Foundations of Strategy Chapter 5Group 3

Key Points of the Chapter• Different stages of industry development and driving factors• Success factors associated with different stages• Challenges for managers in strategic decision making• Political priorities (through eyes of stakeholders)• Industry and organizational futures

Evolution of Personal Computers• 1970’s birth of the personal computer (PC)• Very basic

• By 1981 worldwide market was worth $3 billion• IBM adopted an open strategy which opened things up for them• Outside software sources• More investment

• IBM’s lack of intellectual property made their product easy for other companies to copy

• Apple moved to a more controlled state• Production was done in house from end to end

• Today computers are under threat by other devices• Apple’s I-Pod, I-Phone, I-Pad, Tablets, Gaming devices that connect to

internet• The computer industry is continuing to change

Industry Life Cycle

Industry Life Cycle• Introduction Stage

• Growth Stage

• Maturity Stage

• Decline Stage

Production and Diffusion of Knowledge• Second Driver of Industry Life Cycle• New Knowledge

• Competition• Alternative technologies• Design Configurations

• Transition of Industry• From introduction to growth stage

Dominant Designs and Technical Standards• Dominant Design• Examples:

• Underwood Model 5 in 1899• 1st McDonald’s restaurant

• Technical Standard

• Network Effects

Dominant Designs and Technical Standards Continued...

• Product and process innovation over time

How General is the Life-Cycle Pattern?• Duration of life cycle varies• Examples:

• US railroad industry• US car industry• Digital audio players (MP3 players)

• Rejuvenations of life cycle• Innovations• Developing new markets

Strategy at Different Stages of the life Cycle

• Introduction • Demand: Limited to early adopters: high income, avant garde• Technology: Competing technologies. Rapid product innovation• Products: Poor quality. Wide variety of features and technologies.

Frequent design changes• Manufacturing and Distribution: Short production runs. High-skilled

labor content. Specialized distribution channels. • Trade: Producers and consumers in advanced countries.• Competition: Few companies• Key Success Factors: Product innovation. Establishing credible image of

firm and product.

Growth• Demand: Rapidly increasing market penetration.• Technology: Standardization around dominant technology. Rapid

process innovation.• Products: Design and quality improve. Emergence of dominant

design.• Manufacturing and distribution: Capacity shortages Mass

production. Competition for distribution. • Trade: Exports from advanced countries to rest of world.• Competition: Entry, mergers and exits.• Key Success Factors: Design for manufacturer. Access to

distribution. Brand building. Fast product development. Process Innovation

MaturityDemand: Mass market, replacement/ repeat buying. Customers knowledgeable and price sensitive. Technology: Well-diffused technical knowhow: quest for technological improvements. Products: Trend to commoditization. Attempts to differentiate by branding, quality, bundling. Manufacturing and Distribution: Emergence of overcapacity. Deskilling of production. Long production runs. Distributors carry fewer lines.Trade: Production shifts to newly industrializing then developing countries.Competition: Shakeout. Price competition increases.Key Success Factor: Cost efficiency through capital intensity, scale efficiency and low input costs.

Decline• Demand: Obsolescence• Technology: Little product or process innovation • Products: Commodities the norm: differentiation difficult and

unprofitable• Manufacturing and Distribution: Chronic overcapacity. Re-

emergence of specialty channels.• Trade: Exports from countries with lowest labor costs.• Competition: Price wars, exits.• Key Success Factors: Low overheads. Buyer selection. Signaling

commitment. Rationalizing capacity.

Public and Not-For-Profit Sectors• Public sector- Funding all derived from the govt• Ex- Flood prevention systems, street lights, and national

defense• Not-for-profit- do not generate surplus funds

Public vs Private• Monopoly power-Ex. Postal service• Less flexibility• Increased accountability• Less predictability

Stakeholder Analysis• The process in which a company can figure out and prioritize

stakeholder needs so they can figure out which direction the company should go

Scenario Analysis •An organizations ability to adapt to the future depends on its ability to anticipate such changes•Scenario analysis is a systematic way of predicting what the future may hold based on current trends and signals

The World Wide Fund for Nature• The World Wide Fund for Nature celebrated their 50th

anniversary in April 2011• The WWF has gone from a few conservationists to a global

network of over 5000 employees and with over $10 billion invested in projects

World Wide Fund for Nature Continued

• Throughout their time they have changed their name, adjusted their mission and restructured their approach to accomplishing their mission

• Using scenario planning and the life-cycle analysis and other planning tools have helped the World Wide Fund succeed

Summary• The life-cycle model is a useful approach to exploring the

impact of market maturity and technological development• Classifying industries based on their stage of development can

in itself be an insightful exercise for companies

Target• Target has products that go through the life cycle• For example when they have major name designers put

clothes in the store• Target is probably in the maturity stage• The market is stable• They compete with the same similar competitors• Some of the competitors are falling out and only the strongest

are surviving