Specialization Businesses
CREATIVE EXPERIMENTAL
fashion, toiletries, magazines
general publishing food products
PERCEPTIVE ANALYTICAL
high tech luxury cars, confectionery
paper towels
low
ABILITY TO
SYSTEMATIZE
high
high low
ENVIRONMENTAL VARIABILITY 46