Industry Life Cycle
Originally posted on Inc.com.
Life cycle models are not just a phenomenon of the life sciences. Industries experience a similar cycle of life. Just as a person is born, grows, matures, and eventually experiences decline and ultimately death, so too do industries and product lines. The stages are the same for all industries, yet every industry will experience these stages differently, they will last longer for some and pass quickly for others. Even within the same industry, various firms may be at different life cycle stages. A firms strategic plan is likely to be greatly influenced by the stage in the life cycle at which the firm finds itself. Some companies or even industries find new uses for declining products, thus extending their life cycle.
The growth of an industry's sales over time is used to chart the life cycle. The distinct stages of an industry life cycle are: introduction, growth, maturity, and decline. Sales typically begin slowly at the introduction phase, then take off rapidly during the growth phase. After leveling out at maturity, sales then begin a gradual decline. In contrast, profits generally continue to increase throughout the life cycle, as companies in an industry take advantage of expertise and economies of scale and scope to reduce unit costs over time.
STAGES OF THE LIFE CYCLE
Introduction
In the introduction stage of the life cycle, an industry is in its infancy. Perhaps a new, unique product offering has been developed and patented, thus beginning a new industry. Some analysts even add an embryonic stage before introduction. At the introduction stage, the firm 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. Marketing refers to new product offerings in a new industry as "question marks" because the success of the product and the life of the industry is unproven and unknown.
A firm will use a focused strategy at this stage to stress the uniqueness of the new product or service to a small group of customers. These customers are typically referred to in the marketing literature as the "innovators" and "early adopters." Marketing tactics during this stage are intended to explain the product and its uses to consumers and thus create awareness for the product and the industry. According to research by Hitt, Ireland, and Hoskisson, firms establish a niche for dominance within an industry during this phase. For example, they often attempt to establish early perceptions of product quality, technological superiority, or advantageous relationships with vendors within the supply chain to develop a competitive advantage.
Because it costs money to create a new product offering, develop and test prototypes, and market the product, the firm's and the industry's profits are usually negative at this stage. Any profits generated are typically reinvested into the company to solidify its position and help fund continued growth. Introduction requires a significant cash outlay to continue to promote and differentiate the offering and expand the production flow from a job shop to possibly a batch flow. Market demand will grow from the introduction, and as the life cycle curve experiences growth at an increasing rate, the industry is said to be entering the growth stage. Firms may also cluster together in close proximity during the early stages of the industry life cycle to have access to key materials or technological expertise, as in the case of the U.S. Silicon Valley computer chip manufacturers.
Growth
Like the introduction stage, the growth stage also requires a significant amount of capital. The goal of marketing efforts at this stage is to differentiate a firm's offerings from other competitors within the industry. Thus the growth stage requires funds to launch a newly focused marketing campaign as well as funds for continued investment in property, plant, and equipment to facilitate the growth required by the market demands. However, the industry is experiencing more product standardization at this stage, which may encourage economies of scale and facilitate development of a line-flow layout for production efficiency.
Research and development funds will be needed to make changes to the product or services to better reflect customers' needs and suggestions. In this stage, if the firm is successful in the market, growing demand will create sales growth. Earnings and accompanying assets will also grow and profits will be positive for the firms. Marketing often refers to products at the growth stage as "stars." These products have high growth and market share. 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 or product line under study. Some items—like fad clothing, for example—may experience a very short growth stage and move almost immediately into the next stages of maturity and decline. A hot toy this holiday season may be nonexistent or relegated to the back shelves of a deep-discounter the following year. Because many new product introductions fail, the growth stage may be short or nonexistent for some products. However, for other products the growth stage may be longer due to frequent product upgrades and enhancements that forestall movement into maturity. The computer industry today is an example of an industry with a long growth stage due to upgrades in hardware, services, and add-on products and features.
During the growth stage, the life cycle curve is very steep, indicating fast growth. Firms tend to spread out geographically during this stage of the life cycle and continue to disperse during the maturity and decline stages. As an example, the automobile industry in the United States was initially concentrated in the Detroit area and surrounding cities. Today, as the industry has matured, automobile manufacturers are spread throughout the country and internationally.
Maturity
As the industry approaches maturity, the industry life cycle curve becomes noticeably flatter, indicating slowing growth. Some experts have labeled an additional stage, called expansion, between growth and maturity. While sales are expanding and earnings are growing from these "cash cow" products, the rate has slowed from the growth stage. In fact, the rate of sales expansion is typically equal to the growth rate of the economy.
Some competition from late entrants will be apparent, and these new entrants will try to steal market share from existing products. Thus, the marketing effort must remain strong and must stress the unique features of the product or the firm to continue to differentiate a firm's offerings from industry competitors. Firms may compete on quality to separate their product from other lower-cost offerings, or conversely the firm may try a low-cost/low-price strategy to increase the volume of sales and make profits from inventory turnover. A firm at this stage may have excess cash to pay dividends to shareholders. But in mature industries, there are usually fewer firms, and those that survive will be larger and more dominant. While innovations continue they are not as radical as before and may be only a change in color or formulation to stress "new" or "improved" to consumers. Laundry detergents are examples of mature products.
Decline
Declines are almost inevitable in an industry. If product innovation has not kept pace with other competing products and/or service, 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. This is often accompanied by another, larger shake-out in the industry as competitors who did not leave during the maturity stage now exit the industry. Yet some firms will remain to compete in the smaller market. Mergers and consolidations will also be the norm as firms try other strategies to continue to be competitive or grow through acquisition and/or diversification.
PROLONGING THE LIFE CYCLE
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.
New uses of a product can also revitalize an old brand. A prime example is Arm & Hammer baking soda. In 1969, sales were dropping due to the introduction of packaged foods with baking soda as an added ingredient and an overall decline in home baking. New uses for the product as a deodorizer for refrigerators and later as a laundry additive, toothpaste additive, and carpet freshener extended the life cycle of the baking soda industry. Promoting new uses for old brands can increase sales by increasing usage frequency. In some cases, this strategy is cheaper than trying to convert new users in a mature market.
To extend the growth phase as well as industry profits, firms approaching maturity can pursue expansion into other countries and new markets. Expansion into another geographic region is an effective response to declining demand. Because organizations have control over internal factors and can often influence external factors, the life cycle does not have to end.
An example is feminine hygiene products. Sales in the United States have reached maturity due to a number of external reasons, like the stable to declining population growth rate and the aging of the baby boomers, who may no longer be consumers for these products. But when makers of these products concentrated on foreign markets, sales grew and the maturity of the product was prolonged. Often so-called "dog" products can find new life in other parts of the world. However, once world saturation is reached, the eventual maturity and decline of the industry or product line will result.
LIFE CYCLES ARE EVERYWHERE
Just as industries experience life cycles, studies have documented life cycles in many other areas. Countries have life cycles, for example, and we traditionally classify them as ranging from the First World countries to Third World or developing countries, depending on their levels of capital, technological change, infrastructure, or stability. Products also experience life cycles. Even within an industry, various individual companies may be at different life cycle stages depending upon when they entered the industry. The life cycle phenomenon is an important and universally accepted concept to help managers better understand sales growth and change over time.
Ongoing training about job descriptions can drive employee engagement
Originally posted on HR.BLR.com on November 26, 2014
Ongoing training about job descriptions is “essential, since no job remains exactly the same from year to year,” say Michael Houlihan and Bonnie Harvey, business, marketing, and corporate training experts and co-authors of The Entrepreneurial Culture: 23 Ways to Engage and Empower Your People.
In fact, since “job descriptions are typically out of date when the job is filled,” the authors recommend that employers “ask every employee every year to rewrite his or her job description and tell the employer what kind of training they require to stay up with the technological and procedural changes they have witnessed during that year. Involving them in this process gives them ownership of the job and will fully engage them in the training they requested to do a better job.”
“Engage employees with questions like, ‘What kinds of skills do you need to do your job better?’ When they have a hand in the training program, they will put the most into it and get the most out of it,” Harvey says.
The offering of bonuses based on overall company performance also can drive engagement in training. “Once in place, these incentives will provide a powerful consideration to learn the job, learn the company, learn the market, and become a sponge for any training that will help them achieve that bonus,” says Houlihan.
Cross-training provides another opportunity to engage employees. “We believe in know-the-need rather than need-to-know,” says Harvey. “Many companies feel that certain subjects are not necessary for the individual to do their job. They put them on a need-to-know basis.”
However, “training in other departments, together with the challenges facing those departments, provides employees with appreciation for those functions, and they are more likely to identify with them as part of the same team,” she says. “Cross-training can provide big picture thinking and reduce silo isolation, which can have a very positive impact on interdepartmental cooperation.”
The Value of Discomfort
BY MIKE SULLIVAN
One of my colleagues has a paperweight on her desk with the quote, “Being uncomfortable is the price of growth.” I don’t know who said it, but I feel like printing the message on a flag and wildly waving the banner every time I encounter someone in our industry.
If you work in the employee benefits sector and are feeling nostalgic about your job, I suspect you’ll be in serious trouble in the not too distant future.
When dealing with the monumental change confronting our industry, the only viable option is to transform yourself and your approach to business. It requires expanding your knowledge base, developing new revenue streams and adding value. It means leveraging new resources, expanding your conceptual framework about compensation and repositioning your agency. You must do things differently. Much differently.
Most of us engaged in thinking about tomorrow spend a lot of time devising specific tactics to get there. Regardless of what innovative solutions we develop, I’ve recently come to a significant conclusion: The biggest obstacle standing in our way is our own resistance to change.
While it’s annoying for most of us to stretch past our comfort zones, I am sometimes astonished at the barriers others create for themselves. Once we get past our formative years, our species seems inclined toward inertia.
In reality, the past decade-plus in the health benefits business reinforced this behavior. For those of us specializing in small- and mid-sized markets, we could focus on the three Rs (reading, relationships and responsiveness) and watch our revenue grow at rates of 10 percent annually, simply because rates increased. In effect, if you were well informed and worked hard, you could watch your income grow. Compared to the energy we need to exert today, the effort was equivalent to pulling the lever on a Barcalounger to lift the leg rest.
To succeed in this evolving world, we need to unlearn what we know and take fresh approaches. While many of us already have new tools and resources in our sales solution kits, it is fascinating to watch advisers default to their old scripts. We want to stick with what’s familiar. So, how do we get people to stop saying what they’ve always said and acting as they always have? How can we inspire others to broaden their perspectives beyond their comfort zone?
As our industry undergoes transition, our leaders must motivate those around them to move with it. If we want to be agents of change and, quite frankly, remain relevant in the future, we must foster environments that encourage discomfort. After a couple of pleasant decades coasting around in a Lexus, the allure of learning to ride a unicycle disappears. It is too much work, and there is too much risk. Yet those who embrace such challenges will be rewarded. This applies equally to individuals and agencies, as well as sales and service personnel. Each of us must go through a bumpy phase until the new concepts and solutions become ingrained.
We must nudge each other to the edge of the proverbial cliff. When I prompt others in such a direction, I'm often met with these responses:
- “I’m too busy to relearn so much.”
- “I feel like you’re asking me to go back to school.”
- “I can’t handle the amount, and speed of, change.”
When most of us entered into this business, we were highly motivated. Yet, I feel our success has inspired us to become…content. Perhaps success has us more inclined to play defense and hold on to things as opposed to playing offense and capturing new market opportunities. People who were A students at the beginning of their careers now perform at a different level. In essence, we do need to go back to school. For those operating independent agencies, following is list of subjects to master:
- Analytics to support plan design decisions
- Defined contribution software solutions
- Emerging decision support tools for employers and employees
- Health care costs and quality transparency tools
- Truly integrated voluntary and worksite solutions
- Payroll and benefits administration technologies and solutions
- Care support solutions
- Next generation wellness and lifestyle management solutions
Education has always been a powerful tool in the change arsenal. It certainly was in my personal tale. I grew up on the south side of Buffalo, N.Y. It’s a blue collar, Irish Catholic enclave with a church and bar at almost every intersection.
Alliances were divided between the area’s two steel mills and proximity to the closest Catholic school. I was surrounded by family and friends, and ensconced in a comfy existence attending P.S. 67 with all my buddies. During eighth grade, someone got the bright idea that I had the aptitude to attend a top prep academy in Buffalo, the elite Nichols School on the north side of town. I took an entrance exam and was admitted. My reaction: There’s no freaking way I’m going to that place.
It was gut-wrenching to leave my happy life and board multiple city buses for the daily rides to and fro, accompanied by adults commuting to work. I was ripped from everything I knew and felt like a poser trapped in a school populated by wealthy kids. Somehow I made peace with it. Accepting the change resulted in a rewarding outcome. I excelled academically and socially. I even saw the value of money and thought I might like some for myself one day. Initially, it was one of the most uncomfortable experiences I’ve ever had—yet it changed the trajectory of my life.
Those trips to Nichols each day of high school taught me a lesson I’ll never forget. Although I experience echoes of that same discomfort in my career these days, I am now exhilarated by the lure of what can come next. There’s a rough trip ahead, but if you don’t get on the bus, you’ll never reach your destination.