Strategic Management: Industry Life Cycle (ILC)

Strategic management - Industry Life Cycle (ILC)

Introduction

One of the most frequently used models of a life cycle of an industry was presented in 1980 by Michael Porter. Although there is a wide array of research, this model still remains widely regarded as the foundation stone of the life cycle analysis. According to this concept, the industry is the most important part of the environment of a industry. Its properties and power determine the competitive struggle and its structure affects the rules of competitive contest, and thus the necessary strategy for survival and development. (Sabol & Fuckan, 2013)

Industry Life Cycle and strategic management

Industry life cycle depicts the stages that a industry goes through during its period of

Business strategies under different stages of the ILC.

I Introduction stage

Introduction stage is one where the industry has just entered the industry, it is characterized by technological and strategic uncertainty, high initial (entry) costs, newly established industries entering the industry, customers who are buying for the first time etc. this answers the first question as to what happens. The industry aims at attracting customers, since the industry has just entered the market it is necessary for it to attract customers to establish itself in the industry.

The second question is what is to be done and the answer is to create awareness, the industry must create awareness in the minds of the customers about its existence and how this can be done is the industry must concentrate on its product, it has to elucidate clearly to the customers the merits of its’ products, that answers the final question as to how the customer awareness is to created.

II Growth

It entails the elimination of all investments (with possible divestitures) and generation of maximum cash flow from the business in question.

c. Maintain

The industry has an option to resort to aggressive marketing so as to maintain its market share, but this strategy will work only if the industry has an effective competitive advantage.

d. Consolidate

It can acquire other firms in the industry that are on the verge of exiting the market.

The following is a diagrammatic representation of the theory discussed above.

Questions Introduction stage Growth stage Maturity stage Decline stage

What happens? Attempt to attract new customers Market growth accelerates Industry reaches saturation point Size of the market reduces

What is to be done? Create awareness Develop a standard Reduce costs Decide whether to continue or discharge activities

How it is to be done? Invest extensively in product design Use efficient technology Manufacturing and process engineering Exit, harvest, maintain or consolidate.

Example Elucidate the merits of the products Product innovation to process innovation Increase production Leave. Disinvest, aggressive marketing or