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1
Lecture 4:
Understanding common approaches to business strategy. What is the role of strategy and its connection to competitive and technological challenges
The Challenges of Business:
Case: Trouble Brewing in the Beer Industry
2
Lecture 8: Management of Organizational Strategy: Competitive and Technological Forces
Industrial and Technological EvolutionHow does competition evolve over time in industries? How does technological change and innovation affect competition? What are implications for business strategy?
Case: Beer Industry, p.238
3
INDUSTRIAL EVOLUTION – NUMBER OF COMPETITORS
Number of competitors follows an inverted U-shaped curve
Time
Shakeout
Introduction Growth Maturity Decline
Ind
ust
ry S
ale
s
Time
INDUSTRIAL EVOLUTION – INDUSTRY SALES
Main drivers of industry evolution: Demand growth Creation and diffusion of technology and knowledge
5
NEW INDUSTRY CREATION & INNOVATION
New industries emerge following innovations: Technological (e.g. biotechnology) Regulatory (e.g. satellite radio)
Characterized by uncertainty and risk (e.g. satellite communications)
Early entrants are small, entrepreneurial firms using technological innovation.
Competitors search for the
industry’s dominant design and
standard
6
New industries seek legitimacy through collective action and institutional entrepreneurship
Despite increased competition, entry of large incumbent firms into new markets legitimizes the new industry
Characteristics of the emergence phase: Low intra-industry rivalry Intense R&D Slow growth Organic structures
NEW INDUSTRY CREATION & INNOVATION
7
NEW INDUSTRY GROWTH & SHAKEOUT
Growth stage begins with convergence around a dominant design or technical standard
Organizations whose approach does not conform to the dominant model either change or exit during a shakeout
High growth and reduced uncertainty of the market attracts larger, established firms into the industry
Standardization of products and processes leads to economies of scale and less innovation as firms focus on sales and marketing to capture mkt share
8
INDUSTRY MATURITY
Market growth begins to slow down; very little entry and rivalry becomes fierce among remaining firms
Market concentration increases with more exits and acquisitions
Products become commoditized and undifferentiated and innovations are incremental and process improvements
Successful firms are efficient and mechanistic Shift in successful strategy and structure explains
why few firms survive as industry leaders
9
THE DECLINE PHASE
Industries begin to decline as a result of changes in: Demographics (e.g. baby food in the 1960s) Consumer needs/tastes (e.g. cigarettes) Technology (e.g. typewriters, VCRs)
Firms can pursue different strategies to cope: Maintain industry leadership Target niche markets Harvest profits Exit early Consolidate the remaining industry players
10
TECHNOLOGICAL INNOVATIONS
Discontinuous / Radical / Breakthrough Mobile phones, cars, computers etc
Continuous / Incremental Technological discontinuities can be:
Competence-enhancing, or Competence-destroying
Component / Modular / Material innovations
Architectural innovations
11
TECHNOLOGICAL EVOLUTION
Technological innovation leads to the “creative destruction” (Schumpeter, 1942) of industries – old technologies are ‘swept away’
Abernathy and Utterback propose the technology lifecycle model to explain how rates of product and process innovation evolve during from the fluid, to transitional to specific phase of the technology (see exhibit 6.4, p, 232 – The Challenges of Business)
12(Utterback, 1994: p.17)
Fluid Phase Transitional Specific Phase Phase
Product innovation
Process innovationRate of Major Innovation
Dominant design
TECHNOLOGICAL LIFECYCLE
13
TECHNOLOGICAL EVOLUTION
Technological discontinuities appear at rare and irregular intervals and can dramatically alter an industry’s structure
Period of uncertainty (era of ferment) ends when a dominant design emerges and technical progress focuses on incremental improvements and process innovations (era of incremental change) until the next discontinuity A punctuated equilibrium model (Anderson
and Tushman, 1990)
A CYCLICAL MODEL OF TECHNOLOGICAL CHANGE
Technological Discontinuity
Era of FermentEra of
Incremental Change
Dominant Design
(Adapted from Anderson and Tushman, 1990)
FOSTER’S TECHNOLOGY S-CURVE
Time or engineering effort
Physical limits to technology’s performance
Pro
duct
pe
rfo
rman
ce
Foster’s s-curves predicts new technological transition once the physical limits to the current technology reach a plateau
16
SUCCESSIVE S-CURVESP
rod
uc
t p
erfo
rma
nce
Time or engineering effort
First Technology
Second Technology
Third Technology
Time or engineering effort
17
1880s 1920s 1960s 2000
Mail order, catalogueretailinge.g. Sears,MontgomeryWard
ChainStores
e.g. A&P,JC Penney
DiscountStores
e.g. K-Mart,Wal-Mart
“CategoryKillers”
e.g. Toys-R-Us,Home Depot
Electronic Commerce
e.g. Amazon,Drugstore.com
WarehouseClubs
e.g. Costco,Sam’s Club
INNOVATION & RENEWAL IN RETAILING
18
Stage
CharacteristicIntroduction Growth Maturity Decline
Market Growth Slow Very rapid Moderate Negative
CustomersAffluent, early
technology adopters
Niche markets, increasing
penetration
Price conscious mass market, repeat
buyers
Late adopters, knowledgeable users, residual
segments.
Rivalry Low; technological competition
Increasing; entry and exit; shakeout
Intense; increased concentration;
exit
Price wars; exit; mergers and
acquisitions; asset liquidation
Critical Functional
Areas
Research & Development
Sales and MarketingProduction and
ManufacturingGeneral Management
and Finance
Products Very wide variety of designs
Standardization CommoditizationContinued commoditization
Technological Development
Rapid product innovation
Product and process innovation
Incremental innovation Very little innovation
Organizational Structure
Organic Organic Mechanistic Mechanistic
Generic Strategies
Product differentiation Product differentiation Cost Leadership Cost Leadership / Focus
Key Objectives
Increase awareness; achieve
legitimacy; specify dominant design
Create demand; capture market
share
Cost efficiency; extend lifecycle
Market or niche leadership; cost
reduction; consolidation; exit
CHARACTERISTICS OF THE INDUSTRY LIFE-CYCLE STAGES
19
ISSUES MANAGEMENT & STRATEGY
An Issue: a matter that is in dispute between two or more parties, may involve controversy
Must take into account multiple stakeholders – personal and organizational stakes come into play
Involves multiple steps – may also be linked to organizational strategy and development
20
THE ISSUES OF MANAGEMENT PROCESS
IDENTIFICATION OF ISSUES
ANALYSIS OF ISSUES
RANKING OR PRIORITIZATION OF ISSUES
FORMULATION OF ISSUE RESPONSES
IMPLEMENTATION OF ISSUE RESPONSES
EVALUATION, MONITORING & CONTROL OF RESULTS
Taken from The Responsibilities of Business, p, 48
21
FOR THE NEXT SESSION
Confronting the Global EconomyWhat is globalization? How does it impact business in Canada and around the world? What are the pros and cons of free trade agreements – particularly focusing on NAFTA?