You can’t invest wisely in your organization unless you understand how the industry is changing. If the industry is fundamentally changing, then eventually you will have to dismantle the old business. If the industry is undergoing incremental changes, you may need to reinvest in your core. It may seem obvious to know the changing needs of the industry, but such knowledge is not always easy. The company has been misinterpreting leads and drawing false conclusions. For example, Sotheby’s has invested in online auctions (its own website and joint ventures with amazon), as if the Internet was just another channel; In fact, new technology represents the fundamental impact of industry structure.
To truly understand your industry is which direction development, you must eliminate the noise of the popular commercial media, as well as the immediate threat of competition pressure, from the long-term perspective to consider the background of your business. This is what some of my colleagues and I have done. The research described in this paper is based on a high-level survey of various businesses in the United States. The study, which began in the early 1990s, continues, initially focusing on how industry structures affect corporate profitability and investor returns. This statistical analysis puts forward several hypotheses on how the industry evolves, and then tests and refines in a series of case studies on industrial structure, industry change and competitive advantage.
For the sake of clarity, I’m going to simplify this by the fact that the industry follows four different trajectories: radical, progressive, creative, and mediating. Also, a corporate strategy – a plan to achieve investment returns – can only be successful if it is aligned with the industry’s trajectory. These four trajectories set boundaries for companies to create profits. Many companies suffer losses because they try to innovate outside of those boundaries. One of the most famous examples is xerox, which innovates and struggles for profit. By the mid-1980s, the copier manufacturing industry was ripe for a business model that emphasized creative “hot products”. At the same time, the PC industry is still in its infancy, although xerox PARC pioneered the introduction of PC inventions, such as the graphical user interface mouse,
The industry evolves along four different trajectories — radical, progressive, creative and mediating, setting boundaries for profits for businesses.
No innovation strategy applies to every company in every industry. But if you understand the nature of industry change, you can determine which strategies are likely to succeed and which strategies can backfire.
Four tracks of change
Before diving into the four tracks of industry evolution, it is worth recognizing that they are defined by two outdated threats. The first is the threat to the industry’s core activities – events that historically bring profits to the industry. Because of some new external options, their relationship with suppliers and customers becomes less urgent. In the automotive industry, for example, many dealers find that their traditional sales activities are not highly valued by consumers, who are searching the Internet for the characteristics, performance and prices of the cars they want. The second is the threat to the industry’s core assets, resources, knowledge and brand capital, which historically make the organization unique. If they don’t create value as they did before, they are threatened. In the pharmaceutical industry, for example, as patents expire and new drugs are developed, blockbuster drugs are under constant threat.
The “trajectory of industry change” maps the relationship between the two threats and the following four changes. Radical change occurs when the core assets and core activities of an industry are threatened by antiquated threats. The trajectory is closest to the concept of disruptive change discussed by Clayton m. Christensen of Harvard University. In this case, the knowledge and brand capital accumulated in the industry is eroded, as is the relationship between customers and suppliers. In the 1980s and 1990s, an estimated 19 per cent of American industry experienced a fundamental change. Tourism is a good example. Airline’s core business and core assets for airlines to implement strengthen direct price competition system (such as SABRE and other reservation system), and the agency’s customers to switch to the network system (such as sex, Orbitz and Travelocity) provide new value (on-line monitoring available flights and fares,
The trajectory of industry change
When core assets and core activities are not threatened, the industry’s trajectory is gradual. Over the past two decades, this has been the most common trajectory. Some 43 per cent of the us industry is gradually changing, including long-distance freight and commercial airlines. In these industries, underlying assets, business and basic technologies remain stable. Innovators like the Yellow Roadway, Southwest and JetBlue are not because the advantages of incumbents are outmoded, but because startups have sensible ideas about how to optimize efficiency.
The other two change trajectories – creativity and intermediation – are ignored in the management literature, possibly because of their nuances. Creative change occurs when core assets are threatened and core activities are stable. This means that companies must constantly seek ways to restore their assets while protecting their ongoing customer and supplier relationships. Think a movie studio is making a new movie or oil company to exploit a new well. About 6 percent of all industries in the United States are on track for innovation.
A fair share?
If core activities are threatened by an outdated threat, relationships between customers and suppliers are strained and fragile, while core assets retain their ability to create value, and mediation changes occur. Sotheby’s, for example, continues to assess fine art, but the auction house’s matchmaking activity no longer creates value because of the technology that makes it possible. The challenge of intermediate change is how to fundamentally change relationships with customers and suppliers while maintaining knowledge, brand capital, and other valuable assets. In the 1980s and 1990s, about 32 percent of American industry experienced some kind of intermediary change.
Radical shifts occur when core activities and core assets are under threat of obsolescence. The correlation between capacity and resources established by an industry has been weakened by some external alternatives; Relationships with buyers and suppliers are under attack; The company eventually fell into crisis. The radical industrial evolution is relatively unusual. It usually comes after a lot of new technologies are introduced. When regulatory changes (such as long-distance trunk airlines from the 1970 s), or simply because of the change of taste (American consumers quit cigarettes in the past 20 years, instance).
An industry of radical change has been transformed, but not overnight. It usually takes decades to become clear. The end result is a complete reconfiguration – usually a reduced industry. The overnight delivery business is in the early stages of a radical transformation that began a decade ago. As the use of the Internet has become more common, E-mail, especially secure encrypted E-mail, has become a threat to the industry. However, the number of overnight letters is increasing and business is booming as the threat is still in its infancy.
This is part of the good news that is associated with radical transformation: industries in the midst of a fiercely transformative track tend to remain profitable for long periods of time, especially as companies in these industries have scaled back their commitments. Companies also have time to develop strategic options, and if they can recognize their own trajectories early on, they can exercise these strategic choices in the future. For example, the fedex acquisition of Kinko will help fedex to build deeper partnerships with small and medium-sized businesses that need file storage, management and communication services.
The only reasonable way to change radically is to focus on the final strategy and its impact on the company’s current strategy. Quitting is not the only option; Some survivors can maintain lucrative positions after others leave the industry. For example, the mainframe business, despite threats from PC and workstation manufacturers, is still fairly large.
When the industry is fundamentally changing, consider the best strategy to look at your productivity Numbers, the pace and time of industry transformation, and the cost of switching to buyers. Early companies may adopt staggered strategies – gradually improving established business activities and selective testing of new assets. This is an encyclopedia company how to respond to the proposed search engines militant threat: they try new electronic products and services, and create new distribution channels, actively promote the existing products, update the inventory management system.
Historically, many companies that have faced sharp changes in the industry have abandoned their positions and entered the emerging business sector, taking on huge risks in the process. For example, several typewriter makers are trying to get into PC manufacturing, just to shorten their efforts, as demand in emerging industries becomes clearer. (IBM has been successful in this strategy, but success in the PC industry is closely tied to the experience of other computing fields.) Alternative reinvestment in the existing industry is also risky because it makes it unprofitable to adopt a method that may become a reality.
Changes in the middle
Mediation changes are more common than radical industries. This usually happens when buyers and suppliers have new options because they have access to unprecedented information. The core activities of the middle – changing trajectory are threatened. But the core assets of these industries – knowledge, brand capital, patents, even specialist factory equipment – retain most of their value if used in new ways. In fact, when the downstream and upstream markets are threatened, the industry is in an intermediate orbit. Car dealers are changing in the middle, for example, for a variety of reasons. First, traditional car sales have become less important because of the Internet, and consumers are less likely to buy cars because of the long duration of the car. Second, carmakers are seeking closer ties with drivers and thus start sharing customer relationship management with dealers. In some cases, they try to take over the customer relationship completely. Finally, individual dealers are losing control of inventory management because IT and complex financing create scope economies that only large integrated companies can exploit. They are trying to take over the customer relationship completely. Finally, individual dealers are losing control of inventory management because IT and complex financing create scope economies that only large integrated companies can exploit. They are trying to take over the customer relationship completely. Finally, individual dealers are losing control of inventory management because IT and complex financing create scope economies that only large integrated companies can exploit.
Managing a company in an industry that is experiencing a change in mediation is very difficult. This could be the most challenging of all the changes described in this article, as companies must simultaneously retain their valuable assets and reorganize key relationships.
Executives tend to underestimate the threat of their core activities, assuming long-term customers remain satisfied and old supplier relationships remain relevant. In fact, these relationships can be fragile. The value of core assets often escalates, complicating managers’ confusion. The auction house, for example, was initially interested in its accumulated valuation experience, since eBay has created so much interest in auctions.
During the middle period, the pressure in the industry tends to increase until the breaking point is reached and then the relationship drops sharply, only temporarily regrouping until the cycle repeats. Consider a big brokerage. They have long criticized the conflict of interest among analysts. But the recent market downturn and accounting scandals have broken camel’s dilemma – both of which are linked to fundamental changes in the information of investors and companies looking to invest capital. The core assets of the investment broker (including the securities valuation and processing trading system) retain their value, while the old ones no longer provide the same opportunities for creation.
Companies facing mediation changes must find unconventional ways to extract value from their core resources. They may enter a new business, or even a new one. Or they may sell assets or services to their competitors. In the music industry, for example, record companies are starting to aspiring musicians to sell their services, rather than to huge investment of artists, including costs of all of the development of the artist (radio promotions, choreography and image management, in addition to the other fees). Customers and activities have changed, but the core resource-record company’s ability to develop new artists has retained its value. Another example is that some of the traditional auction companies that are threatened by eBay are evaluating their expertise online and will need to pay another fee, and they will prove the value of the goods they exchange on the Internet. These companies are effectively dealing with intermediaries by reconfiguring old assets in new ways.
The initial earnings under this trajectory may be relatively high, then fall sharply, and can only be recovered temporarily. For example, record companies’ profits have been fluctuating, as these companies have adapted to varying degrees of success. It is a good idea to invest in reinvestment as usual. However, an organization that recognizes the trajectory of the industry can transform relatively quiet periods into opportunities for strategic transformation.