Industry development
This section is focused on how the rate of innovation normally develops during the lifetime of an industry and how this effects the number of competitors as well as how this links to customer demand. In the end there is also an example from the US auto industry to illustrate the development.
In the beginning of a new product the rate of innovation is very high, radical ideas are developed as different features are developed to secure and improve performance. Initially there a likely few competitors and their product are rather different from each other, as everyone is trying their solution for the product, offering customers a high level of differentiation. Performance becomes the most important buying criteria among these new differentiated products.
If a product is successful and customer demand is increasing more competitors are emerging and wants to be part of the industry. When customer demand increases it also starts to be clearer what kind of features and functionality that is most appreciated in the market and the rate of product innovation starts to decline as it becomes focused on incremental improvements to existing features. Increased competition leads to price competition that makes cost effective production important and rate of innovation in the manufacturing process increases rapidly with radical improvements. Companies that are unable to offer a competitive product with the right performance at a profitable price will have difficulty to remain in the industry and a shake out normally takes place leaving the industry with fewer competitors.
Over time the product becomes more and more standardized with very efficient manufacturing processes, which makes rate of innovation low and limited to only incremental improvements on both product and process. Cost competitiveness is of great importance to secure profitability, as differentiation is limited.
In the beginning of a new product the rate of innovation is very high, radical ideas are developed as different features are developed to secure and improve performance. Initially there a likely few competitors and their product are rather different from each other, as everyone is trying their solution for the product, offering customers a high level of differentiation. Performance becomes the most important buying criteria among these new differentiated products.
If a product is successful and customer demand is increasing more competitors are emerging and wants to be part of the industry. When customer demand increases it also starts to be clearer what kind of features and functionality that is most appreciated in the market and the rate of product innovation starts to decline as it becomes focused on incremental improvements to existing features. Increased competition leads to price competition that makes cost effective production important and rate of innovation in the manufacturing process increases rapidly with radical improvements. Companies that are unable to offer a competitive product with the right performance at a profitable price will have difficulty to remain in the industry and a shake out normally takes place leaving the industry with fewer competitors.
Over time the product becomes more and more standardized with very efficient manufacturing processes, which makes rate of innovation low and limited to only incremental improvements on both product and process. Cost competitiveness is of great importance to secure profitability, as differentiation is limited.
Looking at the US auto industry visualizes this development. A few companies emerge in the end of the 19th century but quickly grow to almost 80 companies when the industry takes off. Thereafter, a continuous decline in number of US auto manufacturers started. The sharp drop between 2925 and 1930 is probably further fueled by the stock market crash of 1929 but it would have happened sooner or later and by 1980 the number of US auto manufacturers are down to below 10 and the products and manufacturing processes are rather standardized with incremental innovation.
Source:
Chalmers School of Entrepreneurship (link)
Amar V. Bhide, The Origin and Evolution of New Businesses, 2003, Oxford (link to latest edition)
Chalmers School of Entrepreneurship (link)
Amar V. Bhide, The Origin and Evolution of New Businesses, 2003, Oxford (link to latest edition)
