ADMS 1000 Chapter Notes - Chapter 6: De Facto Standard, Mergers And Acquisitions, Dominant Design

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Readings- Chapter 6
The Industry Lifecycle Model
๎€All industries evolve the same factors & phases from their early emergence & growth to their
eventual maturity & decline
๎€Industry lifecycle model: almost all industries exhibit an inverted u-shaped growth pattern,
rising up to a peak & then declining as the industry ages
๎€Evolution of the lifecycle is related to the evolution of technology within the industry
๎€Technological innovations will trigger the start of a new cycle or the creation of a new
industry
๎€4 distinct phases
๎€Introductory phase: many entrepreneurial firms enter the industry. The firm is adopted by
customers, suppliers & other key components. Firms that donโ€™t conform to the emerging
standard exit the industry at the shakeout
๎€Growth phase: The diffusion of an industry standard or dominant design is a critical step in
this stage
๎€Mature phase: market stabilizes & sales grow more slowly. Firms must become more efficient
producers to lower costs & compensate for slower revenue growth. This is achieved through
mergers & acquisitions that result in higher industry concentration
๎€Decline stage: sales drop & rivalry further heats up as the industry undergoes greater
consolidation through more mergers& the exit of insufficient firms
๎€Lifecycle phases determines the degree of competition firms face, the type of organizational
structure/kind of strategy/approaches they need to survive & grow
๎€Different types of firms hit certain stages at different times
๎€This cycle framework represents the 5-force model, as it shows a firm at a specific point in
time
The Introduction Phase: Industry Emergence & Creation
๎€New industries emerge as a result of changes (usually technological or regulatory)
๎€Creates new opportunities for entrepreneurs to combine resources to create innovative
products, services or processes
๎€Some industries are the outcome of government regulation that creates markets for new
products/services Ie, environmental protection act
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๎€In this stage there is a tremendous amount of uncertainty about the future or market growth
๎€In this stage there is also optimism among entrepreneurs
๎€Producers experiment with different combinations
๎€Firms are focused on research & development๎€ leads to many versions of technology
features
๎€New markets are unstable; they have no clear boundaries
๎€Itโ€™s almost impossible to say which firms will succeed or not
The Quest for Legitimacy
๎€Theorists focus on the institutional & social conditions that affect changing markets &
competitive forces
๎€2 forms of legitimacy: socio-political & cognitive
๎€ Socio-political legitimacy: the support of an industry, activity, or organizational form by key
stakeholders & institutions such as the state, government officials, opinion leaders or the
general public
๎€Cognitive legitimacy: the level of public knowledge of a new industry & its conformity to
established norms & methods of whatโ€™s taken for granted as a desirable & appropriate
activity
๎€All organizations require legitimacy in order to acquire from external stakeholders the
resources they need to survive & grow
๎€Failure to follow legal rules or ethical norms leads to a organization to be perceived as
undesirable
๎€Being new, small, unknown or unrecognized can cause a firm to lack legitimacy, as it has to
prove to its outsiders that it DOES conform to institutional norms
๎€Start-up firms have a higher risk of failure
๎€Ie, opening a new restaurant is better than a new text message advertising company; more
people are familiar with how restaurants normally work
The Growth Stage: Dominant Designs & Shakeouts
๎€All about sales & market share
๎€Begins when the market depends on a dominant design/approach
๎€Dominant design: a single architecture that establishes dominance in a product class
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Document Summary

All industries evolve the same factors & phases from their early emergence & growth to their eventual maturity & decline. Industry lifecycle model: almost all industries exhibit an inverted u-shaped growth pattern, rising up to a peak & then declining as the industry ages. Evolution of the lifecycle is related to the evolution of technology within the industry. Technological innovations will t rigger the start of a new cycle or the creation of a new industry. Introductory phase: many entrepreneurial firms enter the industry. The fi rm is adopted by customers, suppliers & other key components. Firms that don"t conform to the emerging standard exit the industry at the shakeout. growth phase: the diffusion of an industry standard or dominant design is a critical step in this stage. mature phase: market stabilizes & sales grow more slowly. Firms must become more efficient producers to lower costs & compensate for slower revenue growth.

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