The industry life-cycle model
The industry life-cycle model: an inverted U-shaped growth pattern that is seen in almost all industries given a long enough period of observation. The number of organizations rises initially to a peak, then declines as the industry ages.
Describes the evolution if the entire product category and its associated industry. 4 phases: introduction, growth, maturity, and decline. Affects the degree of competition firms face, the type of organizational structure, the kind of
strategy used, and the appropriate management approach needed to survive and grow. Complementary approach to porters five-force model.
The introductory phase: industry emergence and creation
Introductory phase: many entrepreneurial firms enter the industry, hoping to emerge as a market leader.
Result of changes that create opportunities for entrepreneurs to leverage novel combinations of resources to develop innovative products, services or processes.
Result of important technological breakthroughs. Outcome of government regulations/deregulations that create markets for new products or
services. Large, established firms tend to lag for 2 reasons: budding market is too small and risky to justify
the entry; and bureaucratic organizational structure that inhibits ability to move quickly and flexibly into new markets. Firms are intensely focused on research and development activities, resulting in a high degree of product innovation with many different versions of products incorporating different features and technologies. This period is the “gold rush” era where everyone can still make it big. New markets are extremely volatile. One of the most important contributions to emerge concerns the concept of legitimacy. Legitimacy: a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions. Sociopolitical legitimacy: endorsement of an industry, activity, or organizational form by key stakeholders and institutions such as the state and government officials, opinion leaders, or the general public. Cognitive legitimacy: the level of public knowledge about a new industry and its conformity to establish norms and methods reflected in the extend to which it is taken for granted as a desirable and appropriate activity. All organizations require legitimacy to acquire the resources they need to survive and grow from external stakeholders. Lack of legitimacy hinders ability to recruit employees, obtain financial and material resources, sell products and services to customers.