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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:
- 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.
- 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.
- 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.
- 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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Trajectories of Industry Change Special Interest Group
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Compare with McGahan's Four Trajectories of Industry Change:
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