Four Trajectories of Industry Change
(McGahan)

How industries change. Explanation of Trajectories of Industry Change of Anita M. McGahan. (2004)



  

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The Four Trajectories of Industry Change is a model to describe how industries change. The author of the model is Anita M. McGahan, Professor of Management in Boston. She published the model for the first time in the HBR of October 2004.

 

According to McGahan you can't make intelligent investments within your organization unless you understand how your whole industry is changing. The need to understand change in your industry may seem obvious, but such knowledge is not always easy to collect. Companies sometimes miss or misinterpret clues and arrive at false conclusions often.

 

Why industries evolve

Research by McGahan suggests that industries evolve as a result of two types of threats of obsolescence:

  • A threat to core activities of the industry. A threat to the recurring activities of companies, which historically generated profits for the industry.
  • A threat to the core assets of the industry. A threat to the durable resources, including intangibles such as knowledge and brand capital, that have historically made the organization efficient at performing core activities.

How industries change

Resulting out of a combination of the above two types of threats, industries change along one of Four Trajectories of Industry Change:

  1. Radically. When core assets and core activities are both threatened with obsolescence. Advice:
    • Perform a balancing act. Aggressively pursuing profits in the short term while avoiding investments that could later prevent you from decreasing your commitments, PLUS:
    • Assess how quickly your core assets are depreciating. And determine the segments in which you can protect your competitive position from those in which your position will erode quickly.
  2. Progressive. When neither core assets nor core activities are jeopardized. Advice:
    • Develop a system of interrelated activities that are defensible because of their compounding effects on profits, not because they are hard to understand or replicate; be the biggest.
  3. Creative. When core assets are under threat but core activities are stable. Advice:
    • Assess how quickly your core assets are depreciating. And determine the segments in which you can protect your competitive position from those in which your position will erode quickly.
  4. Intermediating. When core activities are threatened while core assets retain their capacity to create value. Advice:
    • Perform a balancing act. Aggressively pursuing profits in the near term while avoiding investments that could later prevent you from decreasing your commitments.

The Trajectories of Industry Change typically unfold themselves over decades. Fighting the industry change is almost always too costly to be worthwhile. Rather organizations should reconfigure themselves for lower revenue growth and develop the ability to remove activities and resources out of the business. Systematically analyzing the business environment is not easy, but the payoff is great: better strategic decision-making for your company.

 

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Recent User Comments
 - Malaysia Managing Change is an Art "Managing the vagaries of change can only be aimed towards minimising the deviation from the intended path of success. This is because change itself sets off competitive response that aims to neutralise if not delay the corrective measures that are implemented. For best results, change has to be forced upon the situation. This in itself can be risky and lead to possible failure if not managed with commitment."    2
 - México Management Mega Trends "In my personal point of view, the future in the business management world is very difficult to predict, but co-innovation, core competences, blue ocean strategy, mega fusions, stakeholders, and social responsibility are the most important mega trends on the study of this area. What do you think? Why?"    0
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Trajectories of Industry Change Education & Events


 

Compare with McGahan's Four Trajectories of Industry Change: Disruptive Innovation  |  Forget Borrow Learn  |  BCG Matrix  |  Five Forces  |  Diamond Model  |  BPR  |  McKinsey Matrix  |  Core Competence  |  Profit Pools  |  Product Life Cycle  |  ADL Matrix  |  Bass Diffusion Model  |  SWOT Analysis  |  Benchmarking  |  Positioning

 

Return to Management Hub: Change & Organization  |   Marketing  |   Strategy  |  Supply Chain & Quality

 

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  ●  (US) How Industries Change "This is rather theoretical view of industry change. Industries change more due to external factors such new technology, new products that surpass existing demand, legislation, or changes in consumer tastes which drive the next wave of requirements. This current article treats an internal view of industry change, which seldom if ever occurs. This would be the end result within a company due to the changing industry, and therefore, how the company would need to respond. It im inself doesnt define why the indusry changes."
  ●  (India) Value surplus creation - the lasting growth trajectory "Positive change is to be driven by factors that help grow a unit and an industry organically. The factors of growth have always been efficient capital asset utilization to create value in surplus of investment and working capital ploughed into the system. Aggregate demand for goods in an industry would never wane for a given value at a given macro fundamental base so long as the pricing reflects efficiency . Creating value on the above trajectory calls for an unified approach wherein multi-variables defining a process are integrated well and the overall blueprint for achieving the required excellence in a given technology system is never lost sight of."
  ●  (Saudi Arabia) Management Trend "The change in the management is basically driven by the market, changing technology including finance and other factors cited by Mr. Raj especially in the manufacturing of product volatile to market conditions."
  ●  (Belgium) Management Mega trends "Trying to predict mega trends is a tricky business. Try going back to the "Origin of Species". All changes are caused by the need to respond to changes in the environment. Pressures from outside introduce a change that may turn into a trend if the provided "mutation" is beneficial. So look at the environment to predict and better still, start the next trend. Don't look at names and concepts that exist. By definition these are more past than future..."
  ●  (UK) Management Trends "There must be a tool out there you can enter every possible factor and get a predication?"
  ●  (Canada) Management Trend- Macro Change "What is clear as we emerge from this economic storm is that the pace of change is the issue and therefore theneed to develop anticipative and agile organizations. We need to rethink how to do long term planning as what was developed a year ago, may no longer be valid. We need to focus on engaging talent at all levels in the organization as the collective intelligence of all employees is needed for success. Leaders need to focus on aligning resources in developing a common image of the future of the organization and to balance the need for strategy and planning with the need for agility. Leaders need to focus on strengths to build capacity around the positive core. We need to stimulate change rather than figure out how to manage and contain change."
  ●  (The Netherlands) Management Mega Trends "I love the Built to Last way of strategic and organisational thinking. What's your core ideology (mission + values) and what's your BHAG? Is your BHAG futureproof (surfing the waves of change), is your BHAG futureshaping (making waves)? The 6th innovation wave is approaching its tipping point and more fundamental change is on the brink. Thus: read the waves of change and surf them."
  ●  (India) Changes Due to Economic Downturns "I feel that no set rules govern the changes that come about in industry. As a case in point, see what the recent economic depression has done to industries that i'm sure paid large fees to consultants and maket-gurus to determine the best strategies. What good did it all do!!
At the end it is all about survival and adapting to change, change that is unforeseeable and at times abrupt."
  ●  (Ethiopia) Interesting Change Overview "Reviewing industry changes through assets and activities appears to me a very systematic and strategically designed way of analysis assuming that most of the influential factors fall in these categories. It makes life easy and things straight. Many thanks for the professor! I also would like to comment on how to arrange the four trajectories. It should be in a way that the reader or user starts from the simplest and ends with the complex one. My advise, for example is:- no 4 and no 3 come first and no 1 should be at the end, put no 2 in any order."
  ●  (Ghana) Trajectories of Industrial Change "An industry's environment has a lot to do with its performance. Industrial process review is always intended to enhance the level of performance, for instance to increase profitability e. T. C of the industry in terms of the strategies pursued, technological innovation, customer behavior among others. The extent of the changes taking place in the environment of an industry determines how often changes will have made internally as a way of meeting the demands of the market(the market forms part of the environment of the industry)
The trajectory of industrial therefore ins influenced much by the trends in environmental changes, for instance public policy, industrial regulations in terms of legislation and others."
  ●  (Ghana) There is More to Industry Change Management Than This "Restricting yourself to internal factors to managing change will not give above average returns on investment. Rather one should also consider external factors (PEST) and use destructive innovation."
  ●  (India) Mega Trends Changing the Business "Answering to the main question: yes, the Blue Ocean Strategy is one of the mega trend in changing the business but the general approach of all the companies will be towards the n=1 and r=g principle.(C.K. Prahalath - The new age of innovation). As the marketing point of view, the industry will design a model to concentrete on individual buyers(n=1) and they will provide the supperior value at low cost by getting resources from all over(r=g). The operations inside the industry will be framed in such a way that this objective is fullfilled."
  ●  (Swaziland) Trajectories of Industry Change "Change in the industries is subjective, it depends on the industry. Generally change is triggered by a number of factors such as technological changes in the industry, legislation to name but a few. I do agree with McGahan's view of industry change, but change comes because of factors not only based on assets and core activities of the industry."
  ●  (Nigeria) Trends in Supply Chain Management "I agree with everybody, because industries change everyday, several technological advances and business trends are affecting the job of the supply chain manager today. Three of the most important trends are advanced computer technology, outsourcing of logistics functions, and electronic distribution."