MAN 4720 FSU Rousseau Chapter 7: Business Strategy-Innovation, Entrepreneurship and Platforms

Standard

Signals the market's agreement on a common set of engineering features and design choices -Can be created bottom-up through competition or from the top-down by the government or other standard-setting agencies

Entrepreneurs

The agents that introduce change into the competitive system -They do this by not only figuring out how to use inventions, but also introducing new products or services, new production processes, and new forms of organizations

Technology Enthusiasts

The customer segment in the introductory stage of the industry life cycle -Smallest market segment (2.5%) -Tend to have an engineering mindset, pursue technology actively, offering free feedback, and enjoy using beta versions

Early majority

The customers entering the market during the shakeout stage -Their main consideration in deciding whether or not to adopt a new technological innovation is a strong sense of practicality

Early Adopters

The customers entering the market in the growth stage -Are eager to buy into a new technology or product concept -Ask "what can this product do for me and my business?"

Harvest strategy

The firm reduces investments in product support and allocates only a minimum of human and other resources

Maturity Stage

The industry morphs into an oligopoly with only a few large firms -Demand now consists of the replacement or repeat purchases

Network Effects

The positive effect that one user of a product or service has on the value of that product for other users

Decline Stage

The size of the market contracts as demand falls, often rapidly

How incumbent firms can respond to disruptive innovation

-Continue to innovate to stay ahead of the competition -Guarding against it by protecting the low end of the market -Disrupt yourself, rather than waiting for other firms to disrupt you

Why incumbent firms tend to focus on incremental innovation

-Economic incentives: they must defend their position -Organizational inertia: they have formalized processes and structures -Innovation ecosystem: they rely on certain suppliers, buyer, and complementors

Strategic options during the decline stage

-Exit -Harvest -Maintain -Consolidate

Types of Innovation

-Incremental -Radical -Architectural -Disruptive

Additional characteristics of disruptive innovation

-It begins as a low-cost solution to an existing problem -Initially, its performance is inferior to existing technology, but its rate of technological over time is faster than the rate of performance increases by different market segments

Players in the platform ecosystem

-Owner: controller of IP platform -Providers: interface for the platform -Producers -Consumers

Product and process innovations in the industry life cycle

-Product innovations are high in the introduction stage and decrease gradually over time -Process innovations are low in the introduction stage, peak in the maturity stage, and decrease in the decline stage (bell curve)

Advantages of the platform business model

-They scale more efficiently by eliminating gatekeepers -They unlock sources of value creation and supply -They benefit from community feedback

The Four I's of Innovation

1. Idea 2. Invention 3. Innovation 4. Imitation

Time period for a patent in the U.S.

20 years from the filing date of the application

Crossing the chasm framework

A bell curve visual that displays the different customer segments throughout the industry life cycle and where firms to tend to fall out of the industry -Consists of technology enthusiasts, early adopters, early majority, late majority, and laggards

Long Tail

A business model in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices -Netflix

Market-and-technology framework

A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions.

Patent

A form of intellectual property that gives the inventor exclusive rights to benefit from commercializing technology for a specified time period in exchange for public disclosure of the underlying idea

Architectural innovation

A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets

Cloud Computing

A real-time network of shared computing resources via the Internet -Rather than requiring the users to download the appropriate software on their computer, the software is maintained and updated in the cloud

Industry Life Cycle

As an industry evolves over time, we can identify five distinct stages: introduction, growth, shakeout, maturity, and decline.

Double-edged sword

Describing patents -On one hand, they provide a temporary monopoly which can lead to a competitive advantage -On the other hand, they require full disclosure of the underlying technology and the know-how so others can freely use when the patent expires

Reverse innovation

Developing products in emerging markets and then distributing them to developed markets -Allows a firm to disrupt itself

Platform Business

Enables interaction between producers and consumers -Overarching purpose is to enable matches among users and facilitate the exchange of goods, services, or social currency

Late Majority

Enter the market in the maturity stage -Not as confident in their ability to master new technology -Prefer to buy from well-established firms with a strong brand image

The Chasm

Exists between the early adopters and early majority customer segments where many firms struggle have a high failure rate

Strategic objective during the introduction stage

To achieve market acceptance and seed future growth -Can use network effects to achieve it

Key objective during the growth stage

To stake out a strategic position not easily imitated by rivals

Laggards

the last consumer segment to come into the market, entering during the decline stage -Customers who only adopt the product if necessary

Shakeout stage

the rate of growth declines, firms begin to directly compete against each other for market share, and the weaker firms are forced out of the industry -Price becomes a more competitive weapon

Radical innovation

An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from recombination of the existing knowledge bases with a new stream of knowledge -Occurs in new markets with new technology

Incremental innovation

An innovation that squarely builds on an established knowledge base and steadily improves an existing product or service -Performed with existing technology in existing markets

Consolidate strategy

Buying rivals in a declining industry

Intra-preneurs

Change agents within existing companies that pursue corporate entrepreneurship

Innovation

Concerns the commercialization of an invention -Leads to temporary monopoly profits and competitive advantage

Maintain strategy

Continuing to support marketing efforts at a given level despite the decrease in demand

Entrepreneurship

Describes the process by which change agents undertake economic risk to innovate - to create new products, processes, and sometimes new organizations -Innovate by commercializing ideas and inventions -Seek or create new business opportunities and then assemble the resources necessary to exploit them

Strategic Entrepreneurship

Describes the pursuit of innovation using tools and concepts from strategic management

Social entrepreneurship

Describes the pursuit of social goals while creating profitable businesses -Use the triple bottom line to evaluate their performance

Invention

Describes the transformation of an idea into a new product or processes, or the modification and recombination of existing ones

Herding effect

Happens when the early majority enter the market

The fundamental question of strategic entrepreneurship

How to combine entrepreneurial actions, creating new opportunities or exploiting existing ones with strategic actions taken in pursuit of competitive advantage

First-Mover Advantages

Includes economies of scale, learning-curve effects, experience-curve effects, network effects -Benefits successful innovators

Requirements for an invention to be patented in the U.S.

It must be useful, novel, and non-obvious

Disruptive innovation

Leverages new technologies to attack existing markets from the bottom up

Pipeline Businesses

Linear transformation through the value chain -R&D -> Design -> Manufacture -> Sell

Key success factors during the shakeout stage

Manufacturing and process engineering capabilities that can be used to drive down costs

Winner-take-all markets

Many markets where network effects are important, where the market leader captures most of the market share

Ways to categorize innovation

Measure the degree of newness in terms of technology and markets

Product Innovations

New or recombined knowledge embodied in new products -Such as the jet airplane, electric vehicles, smartphone, and wearable computer

Process innovations

New ways to produce existing products or deliver existing services -Do not need to be high-tech to be impactful

Growth Stage

Occurs after the innovation has gained some market acceptance -Demand and market growth increase -Standards emerge -Core competencies move toward manufacturing and market capabilities

Resetting the industry life cycle

Occurs if a significant technological or business model breakthrough emerges

Idea

Often presented in terms of abstract concepts or as findings derived from basic research -Starts the beginning of the innovation process

Trade Secrets

Valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy

Introduction Stage

When an individual inventor or company launches a successful innovation, a new industry may emerge -Innovator's core competency is R&D and is a very capital intensive process

Imitation

Where competitors copy the successful innovation and thus ends the innovation process