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Industry Evolution and Strategic

Change

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Industry Evolution and Strategic
Change

• The industry life cycle


• Structure, competition, and
success factors over the life
cycle.
• Organizational adaptation and
change
Industry Sales The Industry Life Cycle 1

Introduction Growth Maturity Decline

Time

Drivers of industry evolution :


a) demand growth b) creation and diffusion of knowledge
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Example
Example: changes in the Population of Firms
over the Industry Life Cycle:
US Auto Industry 1895-1960
The Industry Life Cycle 2
• Introduction: sales are small, rate of market
penetration is low because the industry’s products
are little known. The novelty of the technology, small
scale of production, lack of experience: high costs
and low quality. Customers: affluent, innovation-
oriented, risk-tolerant.
• Growth: accelerating market penetration, technical
improvements and increases efficiency open up the
mass market
• Mature: demand is wholly for replacement
• Decline: challenged by new industries that produce
technologically superior substitute products.

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Product and Process Innovation Over Time

Product Innovation
Rate of innovation

Process Innovation

Time

Product: radical to incremental; Process: reduce costs and increase


product reliability through large-scale production methods 4
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, clothes) reach maturity, but not decline.

 Industries may experience life cycle regeneration, e.g. motorcycles, TVs:

 Life cycle model can help us to industry evolution—but dangerous to


assume any common, pre-determined pattern of industry development

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Innovation & renewal over the industry life
cycle: retailing
Sears,
Roebuck
and
Copany
catalog,
1918.
Rate of Change Industry breakpoints

Dominant Design

Differentiation

Differentiation Cost
New technology

Time
• E.g. televisions – vacuum tube to LCD
Evolution of Industry Structure over the Life Cycle

INTRODUCTION GROWTH MATURITY DECLINE


DEMAND Early adopters Rapidly increasing Replacement/ repeat Obsolescence
market penetration buying; price sensitive
customers
TECHNOLOGY Competing Standardization; rapid Diffused know how; Little
technologies; rapid process innovation incremental innovation innovation
product innovation
PRODUCTS Wide variety of Design & quality Commoditization; Differentiation
features & designs improve; dominant brand differentiation difficult
design emerges
MANUFACTUR Short-runs, skill Capacity shortage, Over-capacity Overcapacity
ING intensive mass- production emerges; deskilling
TRADE ------Production shifts from advanced to developing countries------
COMPETITION Few companies Entry, mergers exit Shakeout & Price wars &
consolidation exit
KSFs Product innovation Design for manufacture Cost efficiency (scale Low overheads;
Process innovation economies, low cost rationalization
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inputs)
The Driving Forces of Industry Evolution
BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION

Customers become
Customers become
more knowledgeable
more price conscious
& experienced
Quest for new
sources of
Products become differentiation
more standardized

Diffusion of
Price competition
technology Production Production shifts intensifies
becomes less to low-wage
R&D & skill- countries
intensive
Excess capacity
increases
Bargaining power
Demand growth
slows as market of distributors
saturation approaches Distribution channels increases
consolidate 8
The World’s Biggest Companies, 1912 and 2016
(by market capitalization)

1912 $bn 2016 $bn

US Steel 0.74 Apple 617

Exxon 0.39 Alphabet 531

J&P Coates 0.29 Microsoft 483

Pullman 0.20 Berkshire Hathaway 401

Royal Butch Shell 0.19 Amazon 356

Anaconda 0.18 Exxon Mobil 374

General Electric 0.17 Facebook 331

Singer 0.17 Johnson & Johnson 313

American Brands 0.17 JPMorgan Chase 308

Navistar 0.16 General Electric 279 10


Strategic drift 2
• Why do companies end up in position B?
– Failure to identify drift?
– Failure by management to accept that there is a problem?
– Not possible for organisation to change quickly enough in
its current configuration
• Problem:
– How do you tell the difference between a “blip” and a
long-term trend?
– Effects of drift may take some time to work their way
through to the bottom line – may be too late!
– In position B no-one can deny that change is needed – but
what should that change be?
A typical strategic drift scenario
Extent of Change

Environmental
Change

Transformation or Demise

Time
Types of change-in integrative model (1)

Scope of Change
Transformation Realignment

Incremental Evolution Adaptation


Nature of
Change
Big Bang Revolution Reconstruction

Source: Balogun & Hope Hailey (2002)


Scope of change 1
• Realignment
– Changes to the way of doing things
– But no substantial change to the central assumptions and
beliefs within the organisation
– Motivation is usually to increase responsiveness,
effectiveness and/or efficiency

Example
– reorganising the Brunel University London’s admissions
and enrolment process
– Can be seen as the exercise of good management
Scope of change 2
• Transformation
– Change which cannot be handled within the
existing paradigm
– Fundamental change in strategy, structures,
systems, processes and culture
– Involves “conceptual” change, so more difficult
to accomplish successfully
– Can be seen as the exercise of leadership
Types of change-an integrative model (2)
• Adaptation
– Within current paradigm, incremental
– The most common form of change in organisations
• Reconstruction
– Rapid, a great change, but no fundamental change
to the paradigm.
– Could be a turnaround, or a major cost-cutting
programme
Types of change-an integrative model
(3)
• Evolution
– Strategic change involving paradigm change
– Anticipates need for substantial change and carries it out in
a planned way over time
– Learning organisations
• Revolution
– Rapid and major strategic and paradigm change
– Normally triggered by a crisis or threat due to strategic drift
– Unpleasant. People lose their lives in political revolutions!
Organizational Adaptation and Change:
The Sources of Inertia

• Organizational Routines: existing patterns of coordinated


activity make it difficult to develop new capabilities
• Social & political structures: change threatens existing
social relationships and power structures
• Conformity: imitation locks firms into common structures and
strategies (“institutional isomorphism”)
• Limited Search: “bounded rationality”, preference of
exploitation over exploration, and satisfying behavior limit firms
to incremental change
• Complementarities between strategy, structure, and
systems: firms create unique configurations of organizational
features; localized changes tend to be dysfunctional; change
needs to be systematic
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