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CONTEMPORARY STRATEGY

ANALYSIS
(7th edition, John Wiley & Sons Ltd., 2010)

Robert M. Grant

Chapter
Chapter 11
11
Industry
Industry Evolution
Evolution and
and
Strategic
Strategic Change
Change
2010 Robert M. Grant
www.contemporarystrategyanalysis.com

Industry
Industry Evolution
Evolution
OUTLINE
The industry life cycle
Structure, competition, and success
factors over the life cycle.
Organizational adaptation and change

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

Industry Sales

The
The Industry
Industry Life
Life Cycle
Cycle

Introduction

Growth

Maturity

Decline

Time
Drivers of industry evolution :
demand growth
creation and diffusion of knowledge

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

Product
Product and
and Process
Process Innovation
Innovation Over
Over Time
Time

Rate of innovation

Product Innovation

Process Innovation

Time
2010 Robert M. Grant
www.contemporarystrategyanalysis.com

How
How typical
typical is
is the
the Life
Life Cycle
Cycle Pattern?
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, apparel) reach maturity, but not
decline.
Industries may experience life cycle regeneration, e.g.
motorcycles, TVs:

Sales

Sales

1900 50
MOTORCYCLES

90

07
TVs

Color
B&W

1930

50

Flat
screen
Portable

70

90

00

HDTV

10

Life cycle model can help us to anticipate industry evolutionbut


dangerous to assume any common, pre-determined pattern of
industry development

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

Innovation
Innovation &
& Renewal
Renewal over
over the
the
Industry
Industry Life
Life Cycle:
Cycle: Retailing
Retailing
Warehouse
Clubs
e.g. Price Club
Sams Club

Discount
Stores
Mail order,
catalogue
retailing
e.g. Sears
Roebuck

e.g. K-Mart
Wal-Mart

Chain
Stores

Category
Killers

Internet
Retailers
e.g. Amazon;
Peapod

e.g. Toys-R-Us,
Home Depot

e.g. A&P

1880s
2010 Robert M. Grant
www.contemporarystrategyanalysis.com

1920s

1960s

1980s

2000
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Evolution
Evolution of
of Industry
Industry Structure
Structure over
over the
the Life
Life Cycle
Cycle
INTRODUCTION

GROWTH

MATURITY

DECLINE

DEMAND

Early adopters

Rapidly increasing
market penetration

Replacement/ repeat
buying; price
sensitive customers

Obsolescence

TECHNOLOGY

Competing
technologies; rapid
product innovation

Standardization;
rapid process
innovation

Diffused know how;


incremental
innovation

Little innovation

PRODUCTS

Wide variety of
features & designs

Design & quality


improve; dominant
design emerges

Commoditization;
brand differentiation

Differentiation
difficult

MANUFACTURING

Short-runs, skill
intensive

Capacity shortage,
mass- production

Over-capacity
emerges; deskilling

Overcapacity

TRADE

------Production shifts from advanced to developing countries------

COMPETITION

Few companies

Entry, mergers exit

Shakeout &
consolidation

Price wars &


exit

KSFs

Product innovation

Design for
manufacture
Process innovation

Cost efficiency (scale


economies, low cost
inputs)

Low overheads;
rationalization

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

The
The Driving
Driving Forces
Forces of
of Industry
Industry Evolution
Evolution
BASIC CONDITIONS
Customers become
more knowledgeable
& experienced

INDUSTRY STRUCTURE

Customers become
more price conscious

Products become
more standardized
Diffusion of
technology

Demand growth
slows as market
saturation approaches
2010 Robert M. Grant
www.contemporarystrategyanalysis.com

COMPETITION

Production
becomes less
R&D
& skill-intensive

Production shifts
to low-wage
countries

Excess capacity
increases
Distribution channels
consolidate

Quest for new


sources of
differentiation

Price competition
intensifies

Bargaining power
of distributors
increases
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Changes
Changes in
in the
the Population
Population of
of Firms
Firms over
over the
the Industry
Industry
Life
Life Cycle:
Cycle: US
US Auto
Auto Industry
Industry 1895-1960
1895-1960

Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.


2010 Robert M. Grant
www.contemporarystrategyanalysis.com

The
The Worlds
Worlds Biggest
Biggest Companies,
Companies, 1912
1912 and
and 2009
2009
(by
(bymarket
marketcapitalization)
capitalization)

1912

2009

$ bn.

$ bn.

US Steel

0.74

Exxon Mobil

395

Exxon

0.39

PetroChina

241

J&P Coates

0.29

Wal-Mart Stores

202

Pullman

0.20

ChinaMobile

197

Royal Dutch Shell

0.19

Procter&Gamble

179

Anaconda

0.18

Microsoft

174

General Electric

0.17

BP

170

Singer

0.17

General Electric

168

American Brands

0.17

AT&T

157

Navistar

0.16

Chevron

148

BAT

0.16

BP

148

De Beers

0.16

Nestl

139

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

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Strategy
Strategy and
and Performance
Performance across
across the
the Industry
Industry Life
Life Cycle
Cycle

Note: The figure


shows
standardized means
for each variable for
businesses at each
stage of the life cycle.

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

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Organizational
Organizational Adaptation
Adaptation and
and Change:
Change:
The
The Sources
Sources of
of Inertia
Inertia
1. Organizational Routines: existing patterns of coordinated
activity make it difficult to develop new capabilities

2. Social & political structures: change threatens existing social


relationships and power structures

3. Conformity: imitation locks firms into common structures and


strategies (institutional isomorphism)

4. Limited Search: bounded rationality, preference of exploitation


over exploration, and satisfying behavior limit firms to incremental
change

5. Complementarities between strategy, structure, and


systems:firms create unique configurations of organizational

features; localized changes tend to be dysfunctional; change needs


to be systematic

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

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Preparing
Preparing for
for the
the Future:
Future: the
the Role
Role of
of Scenario
Scenario Analysis
Analysis
in
inAdapting
Adapting to
to Industry
Industry Change
Change

Stages in undertaking multiple Scenario Analysis:


Identify major forces driving industry change
Predict possible impacts of each force on the industry
environment
Identify interactions between different external forces
Among range of outcomes, identify 2-4 most likely/ most
interesting scenarios: configurations of changes and
outcomes
Consider implications of each scenario for the company
Identify key signposts pointing toward the emergence of
each scenario
Prepare contingency plan
2010 Robert M. Grant
www.contemporarystrategyanalysis.com

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Gary
Gary Hamel:
Hamel: Shaking
Shaking the
the Foundations
Foundations
OLD BRICK

NEW BRICK

Top management is responsible


for setting strategy

Everyone is responsible
for setting strategy

Getting better, getting faster


is the way to win

Rule-busting innovation
is the way to win

IT creates competitive advantage

Unconventional business concepts


create competitive advantage

Being revolutionary is high risk

More of the same is high risk

We can merge our way to


competitiveness

Theres no correlation between


size and competitiveness

Innovation equals new products


and new technology

Innovation equals entirely new


business concepts

Strategy is the easy part,


Implementation the hard part

Strategy is the easy only if youre


content to be an imitator

Change starts at the top

Change starts with activists

Our real problem is execution

Our real problem is execution

Big companies cant innovate

Big companies can become gray-haired


revolutionaries

2010 Robert M. Grant


www.contemporarystrategyanalysis.com

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