3. Product and Process Innovation Over Time Time Rate of innovation Product Innovation Process Innovation

4. Standardization of Product Features in Cars FEATURE INTRODUCTION GENERAL ADOPTION Speedometer 1901 by Oldsmobile Circa 1915 Automatic transmission 1st installed 1904 Introduced by Packard as an option, 1938. Standard on Cadillacs early 1950 Electric headlamps GM introduces 1908 Standard equipment by 1916 All-steel body GM a dopte s 1912 S tandard by early 1920s All-steel enclosed body Dodge 1923 Becomes standard late 1920s Radio Optional extra 1923 Standard equipment, 1946 Four-wheel drive Appeared 1924 Only limited availability by 1994 Hydraulic brakes Introduced 1924 Became standard 1939 Shatterproof glass 1st used 1927 Standard features in Fords 1938 Power steering Introduced 1952 S tandard equipment by 1969 Antilock brakes Introduced 1972 Standard on GM cars in 1991 Air bags GM i ntroduce s 1974 By 1994 most new cars equipped with air bags

7. The Driving Forces of Industry Evolution 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 increase s BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION Excess capacity increases Production becomes less R&D & skill-intensive Quest for new sources of differentiation

8. Changes in the Population of Firms over the Industry Life Cycle: US Auto Industry 1885-1961 Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.

9. The World’s Biggest Companies, 1912 and 2006 (by market capitalization) 190 Procter & Gamble 0.16 De Beers 190 HSBC 0.16 BAT 196 Gazprom 0.16 Navistar 197 Toyota Motor 0.17 American Brands 197 Wal-Mart Stores 0.17 Singer 211 Royal Dutch Shell 0.17 General Electric 212 Bank of America 0.18 Anaconda 233 BP 0.19 Royal Dutch Shell 239 Citigroup 0.20 Pullman 281 Microsoft 0.29 J&P Coates 363 General Electric 0.39 Exxon 372 Exxon Mobil 0.74 US Steel $ bn. 2006 $ bn. 1912

10. ROI at Different Stages of the Industry Life Cycle

11. 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

13. 1880s 1920s 1960s 2000 Mail order, catalogue retailing e.g. Sears Roebuck Chain Stores e.g. A&P Discount Stores e.g. K-Mart Wal-Mart “ Category Killers” e.g. Toys-R-Us, Home Depot Internet Retailers e.g. Amazon; Expedia Warehouse Clubs e.g. Price Club Sam’s Club Innovation & R enewal over the I ndustry L ife C ycle : R etailing ?

15. Gary Hamel: Shaking the Foundations OLD BRICK NEW BRICK Top management is responsible for setting strategy Everyone is responsible for setting strategy Getting better, getting faster is the way to win Rule-busting 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 equals new products and new technology Innovation equals 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 Our real problem is execution Our real problem is execution Big companies can’t innovate Big companies can become gray-haired revolutionaries

16. BCG’s Strategic Environments Matrix Small Big SIZE OF ADVANTAGE Many Few SOURCES OF ADVANTAGE FRAGMENTED SPECIALIZATION apparel, housebuilding pharmaceuticals, luxury cars jewelry retailing, sawmills chocolate confectionery STALEMATE VOLUME basic chemicals, volume jet engines, food supermarkets grade paper, ship owning motorcycles, standard (VLCCs), wholesale banking microprocessors

17. BCG ’s Analysis of the Strategic Characteristics of Specialization Businesses high low ENVIRONMENTAL VARIABILITY ABILITY TO SYSTEMATIZE low high CREATIVE EXPERIMENTAL fashion, toiletries, magazines general publishing food products PERCEPTIVE ANALYTICAL high tech luxury cars, confectionery paper towels