Industry life cycle analysis is a tool for strategic planners. It is useful in the Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis stage of the planning process.
"All the world's a stage" is the phrase that begins a speech from As You Like It, spoken by the depressed Jaques in Act II Scene VII. He compares life to a play and the world we live in is our stage. He goes on to describe how our role evolves through the lifecycle or what has become known as the seven ages of man: infant, pupil, lover, soldier, justice, and ‘pantaloon’ or absurd lecherous old man, the butt of other’s jokes, and finally decrepit old age, facing imminent death. It is one of Shakespeare's most frequently quoted passages. The full description of the stages and the monologue are here.
Do organizations live through something similar?
Life cycle models are not just a literary device, or concept in biology. Just as we are born, grow, mature, and experience decline and finally death, so too it appears that individual products, enterprises, or whole industries follow their own stages of life.
The industry life cycle seems to follow similar stages across all industries. However, each industry lifecycle will vary. They will last longer for some, and pass quickly for others. Within a specific sector, the competing businesses may be at different points in the industry life cycle.
An organization’s corporate strategy is likely to change according to the stage of its industry lifecycle, as well as the stage it is at as an enterprise. A well-resourced mature company has different options available than a small start up in the same industry.
Knowing the industry lifecycle and understating the level of maturity of your own firm can give you a better perspective on the financial situation of the business. Where the business and industry lifecycle are may influence what strategy you might select.
The first product or service launch may be the beginning of an industry. There may be many a failure to launch before this point.
When I speak of successful launch, this does not mean selling at a profit in the initial stage. It is a success if all the components of the business are in working order, and the product sells, even if initially this is at a loss. The company that launches a new offering to the market may well make a loss in the earliest stages because of the cost of development. Then its profits may soar because its costs will have fallen, as it learns to manage them more effectively, and there may be no competitors at this early stage!
Eventually, usually sooner than you would like, competitors will arrive and eat into your selling prices. Sometimes, the innovator or ‘first-mover’ reaps huge profits for brief time. This is because they have a virtual monopoly.
Sometimes the first-mover is not able to exploit its privileged position. This opens the door for other businesses to catch up, and even overtake the leader.
These newer entrants may then have a "second-mover advantage".
An example of a first mover advantage would be Xerox. They did not only patent the Xerography process. Xerox also took out an array of patents on similar and related technologies. This built a defensive barrier against would be competitors.
This may simply mean they avoid much of the research and development costs borne by the first mover.
Finally, the industry will reach full maturity when there are so many competitors that margins shrink. In this stage, only the most efficient companies can survive. There will then be a ‘shake out’ of the less efficient participants. The number of businesses in the industry will fall. Therefore, the whole story may begin again in a more specialized niche of the industry.
We can summarize the industry life cycle process in this table, and the following diagram.
An important question for the planning team is this.
‘Where are our company, and our industry, on the industry lifecycle or experience curve?’ If the industry is at Stage 4, and if the company is one of the leaders, then it may be a sensible strategy to compete on price. If not, the company should search for some alternative strategy. A possibility would be offering a new specialist product to exploit in a new segment. In other words, start again at Stage 1 of the Experience Curve.
As I have said about other strategic analysis tools, use the industry lifecycle idea as an aid to strategic thinking, not as a substitute for it.
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