BUS 189 (Ch7-10, 12)

standard

GROWTH PHASE an agreed-upon solution about a common set of engineering features and design choices factors affecting establishment of standards: -positive feedback, -network effects -lockout established by -gov, industry associations, customers in market place, courts -benefits of standards-- -compatibility between products and complements -reduced customer confusion -lower production cost through economies of scale -lower risks for complementary products

Entrepreneurship

The process by which people (change agents) undertake economic risk to innovate—to create new products, processes, and sometimes new organizations.

real-options perspective

approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time

pipeline

captures a linear transformation with producers at one end and consumers at the other

forward vertical integration

changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain

Backward vertical integration

changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain

first-mover advantages

competitive benefits that accrue to the successful innovator -economies of scale, experience and learning-curve effects, network effects, intellectual property, switching costs -needs to be novel, useful, implemented to gain comp adv

crossing the chasm framework

conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group geoffery moore- mnay innovators unable to successfully transition from one stage of industry to the next -his core argument is that each stage of the industry is dominated by different customer group -significant differences between early (intro) and later (growth) customers which lead to big gulf/chasm which companies fall. -formulating a bus strat for each segment guided by who, what, why, and how questions of competition

co-opetition

cooperation by competitors to achieve a strategic objective -may cooperate together to create a larger pies

geographic diversification strategy

corporate strategy in which a firm is active in several different countries

product diversification strategy

corporate strategy in which a firm is active in several different product markets

product-market diversification strategy

corporate strategy in which a firm is active in several different product markets and several different countries

external transaction costs

costs of searching for a firm or an individual with whom to contract, and then negotiating, monitoring, and enforcing the contract

internal transaction costs

costs pertaining to organizing an economic exchange within a hierarchy; also called administrative costs ex. salaries and benefits, recruiting costs, office space, ect. -tend to increase with org size and complexity

strategic entrepreneurship

the pursuit of innovation using tools and concepts from strategic management

joint venture

A stand-alone organization created and jointly owned by two or more parent companies.

social entrepreneurship

the pursuit of social goals (people, profit, planet) while creating a profitable business. Use triple bottom line approach ex. TOMS

Laggards

Entering during the declining phase (about 16%) -adopt new product only if absolutely necessary -dont want new tech, personal or economic reasons

markets-and-technology framework

- A conceptual model to categorize innovations along the market (existing/ new) and technology ( existing/new) - four types of innovation emerge (IRAD): *incremental *radical *architectural *disruptive -each type of innovation has different strategic implications Technology refers to the methods and materials used to achieve a commercial objective market-whether an innovation is introduced to an existing or new market

three methods for corporate growth

-(build) organic through internal development -(borrow) external growth through alliances -(buy) external growth through acquisitions

how to respond to disruptive innovation

-Continue to innovate in order to stay ahead of the competition -Guard against disruptive innovation by protecting the low end of the market -Disrupt yourself Rather than wait for others to disrupt you--Called reverse innovation

For diversification to enhance firm performance, it must do at least one of the following:

-economies of scale -exploit economies of scope -reduce costs and increase value -restructuring and using internal capital markets

Firms vs. Markets: Make or Buy

-if in-house is less than market then vertically integrate *own production of the inputs or own output distribution channels - when firms are more efficient than the market, vertically integrate example: Google in house programmers

Advantages of Platform business model

-platforms scale more efficiently than pipelines by eliminating gatekeepers vs pipelines tend to be inefficient in managing the flow of info from producer to consumer -platforms unlock new sources of value creation and supply -platforms benefit from community feedback

Early Majority (34%)

-shakeout stage -main consideration is a strong sense of practicality -pragmatists (practical) and concerned with question of what the new tech can do for them -weigh benefits and costs carefully -aware that hype will fade -prefer to wait and see how things will "shake out" -observe -rely on endorsements by others, reputable references -winning them over is crucial to commercial success -once decide to enter market, herding effect--enter in large numbers.

Alternatives on the Make-or-Buy Continuum

-short term contracts -strategic alliances *long term contracts (licensing, franchising) *equity alliances *joint ventures -Parent-subsidiary relationships

Late Majority (34%)

-similar attitude towards tech as early majority, same concerns -not confident to master the new technology -prefer to wait until standards have emerged and are firmly entrenched -prefers to buy from well-established firms, strong brand names maturity stage

Offshoring

-to offshore outsourcing -outsourced activities take place outside the home country

Governing Strategic Alliances

1) contractual agreements for non-equity alliances 2) equity alliances 3) joint ventures

Why do firms enter strategic alliances?

1. Strengthen competitive position 2. Enter new markets 3. Hedge against uncertainty 4. Access critical complementary assets 5. Learn new capabilities

Why firms need to grow

1. increase profits 2. lower costs 3. increase market power 4. reduce risk 5. motivate management

Radical Innovation

An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge. -targets new markets by using new tech -once firms achieve market acceptance of a breakthrough innovation, follow up with incremental innovations -generally introduced by entrepreneurial ventures because economic incentives, organizational inertia, and firm's embeddedness in an innovation process (reasons why incumbent firms tend to be source of incremental rather than radical)

reverse innovation

An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation allows firms to disrupt itself.

benefits and risk of vertical integration

BENEFITS: +lowering costs +improving quality +facilitating scheduling and planning +securing critical supplies and distribution channels RISKS: -increasing costs -reducing quality -reducing flexibility -increasing potential for legal repercussions

build-borrow-or-buy framework

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

related diversification strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

unrelated diversification strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business and there are few, if any, linkages among its businesses.

economic incentives

Established companies are focused on defending their position and emphasize incremental innovations to strengthen that position--maintain high barriers to entry

disadvantages make

FIRM: -admin costs -low powered incentives -principal agent problem MARKETS: -search costs -incomplete contracting -opportunism by other parties -enforcement of contracts

Advantages of Make

FIRMS: -command and control decisions -coordination of highly complex tasks -transaction-specific investments -creation of a community of knowledge MARKETS: -high-powered incentives -increased flexibility

Innovation vs Invention

In its purest sense, invention can be defined as the creation of a product or introduction of a process for the first time. Innovation, on the other hand, occurs if someone improves on or makes a significant contribution to an existing product, process or service.

Technology Enthusiasts

Introductory phase of the industry life cycle (2.5%) -smallest market segment -engineering mind-set and pursue tech proactively -seek out new products before introduced to market--beta versions, tinkering with product imperfections and providing free feedback/suggestions

Understanding relevance, tradability, closeness, and integration (RTCI)

R: How relevant are the firm's existing internal resources to solving resource gap? T: how tradable are the targeted resources that may be available externally? C: how close do you need to be to your external resource partner? I: how well can you integrate the targeted firm , should you acquire?

introduction stage

The initial stage of a product's life cycle; its first appearance in the marketplace, when sales start at zero and profits are negative -Core comp is R&D, marketing -Capital intensive process -initial size market and growth is small -High barriers of entry -performance over price -first mover advantage and disadvantages -educate consumers, find distribution channels, perfect product -the strategic objective is to achieve market acceptance and seed future growth -->network effects (the positive effect that one user of a product or service has on the value of that product for other users)

Shakeout Stage

When growth and profitability are slowing due to strong competition; Growth has slowed; Intense competition; Increasing industry overcapacity; Decreased profitability; Increased cost cutting; Increased failures firms competing directly against one another for market share, rather than trying to capture piece of pie -weaker firms forced out industry -price cuts -offer more services -industry consolidation--acquired or bankruptcy -key success factors are manufacturing and process engineering capabilities that to drive costs down. Process innovation increases

conglomerate

a company that combines two or more strategic business units under one overarching corporation; follows an unrelated diversification strategy

Boston Consulting Group Matrix

a corporate planning tool in which the corp is viewed as a portfolio of business units, which are represented graphically along relative market share (x-axis) and speed of market growth (y-axis). SBUs are plotted into four categories (dog, cash cow, star, question mark), each of which warrants a different investment strat.

innovation ecosystem

a firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making -no longer make independent decisions but must consider the ramifications on other parties in their innovation ecosystem

patent

a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea -time-period~ 20 years from the filing date

Licensing

a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property

core competence-market matrix

a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets NEEN Y-axis-core comp x-axis- market

related constrained diversification strategy

a kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business

related linked diversification strategy

a kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages

Franchising

a long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name

credible commitment

a long-term strategic decision that is both difficult and costly to reverse

architectual innovation

a new product in which known components, based on existing technology, are reconfigured in a novel way to attack new markets -leveraging existing tech into new markets -

transaction cost economics

a theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage -help strategic leaders decide what activities to do in-house vs what to obtain externally

strategic alliance

a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

taper integration

a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution ex. apple owns retail locations but also uses other retailers, both the brick and mortar and online -allows a firm to retain and fine-tune its competencies in upstream and downstream value chain activities

transaction costs

all internal and external costs associated with an economic exchange, whether within a firm or in markets

Platform Strategy

an enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages -multisided markets

Diversification

an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes

disruptive innovation

an innovation that leverages new technologies to attack existing markets from the bottom up -invades existing market from the bottom up -new tech has to have additional characteristics ---low cost solution to an existing problem, performance inferior to existing tech at first but rate of technological improvement over time is faster than the rate of performance increases -one factor driving success of it is that it relies on a stealth attack--invades market from the bottom up by first capturing the low end -another factor is incumbent firms often are slow to change

incremental innovation

an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service -the vast majority of innovations -targets existing market using existing tech

industry value chain

depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing -"vertical value chain" generic stages: -stage 1: RM 2: components, intermediate goods 3: final assembly, manufacturing 4: marketing, sales 5: after sales service and support

dominant business

derives between 70 and 95% of its revenues from a single business, but it pursues at least one other business activity that accounts for the remainder of revenue

Corporate Diversification and Firm Performance

does corporate diversification indeed lead to superior performance? are the individual businesses worth more under company's management than if managed individually - high and low levels of diversification = lower performance - moderate levels of diversification = higher firm performance

Early Adopters (13.5%)

eager to buy early into a new tech or product concept -their demand is driven by their imagination and creativity rather than technology -recognize possibilities new tech can afford them in life -demand is fueled more by intuition and vision rather than tech concerns -the firm needs to communicate the product's potential applications in more direct way growth phase

Short head, long tail

economic model where a few groups/people sell a lot of a product, but many groups sell little of a product 80-20 rule, 80% sales comes from 20% of selection/products found in short head

specialized assets

investment in specialized assets because of vertical integration Unique assets with high opportunity cost: They have significantly more value in their intended use than in their next best use. They come in three types: site specificity, physical asset specificity, and human-asset specificity.

explicit knowledge

knowledge that can be codified; concerns knowing about a process or product patents, user manuals, fact sheets

tacit knowledge

knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task...frequently exchange personnel to make the acquisition of tacit knowledge possible

single business

low level of diversification; more than 95% of revenue comes from a single business

winner-take-all system

markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created

strategic outsourcing

moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain -reduces its level of vertical integration ex. peoplesoft

product innovation

new or recombined knowledge embodied in new products At max at intro stage

process innovation

new ways to produce existing products or deliver existing services made possible through six sigma, biotech, nanotech ect. -at min at intro stage

paradigm shift

occurs when a new radical form of business enters the market that reshapes the way companies and organizations behave when a fundamental and/or monumental change or disruption occurs in current processes, models or perceptions. They very often happen when new technology is introduced that radically alters the production process of a good or service.

non-equity alliance

partnership based on contracts between firms pros: -Flexible, fast, easy to initiate and terminate ex. licensing agreements risks: sometimes produce weaker ties between the alliance partners---lack of trust and commitment b/c temporary

equity alliance

partnership in which at least one partner takes partial ownership in the other pros: -stronger tie -trust and commitment can emerge -window into new tech (option value) ex. venture capital investment or investment in plant or purchase of an equity stake "try before you buy" option risks: -possible lack of flexibility and speed putting together and reaping benefits -amount of investment

organizational inertia

resistance to changes in the status quo incumbent firms tend to favor incremental innovations that reinforce the existing organizational structure and power distribution

principal-agent problem

situation in which an agent performing activities on behalf of a principal (shareholders) pursues his or her own interests (ex. private jet, managerial perks) -one way to combat is to give stock options

information asymmetry

situation in which one party is more informed than another because of the possession of private information -can result in crowding out of desirable goods/services by inferior ones -can lead to lemons problem -caveat emptor-- buyer beware -

diversification discount

situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units

diversification premium

situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units

learning races

situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary

maturity stage

stage of the product life cycle when industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them oligopoly with only few large firms, -demand consists of replacement or repeat purchases -market reached maximum size -product innovation sinks to min -larger firms that enjoy economies of scale

decline stage

stage of the product life cycle when sales decline and the product eventually exits the market changes in external environment often take industries to decline stage size of market contracts, demand falls rapidly -innovation along product and process cease -have four strategic options: exit, harvest (reduces investments in product support, min resources), maintain, or consolidate (buy rivals)

relational view of competitive advantage

strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries

Entrepreneur

the agents that introduce change into the competitive system

innovation

the commercialization of any new product or process, or the modification and recombination of existing ones

Corporate Strategy

the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously -provides answers of where to compete +++along 3 dimensions: +vertical integration (what parts of value chain should company participate in?) +diversification (what range of products/services offer) +geographic scope (where to compete geographically)

Innovation Process

the discovery, development, and transformation of new knowledge in a 4 step process ~idea, invention, innovation, and imitation. idea- abstract concepts derived from basic research invention- the transformation of an idea into a new product or process, or the modification and recombination of existing ones. innovation- imitation- if innovation is successful compts will try to imitate it

Vertical Integration

the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs can be measured by a firm's value added: What percentage of a firm's sales is generated within the firm's boundaries

Industry Life Cycle see chart page 241 (442 pdf)

the five different stages - introduction, growth, shakeout, maturity, and decline - that occur in the evolution of an industry over time

Platform Ecosystems

the market environment in which all players participate relative to the platform -producers (creators of the platform's offerings), consumers (buyer/user of offering), providers (interfaces for the platform), owner (controller of platform IP)

Growth Stage

the second stage of the product life cycle when sales typically grow at an increasing rate, many competitors enter the market, large companies may start to acquire small pioneering firms, and profits are healthy -demand increases rapidly as first-time buyers rush to enter the market -standards--can emerge from the bottom up from competition or top-down by the government, etc. both inefficient and efficient firms thrive, more prices begin to fall, standard business processes put into place, reap economies of scale and learning, distribution channels expanded move away from product innovation and towards process innovations core comps-- marketing, manufacturing, R&D shifts to process innovation strategic variety, some will do differentiation, some will do cost leadership Key objective--stake out a strong strategic position not easily imiated by rivals

trade secret

valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy ex. coca-cola recipe

Strategic Alliances

voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

vertical market failure

when the markets along the industry value chain are too risky, and alternatives too costly in time or money