MGTA Notes (Section D).docx

7 Pages
Unlock Document

Management (MGT)
Murphy Lawrence

Section D: The Industry Lifecycle Model -industries both old and new are NOT static, and change in dramatic ways over time -very different industries follow very similar and predictable paths in how competitive pressures evolve over time -virtually all industries evolve along particular trajectories and through specific phases from their early emergence and growth to their eventual maturity and decline -this is commonly known as the industry lifecycle model -given a long enough period of observation, almost all industries exhibit an inverted U-shaped growth pattern -the pace of an industries evolution along its lifecycle is closely related to the evolution of technology within the industry -technological innovations will often trigger the start of a new lifecycle or the creation of an entirely new industry -the industry lifecycle model divides industry evolution into FOUR distinct phases: introduction, growth, maturity, and decline -according to the model, new industries tend to be highly fragmented (many small competitors) and characterized by experimentation with novel technologies and business models -the introductory phase sees many entrepreneurial firms enter the industry -the firms whose approach does not conform to the emerging standard exit the industry during a shakeout -the widespread diffusion of an industry standard or dominant design is a critical step in facilitating an industry's transition to the growth phase -in the mature phase, market stabilizes and sales grow more slowly -this phase demands firms to be more efficient producers to lower costs and compensate for slower revenue growth -in the decline phase, aggregate sales drop and rivalry further heats up as the industry undergoes greater consolidation through more mergers and the exit of inefficient firms -understanding which phase of the lifecycle an industry is in is therefore critical for effective management at all levels of the organization -the phase affects the degree of competition firms face, the type of organizational structure, the kind of strategy and the appropriate management approaches needed to survive and grow -industry lifecycle is a complementary approach to Porter's five forces framework (See Section I1) -the five forces framework is essentially a static model that provides a valuable snapshot of an industry's attractiveness at a specific point in time. -the lifecycle model in contrast is dynamic and shows how evolution affects industry structure The Introduction Phase: Industry Emergence and Creation -new industries emerge as a result of changes (usually technological or regulatory) that create opportunities for entrepreneurs to leverage novel combinations of resources to develop innovative products, services or processes -some industries are the outcome of government regulation (or deregulation) that creates markets for new products or services -the early years of an industry are generally a period of tremendous uncertainty about the future of the market -this is also a period of unbridled optimism among entrepreneurs fighting for position as the future of the market unfolds -early entrants into an industry tend to be small entrepreneurial firms excited by the prospect and potential growth of a new market -large, established firms tend to lag smaller ones in entering new industries for two reasons 1. a nascent market is usually too small and risky to justify the entry of large firms burdened with high overall costs and the need to generate more certain, even if lower, financial returns 2. older incumbent firms usually have bureaucratic organizational structures that inhibit their ability to move quickly and flexibly into new markets -introductory phase is one of great technical uncertainty where there is a lot of experimentation with very different and novel combinations -> trying to find a superior approach that will dominate other firms -in INTRODUCTORY phase, firms intensely focused on Research & Development (R&D) -> period of extraordinary creativity and innovation -this phase breeds many different versions of products -this diversity leads to confusion of customers and stakeholders -> stalls the taking off into growth phase -conservative and price-conscious customers will usually wait until the mature stage before buying -introductory phase is the "gold rush" era of the industry (i.e. anyone can make it big, but no one has yet) -new markets are extremely volatile ->no clear boundaries, segments are not well defined, highly unstable, nearly impossible to predict which firms will survive and grow The Quest for Legitimacy -one of the most important contributions to emerge concerns the concept of legitimacy of new industries and organization forms -organizational legitimacy - a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions -two forms of legitimacy 1. sociopolitical legitimacy - refers to the endorsement of an industry, activity or organizational form by key stakeholders and institutions such as the state and government officials, opinion leaders or the general public 2. cognitive legitimacy - refers to the level of public knowledge of a new industry and its conformity to established norms and methods reflected in the extent to which it is taken for granted as a desirable and appropriate activity -all organizations require legitimacy in order to acquire from external stakeholders the resources they need to survive and grow -failure to conform to societal and institutionalized norms and beliefs results in a lack of legitimacy that will hinder their ability to recruit employees, obtain financial and material resources, sell products and services to customers, etc. -there exist many reasons why an organization's actions may not be perceived as desirable, proper or appropriate (e.g. failure to comply to legal rules or being a new, small, unknown firm) -startup firms face higher risks of failure than incumbent firms with established track records and relationships with customers, suppliers and other stakeholders -new firms in new industries are even more likely to fail than new firms in established industries -"institutional entrepreneurs" play a critical role in helping to ensure the survival and growth of a fledgling industry by promoting its interests and coordinating efforts to gain institutional support and legitimacy -the collective action strategies pursued by institutional entrepreneurs often bear a striking resemblance to social movements -in an industry's formative years, intra-industry rivalry is less intense as new organizations collaborate in the pursuit of legitimacy. -new markets have yet to achieve a sufficient degree of acceptance benefit from the endorsement of recognizable players -> therefore smaller startups often welcome entry of established incumbents into the new market The Growth Phase: Dominant Designs and Shakeouts -in the industry growth phase, the game becomes all about sales and market share -growth stage begins when the market converges around a single dominant design or approach -a dominant design is ”a single architecture that establishes dominance in a product class." -when a standard is legally mandated and enforced by a government or standards organization, it is called a de jure standard -(e.g. electrical outlets or light bulb sockets have standard voltage) -de facto standard arises by virtue of common usage and is not officially sanctioned by any authority -> it is a standard "in fact" or "in practice", rather than in law -(e.g. Microsoft Windows is not the OS mandatory by law but is used by over 90% of computers on the market) -a shakeout in an industry is defined as a large number of exits from the market at the same time as the aggregate output of the industry increases -> shakeouts = natural and healthy process for an industry to weed out weaker competitors -a large number of failures in a declining market is NOT a shakeout -the adoption of a dominant design greatly accelerates the growth rate of new markets -growth in demand is significantly related to the falling prices for products during the second phase of the lifecycle -standardization creates incentives for other firms to offer complementary products and services, such as software that runs on Windows or gas stations to fuel cars -as product prices fall, inefficient producers come under significant competitive pressures and exit -firms that are unable to match the economies of scale, production process improvements and lower prices of the most efficient producers will be driven out of the market -after standardization, process innovation and sales and marketing become most important (opposed to R&D from intro phase) -> this is a critical different b/w early and middle phases of the lifecycle -early market -> more likely to collaborate to increase aggregate sales -growth phase -> rivalry is much more intense The Maturity Phase: A Criti
More Less

Related notes for MGTA01H3

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.