Industry Evolution Modelling

Industry evolution modeling is a contemporary tool for strategic planning. This essay focuses on analyzing Wal-Mart strategies using the Industry Evolution Modeling. The essay offers a description of the industry evolution model, an analysis of Wal-Mart using the model, and a review of the implications of the analysis.

Model Description and Analysis of Wal-Mart

Industry Evolution Modeling (IEM) is a technique for analyzing the changing dimension of the industry and how they affect the behaviors of firm. The model suggests that, sometimes, firms react to external events; hence, the external events determine the course of action taken by industry players (Kunc, 2003). Consequently, the external events influence the evolution of the industry. At other times, it is a given firm that causes reactions among other firms shaping the industry.

IEM places emphasis on knowledge and learning as a key element that fosters change (Malerba, 2006). The theory proposes that firms can learn and adapt to events that are taking place in its environment. Since different agents have different capabilities, they respond to external events in different ways. The learning behaviors of agents are also bounded by technological, cultural, structural, and institutional characteristics. Consequently, different firms react differently when confronted by similar events. For instance, when an innovative solution emergence, firms within a given industry react to these innovation at different rate. Firm that have high technological capabilities and an adaptive culture are quick to adapt the innovation, which gives them the first mover advantage. These firms become the dominant players in the industry.

The retail industry has an oligopolistic market structure. A significant factor that has led to the development of this structure is the rapid rate of change within the industry. Industries that have a rapid rate of change have a highly uncertain business environment (Seker, 2009). Firms that operate in such uncertain environment place emphasis on adaptive strategies rather than focusing on strategies that can only work well in finely tuned environment. The retail industry has numerous changing dimensions. Products, consumer preferences and technologies are continuously evolving. These changing dimensions elicit different reactions from industry players leading to the development of a fluid competitive space.

Players within the retail industry mainly engage in competitive negotiations in areas such as price, technology development, and product development. When one player develops a new product or technology, other competitors react by developing substitutes to this product or technology so as to erode the competitive advantage of the original product or technology. Retailers also shape the industry through cooperative negotiations strategy on issues such regulations. For instance, retailers acted in unison in opposing the Employee Free Choice Act that would make it easy for the retail workforce to unionize (Hamstra, 2009).

The industry evolution model does not consider the interaction between rival firms only. It also considers how interaction between firms and other competitors such as customers, suppliers, labor unions, and other interest groups shapes the industry (Malerba, 2006). While retailers maintain a competitive relationship among themselves, their relationship with other agents such as suppliers and customers is a cooperative one. The retailers cooperate with their customers so as to create loyalty and promote repeat purchases. Many retailers have customer relationship programs such as reward schemes. The retailers also have a cooperative relationship with suppliers. Wal-Mart invests enormous amounts of resources in supplier development so as to enhance efficiency, the quality of their offers, and the reliability of supplies. Retailers choose to cooperate with suppliers and customers in order to create win-win outcomes. This relationship shapes the industry’s customer and supplier management practices. However, the relationship between the retailers and labor unions is competitive in nature. Labor unions advocate for an increase in salaries while retailers emphasize cost reduction and profit maximization. The conflict of interest between these two agents has shaped the industry human resource practices.

The Allen’s Fishing Experiment proposes that it is possible for an agent to influence behaviors of other agents and shape the industry by utilizing information optimally. In this model, firms take proactive steps to bring changes to the industry rather than react to changes that other actors bring (Kunc, 2003). Firms take actions that initiate the feedback mechanism from other industry players leading to a change in the entire industry (Kunc, 2003). Firms that take such proactive strategies are known as proactive behavioral type firms. Wal-Mart falls within this category. The firm creates its own information based on examination of the market. It seeks to manage the evolution of the market rather than react to external pressure. Wal-Mart has an elaborate business intelligence system that it uses to gather and process data regarding customers, competitors and other market trends. The firm uses this knowledge to inform the decisions of the firm leading to changes. Wal-Mart also shares its intelligence with its major suppliers in order to inform their decision concerning product features and quality. These actions have made Wal-Mart more appealing to consumers, thereby, increasing its profitability. An increase in profit has, in turn, given Wal-Mart the financial muscle to acquire competitors and start new stores leading to the creation of an oligopolistic market structure (Beresteu, Ellickson & Misra, 2010). This market structure has made it difficult for new entrants to join the industry, thus, protects the market share of existing players.

Conclusion

The analysis shows that the retail industry has numerous changing dimensions, which make the industry environment unpredictable. Consequently, Wal-Mart needs to develop adaptive strategies rather than linear and rigid strategies. The analysis shows that Wal-Mart tends to create its own environment rather than react to external forces. Wal-Mart shapes the industry environment by making optimal use of market data to inform decision that have a momentous effect on the industry. Wal-Mart needs to contribute to the development and long-term sustainability of the industry by innovating and developing new technologies. The firm should also promote sustainable business practices by acting responsibly towards the environment, local communities, employees and other stakeholders.

References

Kunc, M., (2003). Industry evolution: A dynamic behavioral model. Retrieved from http://www.systemdynamics.org/conferences/2003/proceed/PAPERS/170.pdf

Malerba, F., (2006). Innovation, Industrial Dynamics and Industry Evolution: Progress and the Research Agendas. Retrieved from http://www.ofce.sciences-po.fr/pdf/revue/4-97bis.pdf

Beresteu, A., Ellickson, P., & Misra, S., (2010). The Dynamics of Retail Oligopoly. Retrieved from http://www.pitt.edu/~arie/SMdynamics.pdf

Hamstra, M., (2009). Retailers still oppose the EFCA. Retrieved from http://supermarketnews.com/laws-amp-regulations/retailers-still-opposed-efca