MGT 510 SEU Adapting to Digital Revolution Case Study Paper

CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 8
Industry Evolution and
Strategic Change
1
Industry Evolution and
Strategic Change
OUTLINE
• The industry life cycle
• The challenge of organizational
adaptation and strategic change
• Managing strategic change
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
Industry Sales
Stages of the Industry Life Cycle
MATURITY
DECLINE
GROWTH
INTRODUCTION
Time
Drivers of industry evolution :
• demand growth
• creation and diffusion of knowledge
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
Rate of Innovation
Product and Process Innovation Over Time
Process
Innovation
Product
Innovation
Time
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
THE INDUSTRY LIFE CYCLE
How Typical is the Life Cycle Pattern?
•
Technology-intensive industries (e.g. pharmaceuticals, semiconductors,
computers) may retain features of emerging industries.
•
Other industries (especially those providing basic necessities, e.g. food
processing, construction, apparel) reach maturity, but not decline.
•
Industries may experience life cycle regeneration, e.g. motorcycles, TVs:
Sales
Sales
Color
Flat
screen
Portable
HDTV
B&W
MOTORCYCLES
1900
•
1950
1980
2017
TELEVISIONS
1930
1950
1970
1990 2010
Life cycle model can help us to anticipate industry evolution—but
dangerous to assume any common, pre-determined pattern of industry
development
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
Innovation and Renewal over
the Life Cycle: Retailing
Department
Stores
e.g. Le Bon
Marché,
Macy & Co.,
Harrods
1840
Mail Order,
Catalogue
Retailers
e.g. Sears
Roebuck,
Montgomery
Ward
1880
1900
Copyright © 2019 John Wiley & Sons, Inc.
Chain
Stores
e.g. A&P,
Woolworth’s,
W.H. Smith
Warehouse
Clubs
Internet
Retailers
e.g. Price Club
Sam’s Club
e.g. Amazon,
JD.com
Discount
Stores
“Category
Killers”
e.g. K-Mart
Wal-Mart
1920
1940
e.g. Toys”R”
Us, Home
Depot
1960
1980
Pop-Up
Stores
2000
2018
THE INDUSTRY LIFE CYCLE
Evolution of Industry Structure over the Life Cycle
INTRODUCTION
GROWTH
MATURITY
DECLINE
DEMAND
Early adopters
Rapid increase in
market penetration
Replacement/ repeat
buying; price
sensitive customers
Obsolescence
TECHNOLOGY
Competing
technologies;
rapid product
innovation
Standardization;
rapid process
innovation
Diffused know how;
incremental
innovation
Little
innovation
PRODUCTS
Wide variety of
features and
designs
Design & quality
improve; dominant
design emerges
Commoditization;
brand differentiation
Differentiation
difficult
Capacity shortage,
mass-production
Over-capacity
emerges; deskilling
Overcapacity
MANUFACTURING Short-runs, skill
intensive
TRADE
——Production shifts from advanced to emerging countries——
COMPETITION
Few companies
Entry, mergers exit
Shakeout &
consolidation
Price wars &
exit
KSFs
Product innovation
Design for manufacture; Process
innovation
Cost efficiency
(scale economies,
low cost inputs)
Low
overheads;
rationalization
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
The Driving Forces of Industry Evolution
BASIC CONDITIONS
INDUSTRY STRUCTURE
Customers become
more knowledgeable
& experienced
Customers become
more price conscious
Products become
more standardized
Diffusion of
technology
COMPETITION
Production
becomes less R&D
& skill-intensive
Demand growth
slows as market
saturation approaches
Copyright © 2019 John Wiley & Sons, Inc.
Production shifts
to low-wage
countries
Excess capacity
increases
Distribution channels
consolidate
Quest for new
sources of
differentiation
Price competition
intensifies
Bargaining power
of distributors
increases
8
THE INDUSTRY LIFE CYCLE
Changes in the Population of Firms over the
Industry Life Cycle: US Auto Industry 1895-1960
250
200
150
No. of firms
100
50
0
1895
1905
1915
1925
1935
1945
1955
Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
Strategy and Performance across the Industry Life Cycle
12
10
Growth
Maturity
Decline
8
6
4
Advertising/Sales
Investment/Sales
Age of Plant & Equip.
Product R&D/Sales
% Sales from New
Products
New Products
Technical Change
Value Added/Revenue
0
ROI
2
Note: The figure
shows
standardized means
for each variable for
businesses at each
stage of the life cycle.
11
Copyright © 2019 John Wiley & Sons, Inc.
THE CHALLENGE OF ORGANIZATIONAL ADAPTATION AND STRATEGIC CHANGE
Organizational Adaptation and Change:
The Sources of Inertia
1.
Organizational Routines: existing patterns of coordinated activity
make it difficult to develop new capabilities
2.
Social & political structures: change threatens existing social
relationships and power structures
3.
Conformity: imitation locks firms into common structures and
strategies (“institutional isomorphism”)
4.
Limited Search: “bounded rationality” encourages local search; this
is reinforced by managers’ contentment with satisfactory rather than
optimal solutions
5.
Complementarities between strategy, structure, and systems:
firms create unique configurations of close-fitting organizational
features–localized changes tend to be dysfunctional, while
systematic change difficult
Copyright © 2019 John Wiley & Sons, Inc.
THE CHALLENGE OF ORGANIZATIONAL ADAPTATION AND STRATEGIC CHANGE
The World’s Biggest Companies by Market
Capitalization, 1912 and 2018
1912
$ bn.
2018
$ bn.
US Steel
0.74
Apple
876
Standard Oil NJ (Exxon)
0.39
Alphabet
737
J&P Coates
0.29
Microsoft
658
Pullman
0.20
Amazon
567
Royal Dutch Shell
0.19
Facebook
511
Anaconda
0.18
Tencent
496
General Electric
0.17
Berkshire Hathaway
488
Singer
0.17
Alibaba
441
American Brands
0.17
Johnson & Johnson
376
Navistar
0.16
JP Morgan Chase
371
British American Tobacco
0.16
De Beers
0.16
Copyright © 2019 John Wiley & Sons, Inc.
THE CHALLENGE OF ORGANIZATIONAL ADAPTATION AND STRATEGIC CHANGE
The Threat of Technological Change
Some types of technological change are more difficult for established
firms to adapt to than others:
▪ Competence Enhancing versus Competence Destroying
Technological Change—established firms will have difficulty in
adjusting if the new if technology requires different resources and
capabilities from those they already possess
▪ Architectural versus Component Innovation—established firms have
greater difficulty adjusting to innovation that involve a new product
architecture than those that relate to particular components
▪ Sustaining versus Disruptive Technologies—new technologies that
augment existing performance attributes are easier to adapt to that than
those that incorporate different performance attributes than the existing
technology
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Managing Strategic Change: Dual
Strategies and Organizational Ambidexterity
Dual Strategies
Firms need
(a) A strategy for today that exploits existing resources and capabilities
and current market positions
(b) A strategy for tomorrow that prepares the firms for the future
Organizational Ambidexterity
Firms need to
(a) Exploit existing resources and capabilities and market positions
(b) Explore new opportunities for the future
Doing both simultaneously requires ambidexterity:
Structural ambidexterity:
Contextual ambidexterity: same
exploration and exploitation
allocated to different organizational
units
organizational units and people
perform both exploration and
exploitation
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Combatting Organizational Inertia
•
Creating Perceptions of Crisis—a crisis facilitates organizational
change. If there’s no crisis—create the perception of one!
•
Establishing Stretch Targets—demanding performance targets can
generate ambition and mobilize effort
•
Organizational Initiatives—initiatives launched by the CEO can be
vehicles for change
•
Reorganizing Company Structure—restructuring breaks down
existing power bases and creates openings for external hires
•
New Leadership—capacity of the existing leadership to initiate change
is limited by investment in the status quo and lack of cognitive
flexibility—hence, the need for new leadership
•
Scenario Analysis offers a structured approach for managers to
address the forces s that are changing their business environment and
to prepare for the future
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Distinctive Capabilities as a Consequence
of Childhood Experiences: The Oil Majors
Firm
Capability
Early history
Exxon
Financial
management
Exxon’s predecessor, Standard Oil (NJ) was the
holding co. for Rockefeller’s Standard Oil Trust
RD/
Shell
Coordinating
decentralized
global empire
Shell a j-v formed from Shell T&T founded to
sell Russian oil in China, and Royal Dutch
founded to exploit Indonesian reserves
BP
“Elephant
hunting”
Discovered huge Persian reserves, went on to
find Forties Field and Prudhoe Bay
ENI
Managing deals &
relationships in
difficult political
environments
Pioneering spirit of the founder, Enrico Mattei; the
challenge of managing government relations in postwar Italy
Mobil
Lubricants
Vacuum Oil Co. founded in 1866 to supply
patented petroleum lubricants
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Integrating Resources to Create
Organizational Capability
ORGANIZATIONAL
CAPABILITIES
Processes
Organizational
Structure
Motivation
Organizational
Alignment
RESOURCES
TANGIBLE
INTANGIBLE
•Financial
•Physical
•Technology
•Reputation
•Culture
HUMAN
•Skills/know-how
•Capacity for
communication
& collaboration
•Motivation
MANAGING STRATEGIC CHANGE
Hyundai Motor: Developing Capabilities through
Product Sequencing
•Hydrodynamics
Capabilities
•Assembly
•Production
engineering
•Local
marketing
•Auto styling
&design
•Casting &
forging
•Chassis
design
•Tooling
•Body
production
•Export mktg.
SKD
CKD
Ford Cortina
Pony
•FWD
engineering
•CAD/CAM
•Assembly
control
systems
•Advanced
component
handling
Excel
•Thermodynamics
•Fuel engineering
•Emission control
•Lubrication
•Kinetics& vibration
•Ceramics
•Electronic control
systems
•Large-scale design
integration
•Global logistics
•Lifecycle engineering
‘Alpha’
engine
Accent
Avante
Sonata
Products
1968
1970
Copyright © 2019 John Wiley & Sons, Inc.
1974
1985
1994-95
MANAGING STRATEGIC CHANGE
Dynamic Capabilities
❑ Dynamic capability is a “firm’s ability to integrate, build, and
reconfigure internal and external competences to address rapidly
changing environments”
❑ Dynamic capabilities typically viewed as “higher order”
capabilities that orchestrate change among lower-level “ordinary”
or “operational” capabilities.
❑ There are three types of dynamic capability:
(1) sensing and shaping of opportunities and threats
(2) seizing opportunities
(3) maintaining competitiveness through enhancing, combining,
protecting, and, when necessary, reconfiguring the
enterprise’s intangible and tangible assets
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Gary Hamel: The New Foundations of Management
OLD BRICK
NEW BRICK
Top management is responsible
for setting strategy
Everyone is responsible for setting
strategy
Getting better is the way to win
Innovation is the way to win
IT creates competitive advantage
Unconventional business concepts
create competitive advantage
Being revolutionary is high risk
More of the same is high risk
We can merge our way to
competitiveness
There’s no correlation between
size and competitiveness
Innovation is new products
and technologies
Innovation is entirely new business
concepts
Strategy is the easy part,
Implementation the hard part
Strategy is the easy only if you’re
content to be an imitator
Change starts at the top
Change starts with activists
Big companies can’t innovate
Big companies can become grayhaired revolutionaries
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Knowledge Management and the
Knowledge-based View: Types of Knowledge
Type of
Knowledge
Characteristics
Implications
Explicit: knowing Easy and cheap to
about
transfer. A “public
good” (non-exclusive)
Easy to exploit within the
firm—but difficult to protect
from rivals: hence, a weak
basis for sustainable
advantage
Tacit: knowing
how
Sound basis for sustainable
competitive advantage;
challenge is to replicate it
internally
Difficult to articulate or
codify. Transfer is slow
and costly: requires
observation and
practice
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Knowledge Management Practices
Knowledge
process
Knowledge
identification
Knowledge
Measurement
Knowledge
Retention
Types of
activity
• Managing intellectual
property
Texas Instruments’ appraisal and
licensing of its patent portfolio
Corporate “yellow pages”
BP’s ‘Connect’ database of employees’
skills and experience
• Intellectual capital
accounting
Skandia (Swedish insurance co.);
Dow Chemical
Lessons learned
Databases
Knowledge
Transfer and
Sharing
Data Analytics
Examples
US Army Center for Lessons Learned
distils kn. from maneuvers & operations
into procedures
Accenture’s Knowledge Xchange
Communities-of-Practice
Schlumberger’s Eureka project of
virtual, distributed teams of experts
Best practices transfer
Ford Motor’s best practice replication
Benchmarks processes across all
its plants
Big data analysis
Walmart’s analysis of >1m. Customer
transactions every hour
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Knowledge Conversion and the Power of
Systematization
Levels of knowledge
Individual
Facts, Information,
Scientific kn.
Explicit
Types
of
Knowledge
Combination
Internalization
Organization
Databases, Rules,
Systems, IP
INDUSTRIAL
ENTERPRISES
Routinization
Externalization
CRAFT
ENTERPRISES
Tacit
Socialization
Skills,
Know-how
Copyright © 2019 John Wiley & Sons, Inc.
Organizational
routines

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