Basic Concepts in Industry Evolution

The starting point for analyzing industry evolution is the frame-work of structural analysis in Chapter 1. Industry changes will carry strategic significance if they promise to affect the underlying sources of the five competitive forces; otherwise changes are important only in a tactical sense. The simplest approach to analyzing evolution is to ask the

Evolutionary Processes of Industry

Although initial structure, structural potential, and particular firms’ investment decisions will be industry-specific, we can general-ize about what are the important evolutionary processes. There are some predictable (and interacting) dynamic processes that occur in every industry in one form or another, though their speed and direc-tion will differ from industry to industry: long-run changes

Key Relationships in Industry Evolution

In the context of this analysis, how do industries change? They do not change in a piecemeal fashion, because an industry is an inter-related system. Change in one element of an industry’s structure tends to trigger changes in other areas. For example, an innovation in marketing might develop a new buyer segment, but serving

Generic Industry Environments

Part II builds on the foundation of analytical techniques for for-mulating competitive strategy (in Part I) to consider the more specific analysis of strategy in important types of industry envi-ronments. Industry environments differ most strongly in their fundamental strategic implications along a number of key di-mensions: industry concentration; state of industry maturity; exposure to

What Makes an Industry Fragmented?

Industries are fragmented for a wide variety of reasons, with greatly differing implications for competing in them. Some indus-tries are fragmented for historical reasons—because of the resources or abilities of the firms historically in them—and there is no funda-mental economic basis for fragmentation. However, in many indus-tries there are underlying economic causes, and the

Competitive strategy for Overcoming Fragmentation

Overcoming fragmentation can be a very significant strategic opportunity. The payoff to consolidating a fragmented industry can be high because the costs of entry into it are by definition low, and there tend to be small and relatively weak competitors who offer lit–tle threat of retaliation. I have stressed earlier in this book that

Competitive strategy for Coping with Fragmentation

In many situations, industry fragmentation is indeed the result of underlying industry economics that cannot be overcome. Frag-mented industries are characterized not only by many competitors but also by a generally weak bargaining position with suppliers and buyers. Marginal profitability can be the result. In such an environ-ment, strategic positioning is of particularly crucial

Competitive strategy in fragmented industries: Potential Strategic Traps

The unique structural environment of the fragmented industry offers a number of characteristic strategic traps. Some common traps, which should serve as red flags in the analysis of strategic al–ternatives in any particular fragmented industry, are as follows: Seeking Dominance. The underlying structure of a frag-mented industry makes seeking dominance futile unless that struc-ture

Fragmented industries: Formulating Strategy

Collecting the ideas that have been discussed earlier, we are in a position to outline a broad analytical framework for formulating competitive strategy in fragmented industries (see Figure 9-1). Step one is to conduct a full industry and competitor analysis to identify the sources of the competitive forces in the industry, the structure within

Emerging industries: The Structural Environment

Although emerging industries can differ a great deal in their structures, there are some common structural factors that seem to characterize many industries in this stage of their development. Most of them relate either to the absence of established bases for competi-tion or other rules of the game or to the initial small size

Emerging industries: Problems Constraining Industry Development

Emerging industries usually face limits or problems, of varying severity, in getting the industry off the ground. These stem from the newness of the industry, its dependence for growth on other outside economic entities, and externalities in its development that result from its need to induce substitution by buyers to its product. Inability to

Emerging industries: Early and Late Markets

One of the crucial questions for strategic purposes in an emerg-ing industry is often the assessment of which markets for the new in-dustry’s product will open up early and which will come later. This assessment not only helps focus product development and marketing efforts but also is essential to forecasting structural evolution, since the

Emerging industries: Strategic Choices

Formulation of strategy in emerging industries must cope with the uncertainty and risk of this period of an industry’s development. The rules of the competitive game are largely undefined, the struc-ture of the industry unsettled and probably changing, and competi–tors hard to diagnose. Yet all these factors have another side—the emerging phase of an

Emerging industries: Techniques for Forecasting

The overriding aspect of emerging industries is great uncertain-ty, coupled with the certainty that change will occur. Strategy cannot be formulated without an explicit or implicit forecast of how the structure of the industry will evolve. Unfortunately, however, the number of variables that enter into such a forecast is usually stagger-ing. As a result,

Which Emerging Industries to Enter

The choice of which emerging industry to enter is dependent on the outcome of a predictive exercise such as the one described above. An emerging industry is attractive if its ultimate structure (not its ini-tial structure) is one that is consistent with above-average returns and if the firm can create a défendable position in

Industry Change during Transition

Transition to maturity can often signal a number of important changes in an industry’s competitive environment. Some of the probable tendencies for change are as follows: Slowing growth means more competition for market share. With companies unable to maintain historical growth rates merely by holding market share, competitive attention turns inward toward attacking the

Some Strategic Implications of Transition

The changes that often accompany transition to maturity repre-sent possible changes in the basic structure of the industry. Each ma-jor element of industry structure often is changing: overall mobility barriers, the relative significance of various barriers, the intensity of rivalry (it usually increases), and so on. Structural change nearly al-ways means that firms must

Strategic Pitfalls in Transition

In addition to failure to recognize the strategic implications of transition described above, there is the tendency for firms to fall prey to some characteristic strategic pitfalls: A company’s self-perceptions and its perception of the in- Companies develop perceptions or images of themselves and their relative capabilities (“we are the quality leader”; “we provide

Organizational Implications of Industry Maturity

We tend to think of requirements for organizational change as resulting from major shifts in strategy and from evolution in the size and diversification of a company. The necessary fit between organi-zational structure and a firm‘s strategy holds equally true in industry maturity, and the transition to maturity can be one of the critical

Industry Transition and the General Manager

Industry transition to maturity, especially when it requires many of the strategic adjustments described above, often signals a new “way of life” in a company. The excitement of rapid growth and pioneering are replaced by the need to control costs, compete on price, market aggressively, and so on. This change in the way of