Strategic Management

Life-cycle Strategies
Industry Structure

Industry structure pertains to the number and size

distribution of competitors in an industry , according to
University of Maryland University College.

For eg. American Airline Industry, which had only one

service provider (Boing) but with the establishment and
stabilization of Airbus, Boing faces intense competition.
 Factors influencing Industry
Structure
• Industry competitors
• Customers
• Suppliers
• New entrants
• Substitutes
 Industry Life-cycle Analysis
A useful tool for analysing the effects of industry evolution on competitive
forces is the “Industry life cycle” model, which identifies five sequential
stages in the evolution of an industry, viz., embryonic, growth, shakeout,
maturity and decline.
The strength and nature of each of Porter’s five competitive forces
(particularly, those of ‘risk of entry by potential competitors’ and
‘rivalry among existing firms’) change as an industry evolves and
managers have to anticipate these changes and formulate appropriate
strategies.
Maturity
Embryoni Growt Shakeout Decline Note: This discussion
c h is regarding Industry
SALE Life-cycle analysis, In
S the light of Porter’s
Five-forces model. It is
not to be confused
Sales &
Profits

with Product Life-Cycle

PROFITS
strategies.

Tim
De r. B. K. 2
Some of these solutions were so radically different from incumbents’ products that
as was also the
when they first appeared they created their own category,

case with the iPod, Viagra and Netflix’s

streaming services.
Industry life cycle V/S Product life cycle
Although both life cycles share similar stages, the
major difference between them is the longevity of
these stages. A product life cycle is generally
short-lived as compared to the industry lifecycle.
Industry life cycles are fairly longer than the
product life cycle. Moreover, a product is one
element of the industry. Here is an example to
understand the difference.
Let’s take an example of the music industry, and it has been
there for centuries. It started with no or minimal
equipment, but with time, musicians started improvising by
making instruments to add flavor. Things kept getting better
and better as technology allowed singers to record their
voices.
As of today, the music industry has come a long way. Many
instruments became obsolete and were replaced by new
ones. But, the core ingredient-singing has remained the
same. Different music genres evolved with time but became
obsolete or were improvised with time. The products may
have lived shorter, but the industry is still here, booming
with every passing day.
Examples of Industry life cycle

Automobile industry
The history of the automobile industry goes back to 1769 when Nicholas-Joseph Cugnot, a
French inventor, made a three-wheeled streamer. Nicholas developed this engine to help the
French army in hauling artillery pieces.
Later, Oliver Evans created a motorized vehicle for both road and water movement.
Although the machine was considerably slower, it triggered something magnificent. It was
1896 when the United States saw the commercial production of automobiles. Since then,
the industry has only seen one thing, and that is constant innovation.
The concept of electric cars has revolutionized the industry. In fact, it isn’t a concept
anymore because it has turned into reality. The latest entrant or the potential entrant is
flying cars. No doubt, the automobile industry has come a long way. Although several
automobile models have totally been wiped out, the industry still stands tall.
Banking Industry
The banking sector is one of the oldest industries that started centuries
ago. The banking sector originated in different forms in different parts of
the world, but it was the Romans who initiated the banking system in the
true sense. Before them, banking transactions were carried out in temples
or other informal places.

Romans formalized the banking sector with proper institutional buildings.

The monarchs in Europe also consolidated the banking institution during
the 14th and 15th centuries. Different countries followed different banking
protocols or models over time.
Banking has evolved over time with hundreds of changes and a lot of
innovation. From manual to computerized to online banking, the banking
sector has become one of the biggest industries in the world. Most
importantly, customer facilitation has grown immensely over time.
 Stage v/s Strategy
EMBRYONIC STATE: Industry is just beginning to develop (eg., personal
computers in 1976). Growth at this stage is slow due to factors such as:
 Buyers’ unfamiliarity with the industry’s products,
 High prices due to poor economies of scale, and
 Poorly developed distribution channels.
Barriers to entry tend to be based on access to key technological know-how.
Higher the complexity, higher the barrier for new entrants.
Rivalry is based not so much on price as on
 educating customers,
 opening up distribution channels, and
 perfecting the design of the product.
The company that is first to solve design problems or employ innovative efforts is
often able to build up a significant market share, eg. Personal computers
(Apple), vacuum cleaners (Hoover) and photocopiers (Xerox – the ultimate
proof of the success of a brand).
The company has major opportunity to capitalize on the lack of rivalry and build
up a strong market presence.
Dr. B. K. Mukherjee 1
During the Emergence phase, it might not be clear yet to the developers which
target customers the product fits best, and they may not even know what
problem it solves.
But as they keep working with early adopters, testing multiple hypotheses and
iterating different versions of the product, the industry starts converging towards
a dominant design.
In the automobile industry, for example, early
entrants
experimented with numerous design ideas and fuel
alternatives from steam, kerosene and coal, to oil,
electricity and gasoline. Over time, the industry
evolved and gravitated towards the gasoline-fueled
internal combustion engine as the industry’s
dominant design.
 Growth stage
In this stage, demand is expanding rapidly and the industry’s products take off
because
 Customers have become familiar with the product,
 Prices fall because experience and economies of scale have been
attained, and
 Distribution channels have developed.
The U.S. cell-phone industry was in the growth stage most of the 1990s. In 1990
there were only 5 million cellular subscribers in the nation. By 2002, this figure
had increased to 88 million and demand was growing @ more than 25% per
year.
Entry barriers: Control over technological knowledge has diminished by this time,
also few companies have yet achieved significant scale of economies or built
brand loyalty. Thus, threat from potential competitors is generally highest at
this point.
Rivalry: High growth rate usually means new entrants can be absorbed into an
industry without marked increase in intensity of rivalry. Thus, rivalry tends to
relatively low. A strategically aware company takes advantage of this relatively
benign environment to prepare itself for the forthcoming intense competition in
the shakeout stage.

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an industry is poised to transition into a Growth period, leaving its Emergence behind
as the adoption of the dominant design starts gaining traction and the revenues of the
industry grow, in many cases exponentially.
During Growth, innovators try to make their products more appealing to larger
audiences within the market, to capture bigger slices of the demand the new
industry is creating.

In some industries, particularly those with a high technology content, the growth
phase may happen in a very abrupt, rapid way, giving origin to a particular pattern
which many have come to call an “S” adoption curve or the hockey stick because of
its steep slope.

Typical adoption curve in an emerging industry Official intervention is usually weak

during the Emergence and Growth phases as regulators try to get their heads around
the new solution and its implications for society (and their constituents).

As government becomes more knowledgeable about the market, they explore

ideas of how to control the behavior of the industry and its players, opening up
opportunities for savvy players to work with lawmakers in shaping the way the
industry will be regulated.
 Example
Car sharing service Uber, for example, is well known for its
aggressive lobbying efforts trying to shape how its nascent
market should be monitored and controlled in the relevant
jurisdictions.
As an industry reaches critical mass, turning the more
conservative and cost-conscious non-customers into customers,
they usually pass through a shakeout period where some
companies can’t keep up with the pace of the new reality and
have to close their doors, while others are absorbed through
mergers or acquisitions.
 Industry Shakeout
Explosive growth cannot be maintained indefinitely. Sooner or later,
rate of growth slows, demand approaches saturation levels and
most of the demand is limited to replacement because there are few
potential first-time buyers left (eg., U.S. personal computer industry
– Dell Computers case).
As an industry enters the shakeout stage, rivalry between
companies become intense.
Companies accustomed to rapid growth had in the past installed large
production facilities. However, demand is no longer growing at
historical rates, resulting today in excess capacity.
Rivalry: In an attempt to utilize this capacity, companies often cut
prices. The result can be a price war, which drives many of the most
inefficient companies to bankruptcy.
New entrants: Not a significant factor at this stage. It is now a case of
“survival of the fittest” which is enough to deter any new entry.
This shakeout produces a consolidation of the industry which converges towards
dominant business models, and that’s how the incumbent players of the industry
emerge. These companies, armed with refined products and proven business
models, are now set to dominate the industry for the years to come, during
its Maturity phase.
With the maturity of the industry, margins also tend to diminish to a steady level. A
mature industry is characterized by stable profitability, clear regulation and a
predictable business environment.

The soft drinks, oil and power industries as we have come to know them are good
examples of mature industries. Their incumbents know their markets so well
that they can predict them with some accuracy, and regulation is very clear
about the cans and cannots.
 Mature stage
The companies that survive the shakeout enter the mature stage of the industry: the
market is totally saturated, demand is limited to replacement demand, and
growth is low or zero. Whatever growth there is comes from population
expansion or from increase in replacement demand.
Barriers to entry increase and the threat of entry from potential competitors decrease.
Competition for market share drives down prices, often resulting in a price war
(eg. Airline and PC industries). To survive the shakeout, companies begin to
focus on cost minimization and building brand loyalty (eg, low-cost airlines and
‘frequent flyer’ programs, excellent after-sales service by PC companies). Only
those with brand loyalty and low-cost operations will survive.
At the same time, high entry barriers in mature industries give companies the
opportunity to increase prices and profits. The end result will be a more
consolidated industry structure.
Rivalry: In mature industries, companies tend to recognize their interdependence.
They try to avoid price wars and enter into cartels/price leadership/market
segment agreements (eg, the domestic pressure cooker industry), thereby
allowing greater profitability.
However, an economic slump can depress industry demand, reduce profits, break
down agreements, increase rivalry and result in renewed price wars.

Dr. B. K. Mukherjee 1
Companies operating within mature industries face competition, but they still find
ways to differentiate their products and benefit from credible barriers to new
entrants, moderated growth and a steady inflow of predictable demand.
The view ahead may be bumpy, but smooth and clear.

Maturity is usually the longest phase in most industries, lasting for decades or even
centuries in some cases like in construction and fine dining.

After some time however, an industry’s potential for additional growth may start
to slow down and differentiation becomes more difficult to achieve, which
inevitably agitates competition and rivalry among competitors, clear signs that
the industry has already passed its prime.
 Decline stage
Eventually, most industries enter a decline stage: growth becomes negative for a
variety of reasons, including
 Technological substitution (eg, air travel for rail travel);
 Social changes (eg, greater health consciousness hitting tobacco sales);
 Demographics (declining birthrate hurting the babycare and child products
market); and
 International competition (cheap Chinese imports flooding many world
markets).
The main problem is once again that of excess capacity and, in such a
scenario, rivalry among established companies usually increases.
Exit barriers play a part in adjusting excess capacity. The greater the exit barriers,
the harder it is for companies to reduce capacity and greater is the threat of
severe price competition.
(However, there is always the scope for ‘end-game strategy’ at this stage).
In summary, Strategic managers have to tailor their strategies to changing industry
conditions. They have to learn to recognize the crucial points in an industry’s
development so that they can forecast when the shakeout stage might begin or
when the industry might move into decline.
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The rapid penetration of computing technologies, advances
in data analysis, changes in customer preferences, social
connectivity and virtual communications among other
factors are accelerating the pace of evolution in many
industries and shortening their life cycle at speeds not seen
before.
Industry life cycle stages
Revenue, Cash and Profit
Strategies for Executives
 How to prolong the industry life cycle
Management efficiency can help to prolong the maturity stage of the life cycle.
Production improvements, like just-in-time methods and lean manufacturing, can result
in extra profits. Technology, automation, and linking suppliers and customers in a tight
supply chain are also methods to improve efficiency.

To extend the growth phase as well as industry profits, firms approaching maturity can
pursue expansion into other countries and new markets. Expansion into another
geographic region is an effective response to declining demand. Because organizations
have control over internal factors and can often influence external factors, the life cycle
does not have to end.
Link to follow

https://www.youtube.com/watch?
v=CCSFnGSphQk

https://www.inc.com/encyclopedia/industry-
life-cycle.html

https://strategyforexecs.com/industry-life-
cycle/