The Nature of Change In this module, we learned that everything is in a state of constant change. This is a challenge of stra
The Nature of Change
In this module, we learned that everything is in a state of constant change. This is a challenge of strategic management, as the industry environment is driven by technology, consumer needs, politics, economic conditions, and many other influences. Consider these influences as you analyze the following case.Case 11: New York Times: Adapting to the Digital Revolution p. 492 (in the textbook)To support the case analysis read Chapter 8 and the assigned reading. Remember that a case study is a puzzle to be solved, so before reading and answering the specific case questions, develop your proposed solution by following these five steps:
- Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module which apply to the situation described in the case study.
- Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current course module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
- Describe in some detail the actions that would address or correct the situation.
- Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
- Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
Case Study Questions:
- What was the nature and sources of organizational inertia in this case?
- Explain “disruptive technology” and “architectural innovation” as it relates to this case.
- Evaluate the role of organizational ambidexterity, crisis management, capability development, dynamic capabilities, and knowledge management in this case.
- What general lessons for the management of strategic change did you gain from this case and how do they apply to the current state of this industry?
- Be 4 to 5 pages in length, which does not include the required title and reference pages, which are never a part of the content minimum requirements.
- Use APA style guidelines.
- Support your submission with course material concepts, principles, and theories from the textbook and at least two scholarly, peer-reviewed journal articles unless the assignment calls for more.
- It is strongly encouraged that you submit all assignments into the Turnitin Originality Check before submitting it to your instructor for grading. If you are unsure how to submit an assignment into the Originality Check tool, review the Turnitin Originality Check—Student Guide for step-by-step instructions.
Required:
- Chapter 8 in Contemporary Strategy Analysis
- Chapter 8 PowerPoint slides Chapter 8 PowerPoint slides – Alternative Formats in Contemporary Strategy Analysis
- Visnjic, I., Ringov, D., & Arts, S. (2019). Which Service? How Industry Conditions Shape Firms’ Service‐Type Choices. Journal of Product Innovation Management, 36(3), 381–407. https://doi.org/10.1111/jpim.12483
Recommended:
- Cucculelli, M., & Peruzzi, V. (2020). Innovation over the industry life-cycle. Does ownership matter? Research Policy, 49(1), N.PAG. https://doi.org/10.1016/j.respol.2019.103878
*
CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 8
Industry Evolution and
Strategic Change
- The industry life cycle
- The challenge of organizational adaptation and strategic change
- Managing strategic change
Industry Evolution and
Strategic Change
Copyright © 2019 John Wiley & Sons, Inc.
OUTLINE
37
INTRODUCTION
GROWTH
MATURITY
DECLINE
Industry Sales
Time
Stages of the Industry Life Cycle
THE INDUSTRY LIFE CYCLE
Drivers of industry evolution :
demand growth
creation and diffusion of knowledge
Copyright © 2019 John Wiley & Sons, Inc.
Product and Process Innovation Over Time
THE INDUSTRY LIFE CYCLE
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
Product Innovation
Process Innovation
Time
Rate of Innovation
- Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre-determined pattern of industry development
Color
B&W
Portable
HDTV
Flat screen
How Typical is the Life Cycle Pattern?
Copyright © 2019 John Wiley & Sons, Inc.
- 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
1900 1950 1980 2017
1930 1950 1970 1990 2010
TELEVISIONS
MOTORCYCLES
THE INDUSTRY LIFE CYCLE
42
1840 1880 1900 1920 1940 1960 1980 2000 2018
“Category
Killers”
e.g. Toys”R”
Us, Home
Depot
Internet
Retailers
e.g. Amazon,
JD.com
Mail Order,
Catalogue
Retailers
e.g. Sears
Roebuck,
Montgomery
Ward
Chain
Stores
e.g. A&P,
Woolworth’s,
W.H. Smith
Discount
Stores
e.g. K-Mart
Wal-Mart
Warehouse
Clubs
e.g. Price Club
Sam’s Club
Pop-Up
Stores
Department
Stores
e.g. Le Bon
Marché,
Macy & Co.,
Harrods
Innovation and Renewal over
the Life Cycle: Retailing
THE INDUSTRY LIFE CYCLE
Copyright © 2019 John Wiley & Sons, Inc.
Evolution of Industry Structure over the Life Cycle
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY 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 |
MANUFACTURING | Short-runs, skill intensive | Capacity shortage, mass-production | Over-capacity emerges; deskilling | Overcapacity |
TRADE | ——Production shifts from advanced to emerging countries—— | |||
COMPETITION | Few companies | Entry, mergers exit | Shakeout & consolidation | Price wars & exit |
KSFs | Product innovation | Design for manu-facture; Process innovation | Cost efficiency (scale economies, low cost inputs) | Low overheads; rationalization |
43
Customers become
more knowledgeable
& experienced
Diffusion of
technology
Demand growth
slows as market
saturation approaches
Customers become
more price conscious
Products become
more standardized
Distribution channels
consolidate
Production shifts
to low-wage
countries
Price competition
intensifies
Bargaining power
of distributors
increases
BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION
Excess capacity
increases
Production
becomes less R&D
& skill-intensive
Quest for new
sources of
differentiation
8
The Driving Forces of Industry Evolution
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
44
Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.
Changes in the Population of Firms over the Industry Life Cycle: US Auto Industry 1895-1960
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
Note: The figure shows
standardized means for each variable for businesses at each stage of the life cycle.
Strategy and Performance across the Industry Life Cycle
11
Copyright © 2019 John Wiley & Sons, Inc.
THE INDUSTRY LIFE CYCLE
Chart1
ROI | ROI | ROI |
Value Added/Revenue | Value Added/Revenue | Value Added/Revenue |
Technical Change | Technical Change | Technical Change |
New Products | New Products | New Products |
% Sales from New Products | % Sales from New Products | % Sales from New Products |
Product R&D/Sales | Product R&D/Sales | Product R&D/Sales |
Age of Plant & Equip. | Age of Plant & Equip. | Age of Plant & Equip. |
Investment/Sales | Investment/Sales | Investment/Sales |
Advertising/Sales | Advertising/Sales | Advertising/Sales |
Sheet1
ROI | Value Added/Revenue | Technical Change | New Products | % Sales from New Products | Product R&D/Sales | Age of Plant & Equip. | Investment/Sales | Advertising/Sales | |
Growth | 4.5 | 6.5 | 7.8 | 4.85 | 8.9 | 9.4 | 0.8 | 5.1 | 3.5 |
Maturity | 4.8 | 5.6 | 0.4 | 4.5 | 2.2 | 4.4 | 6.1 | 2.3 | 2.7 |
Decline | 1.67 | 0.7 | 1.5 | 3.9 | 0.2 | 0.4 | 10.1 | 1.5 | 2.1 |
Organizational Routines: existing patterns of coordinated activity make it difficult to develop new capabilities
Social & political structures: change threatens existing social relationships and power structures
Conformity: imitation locks firms into common structures and strategies (“institutional isomorphism”)
Limited Search: “bounded rationality” encourages local search; this is reinforced by managers’ contentment with satisfactory rather than optimal solutions
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
Organizational Adaptation and Change:
The Sources of Inertia
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
Copyright © 2019 John Wiley & Sons, Inc.
THE CHALLENGE OF ORGANIZATIONAL ADAPTATION AND STRATEGIC CHANGE
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 | 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 |
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
The Threat of Technological Change
THE CHALLENGE OF ORGANIZATIONAL ADAPTATION AND STRATEGIC CHANGE
Copyright © 2019 John Wiley & Sons, Inc.
Managing Strategic Change: Dual
Strategies and Organizational Ambidexterity
Dual Strategies
Firms need
- A strategy for today that exploits existing resources and capabilities and current market positions
- A strategy for tomorrow that prepares the firms for the future
Organizational Ambidexterity
Firms need to
- Exploit existing resources and capabilities and market positions
- Explore new opportunities for the future
Doing both simultaneously requires ambidexterity:
Structural ambidexterity: exploration and exploitation allocated to different organizational units
Contextual ambidexterity: same organizational units and people perform both exploration and exploitation
MANAGING STRATEGIC CHANGE
Copyright © 2019 John Wiley & Sons, Inc.
- 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
Combatting Organizational Inertia
MANAGING STRATEGIC CHANGE
Copyright © 2019 John Wiley & Sons, Inc.
Firm Capability Early history
Exxon Financial Exxon’s predecessor, Standard Oil (NJ) was the
management holding co. for Rockefeller’s Standard Oil Trust
RD/ Coordinating Shell a j-v formed from Shell T&T founded to
Shell decentralized sell Russian oil in China, and Royal Dutch
global empire founded to exploit Indonesian reserves
BP “Elephant Discovered huge Persian reserves, went on to
hunting” find Forties Field and Prudhoe Bay
ENI Managing deals & Pioneering spirit of the founder, Enrico Mattei; the
relationships in challenge of managing government relations in post-
difficult political war Italy
environments
Mobil Lubricants Vacuum Oil Co. founded in 1866 to supply
patented petroleum lubricants
Distinctive Capabilities as a Consequence of Childhood Experiences: The Oil Majors
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
ORGANIZATIONAL
CAPABILITIES
RESOURCES
TANGIBLE INTANGIBLE HUMAN
- Financial
- Physical
- Technology
- Reputation
- Culture
- Skills/know-how
- Capacity for communication & collaboration
- Motivation
Integrating Resources to Create Organizational Capability
Processes
Organizational
Alignment
Motivation
Organizational
Structure
MANAGING STRATEGIC CHANGE
- Assembly
- Production
engineering
- Local
marketing
- Auto styling &design
- Casting & forging
- Chassis design
- Tooling
- Body production
- Export mktg.
- FWD
engineering
- CAD/CAM
- Assembly
control
systems
- Advanced
component
handling
- Hydrodynamics
- Thermodynamics
- Fuel engineering
- Emission control
- Lubrication
- Kinetics& vibration
- Ceramics
- Electronic control
systems
- Large-scale design integration
- Global logistics
- Lifecycle engineering
SKD CKD
Ford Cortina
Pony
Accent
Avante
Sonata
Excel
Products
Capabilities
‘Alpha’
engine
1968
1970
1974
1985
1994-95
Hyundai Motor: Developing Capabilities through
Product Sequencing
MANAGING STRATEGIC CHANGE
Copyright © 2019 John Wiley & Sons, Inc.
- 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:
- sensing and shaping of opportunities and threats
- seizing opportunities
- maintaining competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring the enterprise’s intangible and tangible assets
Dynamic Capabilities
MANAGING STRATEGIC CHANGE
Copyright © 2019 John Wiley & Sons, Inc.
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 gray-haired revolutionaries
Gary Hamel: The New Foundations of Management
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Knowledge Management and the
Knowledge-based View: Types of Knowledge
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
Type of Knowledge | Characteristics | Implications |
Explicit: knowing about | Easy and cheap to 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 | Difficult to articulate or codify. Transfer is slow and costly: requires observation and practice | Sound basis for sustainable competitive advantage; challenge is to replicate it internally |
Knowledge
identification
- Managing intellectual
property
Corporate “yellow pages”
Texas Instruments’ appraisal and
licensing of its patent portfolio
Knowledge
Retention
Skandia (Swedish insurance co.);
Dow Chemical
Knowledge
Transfer and
Sharing
US Army Center for Lessons Learned
distils kn. from maneuvers & operations
into procedures
Accenture's Knowledge Xchange
Communities-of-Practice
Best practices transfer
Databases
Knowledge
Measurement
- Intellectual capital
accounting
Ford Motor’s best practice replication
Benchmarks processes across all
its plants
Lessons learned
Knowledge Management Practices
Copyright © 2019 John Wiley & Sons, Inc.
Knowledge Types of Examples
process activity
BP's ‘Connect’ database of employees’ skills and experience
Schlumberger’s Eureka project of
virtual, distributed teams of experts
MANAGING STRATEGIC CHANGE
Data Analytics
Big data analysis
Walmart’s analysis of >1m. Customer
transactions every hour
Robert grant (Rg)
Individual
Organization
Explicit
Tacit
Skills,
Know-how
Organizational
routines
Types
of
Knowledge
Levels of knowledge
Facts, Information,
Scientific kn.
Databases, Rules,
Systems, IP
Internalization
Externalization
Systematization
CRAFT
ENTERPRISES
INDUSTRIAL
ENTERPRISES
Combination
Socialization
Routinization
Knowledge Conversion and the Power of Systematization
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING STRATEGIC CHANGE
0
50
100
150
200
250
1895190519151925193519451955
No. of firms
024681012
ROIValue Added/RevenueTechnical ChangeNew Products% Sales from New
Products
Product R&D/SalesAge of Plant & Equip.Investment/SalesAdvertising/Sales
GrowthMaturityDecline
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