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Industry Structure in the FutureView Template for: Industry Structure in the Future Key Industry Variables One of the most fascinating aspects of business strategic planning is the fact that there are no time outs. You can't ask the referee to stop the clock in order to study the situation. The competition will not be directed to sit down. This situation leads to the conclusion that even if you perfectly analyze the industry as it exists at this moment, things change. And things are changing at a faster rate than ever before because of globalization, new technology and the cultural elimination of a weekly day of rest. To effectively deal with rapid and ongoing change in the industry, this section is designed to systematically address what the industry might look like in the future. What changes, if any, will occur in each of the five industry forces? Specifically:
The better one answers these questions in order to understand what the future industry environment will look like, the better one can prepare to take advantage of the new industry dynamics. Thirty years ago, a sneaker was a sneaker, water was water, and there were no personal computers. Most industries will change dramatically and quickly. Those elements of industry structure that will stay the same and those elements that will change in a predetermined way form the known part of the future industry structure. Uncertainties facing the industry give rise to a set of potential industry scenarios. Revolutionary technological breakthroughs are very difficult to predict, and they fall in the uncertain category. However, many technological changes can be predetermined. For example, every year since PCs were invented, their price performance has continued to improve. This trend will continue. The ratio of PCs to people will keep going up for most corporations and for the general population as well. Another example of a predetermined change is a law that has passed and it will take effect in the future. NAFTA, the North American Free Trade Agreement, is a good example. It regulates the lowering of trade barriers between the U.S., Canada and Mexico over the next ten years. Uncertainties include things like: interest rates, unemployment rates, the general economic climate, the price of oil, new technological discoveries, war and peace, natural disasters, competitor moves, changes in buyer behavior, and most anything at all. However, only those uncertainties which would significantly affect the industry should be included in this analysis. The price of lumber is very relevant to the housing industry. It is not so relevant to the watch industry. Potential Industry ScenariosThis section builds several scenarios of what the future industry structure might look like and what the key success factors would be in each. The scenarios should be based on different values of the uncertain variables identified in the previous section. For most businesses, identifying three or four alternative industry scenarios is sufficient to explore the key dynamics of the industry under different conditions. The goal is to systematically consider how to best position the business for success in each environment. Each scenario can be assigned a probability of occurrence. Theoretically, if every potential future industry scenario was identified and assigned a probability of occurrence, the sum of the probabilities would total 100%. Because there are an infinite number of possible industry scenarios, the sum of the probabilities of occurrence for the three or four representative scenarios chosen will represent less than 100%. In practice, scenario building can be a useful process for building management consensus - even in organizations where egos and corporate politics pit one executive against another. To best explore alternative scenarios, each executive should forecast at least one uncertain or unexpected event and discuss how the business should best position itself for success. The event should be of great magnitude regarding either the business unit, competitors, the economy, technology, or any other event that would significantly impact the business. Competitor Influence on Industry StructureBy their actions, firms can change industry structure, sometimes for the better and sometimes for the worse. Each firm, especially industry leaders, should try to improve industry structure. In practice, those companies which compete solely in terms of market share are usually the ones responsible for neglecting the health of the industry. Selling 1,000 units at $10 a piece is better than selling 1,100 units at $8 a piece, at least from the perspective of math teachers and shareholders. Advertising that focuses on low price as the only differentiating factor can quickly lead to a price war and the general loss of industry profits. Examples of actions that often but not always improve industry structure include: raising brand loyalty through increased advertising; raising switching costs through electronic linkages with customers; offering customers discounts on their next purchase; and raising prices. |
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