Industry Life Cycles

Much like product life cycles, industries experience a similar cycle of life, capturing the way many industries evolve through their formative eras, growth and patterns of maturity. Just as a product is developed, introduced to the market, adopted, grows, matures, and eventually experiences decline, so too do industries. The stages are the same for all industries, yet industries cycle through the stages in various lengths of time. Even within the same industry, various organisations may be at different life cycle stages. Strategies of an organisation as well as of competitors vary depending on the stage of the life cycle. Some industries need to make strategic decisions during the maturity phase to extend the life, and even find new uses for declining products, thus extending the life cycle.

The growth of an industry's sales over time is used to chart the life cycle (see right).


The distinct stages of an industry life cycle are: introduction, growth, maturity, and decline.

Important to note is that the life cycle model assumes that an industry is clearly distinguishable, however in many instances emerging industries are hard to define, and often appear as segments of established industries.

Overview:
Industries begin in a period of fragmentation as companies experiment with different approaches. With time, a scalable approach emerges as a dominant model, often because it yields greater efficiencies than available alternatives. As the dominant model develops, an industry goes through a shakeout as unaligned organisations are forced to exit. Eventually, organisations find it difficult to improve their productivity on the dominant model at high rates, volume growth hits a point of diminishing returns, and the industry enters maturity. Ultimately, as volumes drop because of saturated demand, exhausted supply or uncompetitive environments, the industry moves into decline.

Each of the phases carries implications for how organisations organise, compete and exploit technical progress. The emergence of a dominant model is critically important to industry evolution because these models generate opportunities to achieve economies of scale and scope. Industries eventually enter a mature phase in which volume growth slows down because organisations hit the limits of technical opportunity in the dominant model. Organisations often shed activities that could be subcontracted efficiently, and pared down product lines to enhance efficiency incrementally. An industry moves into decline when aggregate sales volume drops. Avoiding a war of attrition becomes a major strategic imperative. Inefficient organisations may diversify out of the industry and may seek to consolidate.

Introduction
In the introduction stage of the life cycle, an industry is in its infancy. A new, unique product or service offering may have been developed and patented, thus beginning a new industry. At this stage, an organisation may be alone in the industry. It may be a small entrepreneurial company or a proven company which used research and development funds and expertise to develop something new. Significant financial investment is undertaken at this stage of the life cycle, often without financial reward. Organisations attempt to establish a niche for dominance within an industry during this phase by establishing early perceptions of product or service quality, technological superiority, or advantageous relationships with vendors within the supply chain to develop a competitive advantage.

Growth
During the growth phase more organisations identify opportunities within the industry. The industry experiences more product standardisation at this stage, which may encourage economies of scale and facilitate development for production efficiency. The key issue in this stage is market rivalry. Because there is industry-wide acceptance of the product, more new entrants join the industry and more intense competition results. The duration of the growth stage, as all the other stages, depends on the particular industry. During the growth stage, the life cycle curve is very steep, indicating fast growth, however financial investment remains a significant requirement to facilitate this growth through such activities as marketing, property, plant and equipment investment and ongoing product development (R+D).

Maturity
As the industry approaches maturity and demand for the product or service lessens, the industry life cycle curve becomes noticeably flatter, indicating slowing growth, however profit margins may continue to increase. In mature industries, there are usually fewer organisations, and those that survive will be larger and more dominant. Organisations may compete on quality to separate their product from other lower-cost offerings, or conversely the organisation may try a low-cost/low-price strategy to increase the volume of sales and make profits from inventory turnover.

Decline
Declines are almost inevitable in an industry. If product innovation has not kept pace with other competitors, or if new innovations or technological changes have caused the industry to become obsolete, sales suffer and the life cycle experiences a decline. In this phase, sales are decreasing at an accelerating rate, causing the plotted curve to trend downward. There is usually another, larger shake-out in the industry as competitors who did not leave during the maturity stage now exit the industry. Yet some organisations will remain to compete in the smaller market. Mergers and consolidations will also be the norm as organisations try other strategies to continue to be competitive or grow through acquisition and/or diversification.

Prolonging the life cycle
The life of an industry or organisation can be prolonged through strategic efforts to maximize profits through increasing efficiencies. Management efficiency can help to prolong the maturity stage of the life cycle. Production improvements, like just-in-time methods and lean manufacturing, can result in extra profits. Technology, automation, and linking suppliers and customers in a tight supply chain are also methods to improve efficiency. Alternatively, the strategy may be to differentiate the product or service offering based on quality. Research indicates that those industries and organisations that survive longer are those that are the most strategic, forward thinking and innovative for the duration of the life cycle, often with ongoing and superior commitments to research and development, post entry into the market. In addition, it is those organisations that innovate and develop an industry (early entrants) that tend to survive longer than later entrants to the market. However, it is also important to note that it is the structure of demand which is just as important to industry success as innovation and technological capability.

Conclusion
Many of the large organisations that have closed their doors, or scaled down operations, in Tasmania in recent years have been in the traditional, predominantly manufacturing, industry sectors and generally owned by national or multinational companies. While regarded as ‘institutions’ of the regions in which they were located, it is this length of time of establishment which has contributed to the ultimate closing of the plants in Tasmania. Each has been in the maturity phase of the industry life cycle, and essentially the strategic approach by management has been to increase efficiencies and prolong the industry/organisation by reducing costs and consolidation.

Examples of the issues faced by these companies have included:

• Inability to maximize economies of scale

• Decentralised industry/organisation

• Increased operating costs

• Increasingly uncompetitive due to labour costs and geographical location

• Declining demand

• Lack of ongoing investment in research and development, skills and plant and equipment

• Requirement to innovate and differentiate product offering

• Ageing infrastructure

• Lack of skill base


Wish list for the new Government
Based on the discussions above and to ensure ongoing economic growth and employment opportunities for Tasmanians, the following is a wish list for our newly elected government to consider.

• Cease propping up businesses in the maturity/decline phases of the industry life cycle

• Proactively encourage investment in industries that take advantage of Tasmania’s competitive and comparative advantages

• Support the investment in research and development for Tasmanian based companies in priority industry sectors

• Provide a competitive business environment

• Assist industries/organisations strategic development and capability to adapt in the face of change

• Work with industry, employers and unions to ensure that workers are undertaking ongoing skill and workforce development to enable transfer between industry sectors

• Provide post year 10 education and training aligned with industry needs that will enable Tasmanians to secure employment into the future.