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What Is an Industry Lifecycle?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 27 September 2014
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An industry lifecycle is a series of stages of development an industry moves through, from the time of emergence to an eventual decline. Like biological lifecycles, industry lifecycles are inevitable and they can be easily followed and projected. Innovation and other measures can prolong an industry's lifecyle, but ultimately companies must be prepared to be adaptable to adjust to changing business, industry, and economic climates. Without flexibility, businesses can go bankrupt when the industry lifecycle catches up with them.

In the early stages of the industry lifecycle, an industry is developing. There may be a few small companies working towards a common goal and developing new products. The industry is creating a niche for itself with radical reworkings of existing products, or entirely new products. During these phases, substantial investments into development can occur, and decisions made by developers may have a lasting impact on industry standards.

In the innovation phase, dominant product designs start to emerge and individual companies work on innovating the process of producing their products. Companies also develop ways to distinguish their products and services from other companies, with features designed to be new and different. Consumers may develop brand loyalties in response to company innovations, and new companies enter the field after judging the industry's success.

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Next comes the stage known as the shakeout or cost phase. In this phase, barriers to entry begin to appear, with existing companies in the industry perfecting cost-effective production methods and keeping their costs low while new companies struggle to enter the market. Smaller companies may be driven out of business because they cannot keep up, and the dominant designs introduced in the innovation phase become more set. Mergers and acquisitions are common in this stage and the industry becomes highly consolidated.

An industry in its maturity contains several well established companies focusing on profits, in contrast with innovations and new product development. These companies are the primary source for industry products and dominate the market. Eventually, industry decline, the final stage in the industry lifecycle, sets in. During decline, industries are no longer relevant for the modern world, and companies must change or fail. This can be the result of product innovation rendering an industry's core obsolete, or other changes in the financial or industry climate.

As the industry lifecycle completes itself, there are numerous opportunities for savvy investors, inventors, and innovators. Companies capable of reinventing themselves and continuing to develop new products and innovations after they are established are more likely to weather an industry lifecycle, as are companies with the capacity for expansion into new industries.

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