Week 4 – The Competitive & Technological Context

1. Week 4 – The Competitive & Technological Context Industrial and Technological Evolution How does competition evolve over time in industries? How does technological change and innovation affect competition? Chapter 3: pp. 43-56 Chapter 4: pp. 65-70 Case: Beer Industry (handout) Newspapers (p. 63)

2. INDUSTRIAL EVOLUTION • Number of competitors follows an inverted U-shaped curve (figure 6.1) • Industry sales follows s-curve (figure 6.2) • Lifecycle stages: • Emergence • Shakeout / Growth • Maturity • Decline • Each stage affects competition, organizational structure, strategy… so that different types of firms tend to be leaders at different stages

3. Industry Growth (Fig. 6.1) Number of firms Time

4. Industry Lifecycle (Fig. 6.2) Main drivers of industry evolution: • Demand growth • Creation and diffusion of technology and knowledge Industry Sales Introduction Growth Maturity Decline Time

5. Industry Emergence and Creation • New industries emerge following innovations: • Technological (e.g. biotechnology) • Regulatory (e.g. satellite radio) • Nascent industries are highly uncertain and risky and some never make it past the early stage (e.g. satellite communications) • Early entrants are small, entrepreneurial firms with a high degree of technological innovation as competitors search for the industry’s dominant design and standard (e.g. automobiles)

6. Industry Emergence and Creation • New industries seek legitimacy (sociopolitical and cognitive) through collective action and institutional entrepreneurship • Despite the increased competition, the entry of large incumbent firms into new markets helps legitimize the new industry • Characteristics of the emergence phase: • Low intra-industry rivalry • Intense R&D • Slow growth • Organic structures

7. Growth and Shakeout • The growth stage begins once there is 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 e.g. Wintel standard (MS + Intel) in PCs • 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

8. Industry Lifecycle Main drivers of industry evolution: • Demand growth • Creation and diffusion of technology and knowledge Industry Sales Introduction Growth Maturity Decline Time

9. 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

10. 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

12. TECHNOLOGICAL INNOVATIONS • Discontinuous / Radical / Breakthrough • See examples on next slide • Continuous / Incremental • Technological discontinuities can be: • Competence-enhancing, or • Competence-destroying • Component / Modular / Material innovations • Architectural innovations

13. DISCONTINUOUS INNOVATIONS • The printing press • The steam engine • The automobile • The jet engine • The personal computer • Cellular telephones • The world wide web • Digital photography

14. TECHNOLOGICAL EVOLUTION • Technological innovation leads to the “creative destruction” (Schumpeter, 1942) of industries • 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

15. Technological Lifecycle Product innovation Process innovation Rate of Major Innovation Dominant design Fluid Phase Transitional Specific Phase Phase (Utterback, 1994: p.17)

16. 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)

17. Technological Discontinuity Era of Incremental Change Era of Ferment Dominant Design A cyclical model of Technological Change (Adapted from Anderson and Tushman, 1990)

18. TECHNOLOGICAL FORECASTING • Foster’s s-curves predicts new technological transition once the physical limits to the current technology reach a plateau • Moore’s law and microprocessors

19. Foster’s Technology S-Curve Physical limits to technology’s performance Product performance Time or engineering effort

20. Successive S-Curves Third Technology Product performance Second Technology First Technology Time or engineering effort

21. Innovation and Renewal in Retailing Warehouse Clubs e.g. Costco, Sam’s Club Electronic Commerce e.g. Amazon, Drugstore.com Discount Stores e.g. K-Mart, Wal-Mart “Category Killers” e.g. Toys-R-Us, Home Depot Mail order, catalogue retailing e.g. Sears, Montgomery Ward Chain Stores e.g. A&P, JC Penney 1880s 1920s 1960s 2000

22. FOR THE NEXT SESSION (OCT. 18/20) MIDTERM EXAM REVIEW Chapters 1-4, 8 + The Structure of Corps. Remaining cases discussions MIDTERM = OCTOBER 23: 2:30pm-5pm See course website for location