Industry dynamics

By: MICHAEL JACOBIDES

The advent of the PC, in 1981, famously resulted in the wholesale reorganisation of the computer industry. Within a few years, value in that industry migrated from the manufacturers that assembled and marketed the computers to the suppliers upstream of two key components: the operating system and the microprocessor…

The PC story is now etched in the minds of analysts and strategists as a template for how industries evolve in the knowledge economy. We question that narrative.

Industry disaggregation is not, in our view, inevitable. Neither is value migration, even when sectors do disaggregate. Many industries characterised by intense competition and innovation — including those that are vulnerable to highly-disruptive technologies — are likely to remain tightly integrated and dominated by traditional players.

The traditional auto manufacturers have, in good times and bad, kept a fairly constant share of their industry’s total market capitalisation, despite much recourse to outsourcing and intense competition among the carmakers… Companies can influence whether value migrates — and, if so, to where in the chain — in four ways. These value rules, as we call them, work collectively, like the rules of a board game.

The first rule emphasises capabilities and strategic positioning. Rules two and three are about the value proposition and customer needs, and the fourth focuses on strategic investments and scope.

From “How to Drive Value Your Way