5 The Industry Life Cycle The industry life cycle is not the same as the product life cycle, because within an industry there is a constant updating of products. For example TV manufacturers first produced monochrome TVs, then colour TVs and subsequently home entrainment systems. Within the colour TV segment, the screen technology has evolved from cathode ray displays to flat screens such as plasma screens. Recently the first 3D TVs and Internet enabled TV sets appeared on the market. However, eventually some industries may contract sharply and even disappear. For example passenger sea transport (other than cruising) has been replaced by air travel; photo-chemical photography has been replaced by digital photography; video rental shops are being replaced by digital downloads or video on demand. Industries evolve over time, both structurally and in terms of overall size. The industry life cycle is measured in total industry sales and the growth in total industry sales. The industry structure and competitive forces that shape the environment in which businesses operate change throughout the life cycle. Therefore a business's strategy must adapt accordingly. It is useful to consider the evolution of the industry life cycle in the context of Porter 5 Forces. Introduction In the introduction stage there are few competitors and there is no threat from substitutes because the industry is so new. The power of buyers is low, because those who require the product are prepared to pay to get hold of supplies that are limited. Suppliers exert some power, because volumes purchased are still low and the industry is relatively unimportant for suppliers. Growth In the growth stage the number of competitors increases rapidly as other firms enter the growing industry. However, because at this stage growth in demand outstrips growth of capacity, rivalry among firms is kept in check. The power of buyers is still very low because demand exceeds supply. Often industry growth is associated with high profitability. While at this stage firms may profitable, they could still be cash absorbing and running risks as they jockey for position and market share. Maturity As the industry enters maturity, the power of buyers is increasing because capacity matches or exceeds demand. In contrast, the power of suppliers has declined because by now the volumes purchased by the industry are very important to suppliers. Losing a large customer could be very damaging to suppliers. The threat from substitutes is now growing. The industry will start to consolidate, possibly through mergers and acquisitions. Mature industries are settled in, risks are low and cash is generated. However, rivalry among competitors is fierce and falling prices pose a serious threat to profitability. Decline The decline stage poses new challenges. Capacity exceeds supply thereby increasing the power of buyers. The weakest competitors will withdraw from the industry, leading to a decline in the rivalry between firms. At this stage firms may also combine forces to ask for government intervention or subsidies to help to protect the declining industry. The threat of substitutes is high; indeed substitutes are often the root cause of decline. However, managed correctly, a slowly declining industry can produce attractive returns for investors because there is no new investment as the industry is gradually run down and milked for cash.
6 Competitive rivalryAccording to Porter’s Five Forces Model, if entry into a market is easy then rivalry is likely to be high.
7 Related Diversification What it is: It is when a business adds or expands its existing product lines or markets. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification.With a related diversification strategy you have the advantage of understanding the business and of knowing what the industry opportunities and threats are; yet a number of related acquisitions fail to provide the benefits or returns originally predicted.Why? It is usually because the diversification analysis under-estimates the cost of some of the softer issues: change management, integrating two cultures, handling employees – layoffs and terminations, promotions, and even recruitment. And on the other side, the diversification analysis might over-estimate the benefits to be gained in synergies.
11 Subsidiary: A company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company or holding company. A subsidiary is a company that is partly or completely owned by another company that holds a controlling interest in the subsidiary company. If a parent company owns a foreign subsidiary, the company under which the subsidiary is incorporated must follow the laws of the country where the subsidiary operates, and the parent company still carries the foreign subsidiary's financials on its books (consolidated financial statements). For the purposes of liability, taxation and regulation, subsidiaries are distinct legal entities. Corporate governance is "the system by which companies are directed and controlled". It involves regulatory and market mechanisms, and the roles and relationships between a company’s management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debt-holders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees.
13 Dynamic capabilities From Wikipedia, the free encyclopedia David J. Teece, Gary Pisano, and Amy Shuen define dynamic capability as "the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments." Dynamic capabilities can be distinguished from operational capabilities, which pertain to the current operations of an organization. Dynamic capabilities, by contrast, refer to "the capacity of an organization to purposefully create, extend, or modify its resource base" (Helfat et al, 2007). The basic assumption of the dynamic capabilities framework is that core competencies should be used to modify short-term competitive positions that can be used to build longer-term competitive advantage. The literature on dynamic capabilities grew out of (1) the resource-based view of the firm and (2) the concept of "routines" in evolutionary theories of organization (Nelson & Winter, 1982). It thus provides a bridge between the economics-based strategy literature and evolutionary approaches to organizations.
14 Entrepreneurship From Wikipedia, the free encyclopedia Entrepreneurship is the act and art of being an entrepreneur or one who undertakes innovations or introducing new things, finance and business acumen in an effort to transform innovations into economic goods. This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses (referred as Startup Company); however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities spin-off organizations.Entrepreneurial activities are substantially different depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities.
15 Brand Image/Brand Association Some people distinguish the psychological aspect, brand associations like thoughts, feelings, perceptions, images, experiences, beliefs, attitudes, and so on that become linked to the brand, of a brand from the experiential aspect. The experiential aspect consists of the sum of all points of contact with the brand and is known as the brand experience. The brand experience is a brand's action perceived by a person. The psychological aspect, sometimes referred to as the brand image, is a symbolic construct created within the minds of people, consisting of all the information and expectations associated with a product, service or the company(ies) providing them.