How industries change. Explanation of Trajectories of Industry
Change of Anita M. McGahan. (2004)
The Four Trajectories of Industry Change is a model to describe
how industries change. The author of the model is Anita M. McGahan,
Professor of Management in Boston. She published the model for the
first time in the HBR of October 2004.
According to McGahan you can't make intelligent investments
within your organization unless you understand how your whole
industry is changing. The need to understand change in your
industry may seem obvious, but such knowledge is not always easy to
collect. Companies sometimes miss or misinterpret clues and arrive
at false conclusions often.
Why industries evolve
Research by McGahan suggests that industries evolve as a result
of two types of threats of obsolescence:
A threat to core activities of the industry. A threat to the
recurring activities of companies, which historically
generated profits for the industry.
A threat to the core assets of the industry. A threat to the
durable resources, including intangibles such as
knowledge and brand capital, that have historically made the
organization efficient at performing core activities.
How industries change
Resulting out of a combination of the above two types of
threats, industries change along one of Four Trajectories of
Industry Change:
1. Radically. When core assets and core activities are both
threatened with obsolescence. Advice:
o Perform a balancing act. Aggressively pursuing profits in the
short term while avoiding investments
that could later prevent you from decreasing your commitments,
PLUS:
o Assess how quickly your core assets are depreciating. And
determine the segments in which you can
protect your competitive position from those in which your
position will erode quickly.
2. Progressive. When neither core assets nor core activities are
jeopardized. Advice:
o Develop a system of interrelated activities that are
defensible because of their compounding effects
on profits, not because they are hard to understand or
replicate; be the biggest.
3. Creative. When core assets are under threat but core
activities are stable. Advice:
o Assess how quickly your core assets are depreciating. And
determine the segments in which you can
protect your competitive position from those in which your
position will erode quickly.
4. Intermediating. When core activities are threatened while
core assets retain their capacity to create
value. Advice:
o Perform a balancing act. Aggressively pursuing profits in the
near term while avoiding investments
that could later prevent you from decreasing your
commitments.
The Trajectories of Industry Change typically unfold themselves
over decades. Fighting the industry change is almost always too
costly to be worthwhile. Rather organizations should reconfigure
themselves for lower revenue growth and develop the ability to
remove activities and resources out of the business. Systematically
analyzing the business environment is not easy, but the payoff is
great: better strategic decision-making for your company
Why industries evolveHow industries change
