Foundations of Strategy Chapter 5 Group 3

1. Foundations of Strategy Chapter 5Group 3

2. 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

3. 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

4. Industry Life Cycle

5. Industry Life Cycle • Introduction Stage • Growth Stage • Maturity Stage • Decline Stage

6. 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

7. Dominant Designs and Technical Standards • Dominant Design • Examples: • Underwood Model 5 in 1899 • 1st McDonald’s restaurant • Technical Standard • Network Effects

8. Dominant Designs and Technical Standards Continued... • Product and process innovation over time

9. 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

10. Strategy at Different Stages of the life Cycle • Introduction • Demand: Limited to early adopters: high income, avantgarde • 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.

11. 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

12. Maturity Demand: 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.

13. 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.

14. 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

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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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