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Competitive Life Cycle: Common Patterns

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Competitive Life Cycle: Common Patterns

Studebaker, Remington, Sears, Kodak. Companies that were leaders in their time but failed to adapt to change. In this module, we'll explore the impact of disruptive innovations and how companies can navigate these changes, evolve over time, and avoid the pitfalls of the competitive life cycle. By the end of this module, you will be able to complete a competitive life cycle analysis and apply this tool in a case study of Sony. Let's get started.

Advanced Business Strategy

Universidad de Virginia

Curso 2 de 5 en Estrategia de Negocios Programa Especializado

Advance your strategic analysis skills in this follow-up to Foundations of Business Strategy. In this course, you'll learn the tools to analyze strategy across time (competitive dynamics), industries ( corporate strategy), geographies (international strategy), and institutions (non-market strategy). We'll introduce the tools you need to complete a comprehensive evaluation and understand the strategy dynamics of an industry: Competitive Lifecycle, Internationalization and Stakeholder Analyses, and Diversification Matrices. We'll apply these tools in case studies of industry leaders Disney, Orascom Telecom Holding, Sony, and GE Healthcare India.

Destrezas que aprenderás

Strategic Management, Strategic Thinking, Business Strategy, business competition

Impartido por:

Michael Lenox
Senior Associate Dean and Chief Strategy Officer
Jared Harris
Samuel L. Slover Research Chair in Business Administration

Transcripción

Let's return to the Competitive Life Cycle.

This idea, once again, that we see these common patterns in industries,

as new technologies and businesses emerge.

So, what is the general sense?

Well, in general, what we see is in the beginning we have this era of ferment.

This idea that, this is when new ideas are being tried out.

There's a lot of experimentation here.

Innovation, during this time period, typically focuses on new product features.

Trying different ways to bring that new product or technology to market.

As we say, it's largely exploratory here.

Again, experimentation, trying new things.

Interestingly, this phase is often lead by small entrepreneurial firms.

Going back to our friend Joseph Champatour,

this is one of the things he pointed out, that entrepreneurs are often the ones who

create the gales of creative destruction here.

We think back to the digital music player market,

one of the first entrants in there was a company called Rio,

who had their own digital music player within that marketplace.

During this phase, profits are often made through differentiation and

niche placement.

This is where kind of the high end,

higher quality products might be the ones that might do the best here.

You think about electric vehicles as an emerging market segment right now.

It is interesting to note that Tesla has had probably

some of the most success at this point.

But they positioned themselves originally as a sports car manufacturer at

a very high end.

Now they've moved on to sedans, but

once again, more differentiated, higher end placement here.

They are not going after the mass market, at this point, at the very least.

So this is very common in the early stages of a new technology.

However, over time, this idea of a dominant design again emerges here.

What we see again, is they're coalescing around, what does that product or

service look like?

And then we see imitation and other competitors start to emerge,

as we mentioned before.

Interestingly enough,

innovation during this phase begins to shift from what was before a product and

the features of those products often to other features, such as, the process for

manufacturing, delivery, service, how can you bring other elements to bear here.

History is littered with interesting examples of companies

who weren't necessarily the pioneer innovators within their industry, but

were the ones who were eventually able to take those products to scale.

A classic example on your strategy course might be a company in the CT scanner

business here.

EPI was the original, Emerson was the original entrant into CAT scanners,

as they are frequently called.

These are digital imaging technology for health purposes.

But eventually, it was General Electric,

who really was the one who was able to scale and succeed in that business.

And in part, it was because they had a lot of the subsequent infrastructure,

in terms of, delivery and service that was necessary to be successful in that market.

Once the dominant design emerges, it's not uncommon to see a few large,

efficient firms remain.

This again, is as we see the shakeout occur and we begin to see the competitive

ordering begin to coalesce around a few dominant players.

It's often the case, as well,

that some of these pioneering firms wither away at this point.

So I mentioned Rio in the digital music player market as an example

of an pioneering entrepreneurial firm that eventually withered away in the face of

other entrants and competitors within the segment.

What's interesting is that eventually this whole dynamic plays itself out again,

eventually a disruption is likely to occur.

Perhaps a new technology or business model is going to emerge.

And we once again begin the whole competitive life cycle again.

Now how do we know, and why do these disruptions emerge?

Well, it's interesting to think about them in two different ways.

Classic ways to think about these.

One would be, what we call technology push.

This is an idea of what we might say, exogenous technological change.

Exogenous meaning, kind of outside maybe the normal marketplace here.

This can be driven by R&D, basic research being done and

maybe in universities and the like, that push the technology frontier and

eventually get the market moving in a new direction.

The second way to think about it is that actually the market, in terms of demand,

changes, that consumers shift their preferences.

And this is what we would call a demand pull story here.

So something has shifted in what consumers want,

and then that changes the mix of technology.

So take for example, the emerging technologies in renewable energy,

one could say is a technology push story in which we have advanced now, in terms

of solar technology or wind technology, that they are now a more viable business.

Or one could say, it's a demand pull story that because of government regulation and

consumer demand, there is now more demand for renewable energy and

that's gonna drive the marketplace.

In reality, I think often, it's kind of a mix of both.

We see both technology push and

demand pull, interacting with one another to drive market forward and

ultimately, lead to the emergence of these new technologies or business models.

In the graph here, you see one way to conceive of this.

It's another S-curve here,

a different S-curve than our cumulative revenue S-curve.

This one refers to simply the underlying performance of a technology.

What's interesting to note, is that as we apply effort, as we study and research

a new technology, we eventually see this huge learning curve piece of this.

This is the upward swinging part of the S-curve.

But eventually we begin to tap out our ability to continue to innovate

in that area.

Take the internal combustion engine,

the gasoline powered internal combustion engine.

We've had over 100 years of research advancing that technology.

Arguably, the effort needed to even get a marginal improvement in the efficiency in

the internal combustion engine is quite high.

We've basically tapped out all the easy innovations,

the low-hanging fruit, that could emerge out of that technology.

Compare and contrast that with a more emergent technology like

electric vehicles.

Now electric vehicles are interesting since they have been around for

over 100 years.

However, very little effort had been put into electric vehicles over the last 80,

90 years, until more recently.

So as that effort's increased, there's been improvement in the technology, and

one could argue we might face that steep part of the S-curve, moving forward here.

Take for example, hydrogen fuel cells, another alternative powertrain for

an automobile.

Similarly, they've been around for awhile, but not necessarily much

research has been done, not much effort has been done for awhile.

And as that increases, perhaps that will take off as well.

So again, as we invest in a technology, as we learn about that technology,

we eventually might get decreasing returns to research and effort.

And that opens up the window for

a new technology to emerge to supplant the old technology.

And this, once again, leads to this new, competitive reordering.

And once again, a new dominant design emerges, and

what's interesting about this process is that the new technologies that emerge,

may at first, be worse than the existing technologies.

In fact, they are often worse than the existing technologies.

But they're on a different part of this S-curve, I was just referring to.

They're at a different point in terms of the effort put in to advancing them.

And it's over time, that they start to improve.

Going to automobiles once again, when Toyota first introduced the Prius and

the hybrid engines that they were pioneering, they were very inefficient and

costly.

But over time, they've learned to improve them, and now they are very profitable and

increasing efficiency engines there.

One could imagine similar dynamics playing out again in electric vehicles or

hydrogen fuel cell powered vehicles and the like.

So, we see the emergence of these new technologies.

They come in, they might be inferior to existing technologies, but

they might eventually supplant them.

So the question is, what is that S-curve faced by the existing technology versus

the new one, and is it possible for the old one to overtake it?

Now, it's important to recognize that not all new technologies succeed.

People might remember the old laser discs from the late seventies,

early eighties that were gonna supplant the VHS and beta tapes.

There are other examples in consumer electronics where the new technology came

about and just never caught fire and eventually went away there.

So we have to also understand that when these S-curves could be quite short and

quite small, and they never gain prominence over the existing technology.

So we're gonna discuss, in a little while here, how we can begin to think about, and

map out and analyze what's most likely to occur in this industry.

However, I would like to emphasize here that one of the interesting things we

observe in these competitive life cycle is that it's often the older firms that

are having difficulty to adapt and are often driven from the market.

And this goes back again, to our examples of the Studebaker Brothers and

Remington typewriters and the like.

So in the next section, we're going to discuss why and

how incumbent firms first struggle and then ultimately succeed.

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