Industry life cycle typically comprise four stage: introduction, growth, maturity and decline. This evolution is driven by changes in industries' growth rates over time, changes in technology and the creation of diffusion technology over time.
During the introduction phase, the emphasis is on product innovation and marketing. For example: introduction of personal computer in 1970s. They were of interest only to knowledgeable enthusiasts. Different firms pioneered different competitive operating systems and innovated in different ways. No dominant standards were commonly accepted.
During growth phase, the key success is being able to scale up production efficiently and effectively. At the end of 1980s sales soared. Successive ways of technical improvements increased in performance of computers in terms of their power and speed. Also became easier to operate and more user-friendly. IBM PC became the dominant design. IBM adopted open architecture. New entrants flooded and cloned products. Technical knowledge diffused rapidly. Product became cheaper, more customers bought it. Suppliers produced software and other equipment.
By the time a market reaches maturity price competition tends to be intense and successful strategies involve cost efficiency through mass production and low input prices. By 1990s rate of growth began to slow. However, continuous improvements produced multiple generations of PCs and customers became accustomed to the need to upgrade hardware and software. New markets began to develop. Competition during 2008 and 2014 focused on price with sales price of the standard pc declining steadily over time as changes in process technology reduced the systems and assembly of PC have moved offshore to specialist contractors operating in low cost countries, particularly China. Brands choose to focus on core competences of product innovation, design and marketing.
In thee decline phase firms can still operate profitability if they can rationalise capacity in an orderly way, find protected market niches or innovate. The alternative is to exit at an appropriate time.
Classifying industries according to their stage of development can be (1) an insightful exercise because at acts as a shortcut in strategy analysis. Categorising an industry according to its stage of development can alert us what type of competition likely to emerge and the kinds of strategy likely to be effective. (2) It also encourages comparison with other industries, highlighting similarities and differences with other industries. Such comparison can help us gain a deeper understanding of the strategic characteristics of an industry. (3) Additionally, it directs attention to the forces of change and direction of industry evolution, thus helping us to anticipate and manage change.
A range of economic, social, political and technological changes have changed the nature of business environment making it volatile and uncertain. Changes in technology, for example, can often change industry dynamics, altering among other things cost structures, models of revenue generation, rivalry, entry barriers and relative bargaining power of suppliers and buyers. Firms that succeed in technologically intensive industries recognise the strategic characteristic of the markets and adapt effectively.