Business Policy - Chapter 7: Innovation and Entrepreneurship
What is innovation?
A novel and useful idea that is successfully implemented
Incremental Innovation (Definition)
Builds on established on knowledge base Results from steady improvement Targets existing markets with existing technology EX: Gillette blades (one to six)
Closed vs. Open Innovation
Closed Innovation: New products discovered, developed, and commercialized internally Open Innovation: Ideas and innovation can original from external sources -customers -suppliers -universities -start-ups -competitors
How to respond to disruptive innovation?
Continue to innovate: stay ahead of the competition Guard against disruptive innovation: protect the low end of the market Disrupt yourself: rather than wait for others to disrupt you, called reverse innovation
Industry Lifecycle - Introduction Stage
Core competency: R&D Strategic objective: market acceptance & future growth• Emphasis: uniqueness & performance Capital-intensive -trying new ideas -producing small quantities Initial market size: small Growth: slow Barriers to entry: high
How did IT and Logistics lead to new industries?
Created overnight express deliveries (FedEx) Created big-box retailing (Walmart)
Maturity Stage
Few large firms remain -they enjoy economies of scale Additional market demand is limited Market has reached maximum size Competitive intensity: increases
Shakeout Stage
Firms begin to compete more intensely -weaker firms forced out -the industry consolidates -only the strongest competitors survive Biggest competitive weapon: low price
What are the four strategic options to pursue in the Decline Stage?
GET FROM SOMEONE
What are the fundamental questions of strategic entrepreneurship?
How to combine entrepreneurial actions... How to create new opportunities... How to exploit existing opportunities... ...in pursuit of competitive advantage
What caused shift from closed to open innovation?
Increasing supply and mobility of skilled workers Exponential growth of venture capital Availability of options to commercialize ideas (EX: spinning out new ventures) Increasing capability of suppliers globally
Incremental vs. Radical Innovation
Incremental Innovation: -Builds on established on knowledge base -Results from steady improvement -Targets existing markets with existing technology EX: Gillette blades (one to six) Radical Innovation: -Draws on novel methods & materials -Forms from an entirely new knowledge base, or -Forms from a recombination of existing knowledge -Targets new markets with new technology
What causes Rapid Technological Diffusion and Adoption?
Initial Innovations are foundational for other rapid innovation New Business Models make innovation possible (EX: Dell's direct to consumer model) Satellite and cable distribution systems (Enable mass media such as radio and TV) The emergence of the internet (Social networking and viral messaging)
Architectural Innovation (Definition)
Leverages existing technology into new markets Alters the architecture of product A new product, with known components, used in a novel way
Disruptive Innovation (Definition)
Leverages new technologies into existing markets New product/process meets existing customer needs
EXHIBIT 7.7 Crossing the Chasm
Many innovators do not successfully transition from one stage of the industry life cycle to the next
Entrepreneurship
Undertake economic risk to innovate - results in new products, processes, and organizations Agents who introduce change
Strategic Entrepreneurship
the pursuit of innovation using tools and concepts from strategic management EX: Apple - Innovation in Mobile Devices
The 5 Phases of an Industry Lifecycle
1. Introduction 2. Growth 3. Shakeout 4. Maturity 5. Decline Supply and. demand changes as the industries age Each stage requires different competencies
Architectural vs. Disruptive Innovation
Architectural Innovation: -Leverages existing technology into new markets -Alters the architecture of product -A new product, with known components, used in a novel way Disruptive Innovation: -Leverages new technologies into existing markets -New product/process meets existing customer needs
Decline Stage
Demand falls, often rapidly Strong pressure on prices Four Strategic options to pursue: FILL IN HERE
Growth Stage
Demand increases rapidly -first-time buyers rush to purchase -proof of concept completed Competitive rivalry: muted (due to growth) -unique to growth stage Product / service standards emerge -a common set of features and design choices Basis of competition: process innovation• Core competencies: -Manufacturing -Marketing
Radical Innovation (Definition)
Draws on novel methods & materials Forms from an entirely new knowledge base, or Forms from a recombination of existing knowledge Targets new markets with new technology EX: First Airplane
Why are incumbent firms focused on incremental innovation?
Economic Incentives: established companies are focused on defending their position Organizational Inertia: established companies rely on formalized business processes and structures Innovation Ecosystem: established companies are part of an ecosystem (suppliers, buyers, complementors)
Incremental Innovation
Existing Markets Existing Technologies
Disruptive Innovation
Existing Markets New Technologies
How did the Nanotechnology lead to new industries?
Medical diagnostics and surgery Lighter and Stronger Airline Components
Architectural Innovation
New Markets Existing Technolgies
Radical Innovation
New Markets New Technologies
Network Effects
Occurs in introduction stage the positive effect that one has on the value of a product for other users EX: Apple's iPhone
How did the Internet lead to new industries?
Online retailing (Amazon & eBay) Revolutionized advertising (Yahoo, Google, FB)
Exhibit 7.6 Growth Stage: Product vs. Process Innovation
Process innovation becomes more important at shakeout phase
Examples of Entrepreneurship
Reed Hastings: Netflix Oprah Winfrey: Harpo Productions Elon Musk: Tesla Motors, Solar City, SpaceX, and PayPal
Jimmy Whales
The founder of Wikipedia and an example of social entrepreneurship (500 million users per month) One of the first to grasp the power of an open source method Goal: provide knowledge on a very large-scale Wikipedia supports via donations not advertising (Typifies a sense of idealism)
Social Entrepreneurship
The pursuit of social goals AND creation of a profitable business EX: Jimmy Wales