Reading and construing the industrial dynamics correctly and determining how to strategically position themselves, is important for organizations. Speaking of ‘industry’, let us clarify a few definitions in context:
‘Industry’ is defined as ‘the integral methods and tools used to process raw materials and to create energy sources’. Businesses representing a specific group within the industry that are a large segment of the economy are called ‘sectors’. Although they may seem similar, the terms industry and sector have slightly different meanings. However, they are often used interchangeably; such as, we can both say automotive, aerospace, pharmaceutical, banking industry or sector. ‘Segment’, on the other side is defined as ‘subdivision of a sector, consisting of distinct but closely linked or related elements or parts’. Market segments are mostly dealt with demographic data, geographic segmentation, or the needs of shareholders or customers. Such as, ‘users over 25 years old’, ‘The Black Sea tea producers’ or ‘commercial vehicles’ segment…
To perceive the structure and life cycle of an industry in which it operates, and to interpret these in relation to changing conditions, trends and dynamics, is of essential importance. That is to say:
Each industry has ‘players’: such as, law and standard-setting bodies, influencers, customers, complementary product or service providers, suppliers, competition, etc. The behavior and actions of players effect the ‘industrial dynamics’. Industries operate in the form of ‘networks’ within themselves. When customers buy products and services from you, that does not mean that they do not evaluate and compare them with other competitors. They do, or they may even go for complementary products and services. For example, designers and manufacturers in sectors like shoes and accessories also should be aware of developments in the textile and apparel sectors. On the other hand, suppliers who sell products and services to you, will be willing to sell them to other customers or segments as well. Organizations also play more than one role. it is possible to find many large companies such as Sony, Samsung Electronics, Toshiba, Panasonic having their own brand, production and sales channels, whilst providing as suppliers for another brand, such as Apple. Let us look at Sony; while providing content and charging products for Apple iPod, the company became its own toughest competitor to its own MP3 players. Literally, it is an intertwined ‘network’!
Just as any living thing, organization, or phenomenon has a life cycle, industries have ‘life cycles’ too.
Businesses that start with small steps in the seed phase, gradually move on to start-up, and then to scale-up phases. When they leave the challenging puberty, adolescent and maturity periods behind, the declining, downsizing and elimination periods may become inevitable.
Perceiving the industrial life cycle is necessary, yet not sufficient on its own. Several dynamics that are in force, effect the stages, order, and speed of the cycles. For example, while organizations entering the industry with innovative products or services and offer more value at a lower price; at the same time, radical withdrawal of big players from the game might be possible.
Look here; we were waiting for hours to connect to different countries of the world and we were paying a lot of money just less than two, three decades ago; whereas now, we have transitioned to speedy mobile cell phones and even internet phones. The days when we used records, tapes and CDs to listen to music are not that far away. Today, with the online music industry, instant access to music from around the world is possible. Photographic processing has become obsolete as we take pictures with digital cameras and even from our cell phones. Soon ‘iron’ will become extinct, due to use of nanotechnology that has already led into several changes.
The different ‘stages of life cycle’ will stay no matter how different in speed or formats they will be; even if there will be ups and downs or turnarounds.
Release: SME-EFOR September 2012