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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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SUCCESSIVE S-CURVESP

rod

uc

t p

erfo

rma

nce

Time or engineering effort

First Technology

Second Technology

Third Technology

Time or engineering effort

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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

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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

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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

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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

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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?