MMS 450 Midterm 2
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 choice Example: Netflix and streaming via the internet
Technology Enthusiasts
A customer segment in the introductory stage of the industry life cycle. Often have an engineering mind-set and pursue new technology proactively, frequently seeking out new products before they are officially introduced to the market Example: People who test Betas, A recent example of an innovation that appeals to technology enthusiasts is Google Glass, a mobile computer that is worn like a pair of regular glasses. Instead of a lens, however, one side displays a small, high-definition computer screen. Google Glass allows the wearer to use the Internet and smartphone-like applications via voice commands (e.g., conduct online search, stream video, and so on).
Innovation Ecosystem
A firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making · A network of suppliers, buyers, complementors, and so on · They no longer make independent decisions but must consider the ramifications on other parties in their innovation ecosystem · Continuous incremental innovations reinforce this network and keep all its members happy, while radical innovations disrupt it
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 · If an invention is useful,novel, and non-obvious it can be patented § Exclusive rights often translate into a temporary monopoly position until the patent expires as they bestow exclusive rights on the patent owner to use a novel technology for a specified time period · Can form the basis of competitive advantage § Because patents require full disclosure of the underlying technology and know-how so that other can use it freely once the patent protection has expired, many firms find it beneficial not to patent their technology Example: Pharmaceutical drugs
Architectual Innovation
A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets Example: Xerox and how they didn't attack small or medium sized businesses so Canon addressed a need in a specific consumer segment
Standard
An agreed-upon solution about a common set of engineering features and design choices · Standards can emerge from the bottom up through competition in the marketplace or be imposed from the top down by government or other standard-setting agencies
Platform Business
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 o Effective use of technology allows platform firms to drastically reduce the barriers of time and space: Information is available in real time across the globe, and market exchanges can take place effectively across vast distances or even in small geographic spaces Examples: Apple, Alphabet, Amazon, Microsoft and Facebook.
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 o Targets new markets by using new technologies o Firms use radical innovation to create a temporary competitive advantage § Then they follow up with a string of incremental innovations to sustain that initial lead § The innovator is outcompeted by second movers that quickly introduce a similar incremental innovation to continuously improve their own offerings 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 Examples: Car, airplane, X-ray, biotechnology, smartphones
Disruptive Innovation
An innovation that leverages new technologies to attack existing markets from the bottom up o Leverages new technologies to attack existing markets § Invades an existing market from the bottom up § Typically begins when a firm, frequently a startup, introduces a new product or process based on a new technology to meet existing customer needs · To be a disruptive force, the new technology has to have additional characteristics o It begins as a low-cost solution to an existing problem o Initally, its performance is inferior to the existing technology, but its rate of technological improvement over time is faster than the rate of performance increases required by different market segments § One factor favoring the success of disruptive innovation is that it relies on a stealth attack: it invades the market from the bottom up, by first capturing the low end · Many incumbent firms fail to defend the low end of the market, because it is frequently a low-margin business § Incumbent firms are slow to change · Tend to listen closely too their current customers and respond by continuing to invest in the existing technology and in incremental changes to the existing products o When a newer technology matures and proves to be a better solution, those same customers will switch o At that time, incumbent firms do not yet have a competitive product ready that is based on the disruptive technology Example: Laptop computers and desktop computers, educational organizations and traditional universities, Japanese car makers, digital photography and film photography • Digital photography - Improved over time - Higher definition pictures - Has largely replaced film photography • Laptops disrupted desktops - Now tablets / large screen phones are disrupting laptops • 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
Incremental Innovation
An innovation that squarely builds on an established knowledge base and steadily improves an existing product or service. o Targets existing markets using existing technology Example: Gillette blades from one to six
Reverse Innovation
An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation
First-mover Advantage
Competitive benefits that accrue to the successful innovator § Successful innovators benefit from first-mover advantages like economies of scale as well as experience and learning-curve effects · First movers may also benefit from network effects · First movers may hold important intellectual property such as critical patents · They also may be able to lock key suppliers as well as customers through increasing switching costs Example: Microsoft Word locked in customers so switching costs are high because they will have to learn a new software
Corssing-the-chasm Framework
Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group Bell shaped curve § There is a gap that separates early adopters from the early and late majority that make up the mass market § Each stage of customer segment is also separated by smaller chasms · Both the large competitive chasm and the smaller ones have strategic implications § Both new technology ventures and innovations introduced by established firms have a high failure rate · Can be explained as a failure to successfully cross the chasm from early users to the mass market because the firm doesn't recognize that the business strategy needs to be fine-tuned for each customer segment o Strategic leaders find that the core competencies to satisfy each of the different customer segments are quite different § If not address, it will lead to the demise of the innovation as it crashes into the chasm between life cycle stages MySpace was successful with the early majority, but only Facebook went on to succeed with the late majority and laggard In 2007, RIM's dominance over the smartphone market began to erode quickly. The main reason was Apple's introduction of the iPhone. Although technology enthusiasts and early adopters argue that the iPhone is an inferior product to the BlackBerry based on technological criteria, the iPhone enticed not only the early majority, but also the late majority to enter the market. For the late majority, encrypted software security was much less important than having fun with a device that allowed users to surf the web, take pictures, play games, and send and receive e-mail.
Early Majority
Customers coming into the market in the shakeout stage of the industry life cycle. Pragmatists that are mainly concerned with whether adopting a new technological innovation serves a practical purpose or not · Their main consideration is deciding whether or not to adopt a new technological innovation is a strong sense of practicality · They are pragmatists and are more concerned with the question of what the new technology can do for them · They weigh the costs and benefits carefully · They are aware that many hyped product introductions will fade away, so they prefer to wait and see how things shake out o They like to observe how early adopters are using the product o Rely on endorsement by others § They seek out reputable sources · Make up roughly one third of the entire market potential, winning them over is critical to the commercial success of the innovation o Bringing the early majority on board is the key to catching the growth wave of the industry life cycle § Once they enter the market, a herding effect is frequently observed: the early majority enters in large numbers · The significant differences in attitudes toward technology of the early majority when compared to early adopters signify the wide competitive gulf - the chasm - between these two consumer segments o Without adequate demand from the early majority, most innovative products wither away Example: Fisker Automotive, a California-based designer and manufacturer of premium plug-in hybrid vehicles, fell into the chasm because it was unable to transition to early adopters, let alone the mass market. Between its founding in 2007 and 2012, Fisker sold some 1,800 of its Karma model, a $100K sports car, to technology enthusiasts. It was unable, however, to follow up with a lower-cost model to attract the early adopters into the market. In addition, technology and reliability issues for the Karma could not be overcome. By 2013, Fisker had crashed into a chasm, filing for bankruptcy. The assets of Fisker Automotive were purchased by Wanxiang, a Chinese auto parts maker. In contrast, Tesla Motors, the maker of all-electric vehicles, and a fierce rival of Fisker at one time, was able to overcome some of the early chasms.
Laggards
Customers entering the market in the declining stage of the industry life cycle. Will adopt a new product only if absolutely necessary, generally don't want new technology, and are generally not a customer segment worth pursuing · Adopt a product only if it is absolutely necessary · They typically don't want new technology, either for personal or economic reasons · They are considered not worth pursuing · Make up roughly 16 percent of the total market potential · Their demand is too small to compensate for reduced demand from the early and late majority, who are moving on to different products and services
Early Adopters
Customers entering the market in the growth stage of the industry life cycle that are eager to buy early into a new technology or product concept. Their demand is driven by recognizing and appreciating the possibilities the new technology can afford them in their professional and personal lives · Make up roughly 13.5 percent of total market potential · They are eager to buy early into a new technology or product concept · Their demand is driven by their imagination and creativity rather than solely by the new technology o Demand is fueled much by intuition and vision as by technology concerns · Critical to opening any new high-tech market segment Example: People buying Tesla Model S or Model X without being able to test drive it, people waiting in line to buy the Apple Watch
Late Majority
Customers entering the market in the maturity stage of the industry life cycle that are less confident about their ability to master new technology. Will wait until standards have emerged and become firmly entrenched so as to ensure reduction in uncertainty. Tend to buy from well-established firms with strong brand image. · They make up approximately 34 percent of the total market potential · Drives most industry growth and firm profitability with the early majority · Similar attitudes to the early majority o Not confident in their ability to master new technology § They prefer to wait until standards have emerged and become firmly entrenched, so as to ensure reduction in uncertainty § Prefers to buy from well-established firms with a strong brand image rather than from unknown new ventures
Markets-and-technology Framework
Framework: A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions Rises to four types of innovation: Incremental, Radical, Disruptive, and Architectural
Winner-take-all Markets
Markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created § The winner is almost a monopolist so they can extract a significant amount of the value created § Any potential radical innovation threatens the incumbent firm's dominant position Example: Google and its online queries
Product Innovation
New or recombined knowledge embodied in new products Examples: Jet airplane, electric vehicle, smartphone, wearable computer
Process Innovation
New ways to produce existing products or deliver existing services o Made possible through advances such as AI, the internet and nanotechnology and so on o Doesn't need to be high-tech to be impact Examples: AI, internet, lean manufacturing, Six Sigma, biotechnology, nanotechnology
Entrepreneurs
The agents that introduce change into the competitive system o Entrepreneurs innovate by commercializing ideas and inventions § They seek or create new business opportunities and then assemble the resources necessary to exploit them § Innovation is the competitive weapon entrepreneurs use to exploit opportunities created by change, or to create change themselves, in order to commercialize new products, services, or business models § If successful, entrepreneurship not only drives the competitive process, but it also creates value for the individual entrepreneurs and society at large o Entrepreneurs are the agents who introduce change into the competitive system § They do this not only by figuring out how to use inventions, but also by introducing new products or services, new production processes, and new forms of organization § Introduce change by starting new ventures or they can be found within existing firms (intrapreneurs) Example: Reed Hastings - Netflix, Volunteered in the Peace Corps for 2 years, Educated at Stanford where he first learned about the entrepreneurial model, net worth is now $1B Oprah Winfrey - Harpo Productions, Rose from abuse & poverty to over $2 billion net worth Ended talk show to devote time to OWN TV channel Elon Musk - Tesla Motors, Solar City, SpaceX, PayPal, An engineer and serial entrepreneur Deep passion to solve environmental, social, and economic challenges
Innovation
The commercialization of any new product or process, or the modification and recombination of existing ones. Example: Netflix and its AI that uses user preferences to predict future demand and provide highly personalized viewing recommendations
Industry Life Cycle
The five different stages—introduction, growth, shakeout, maturity, and decline—that occur in the evolution of an industry over time. S-curve § Introduction When an individual inventor or company launches a successful innovation, a new industry may emerge § Growth Market growth accelerates in the growth stage of the industry life cycle § Shakeout Called the shakeout phase as only the strongest competitors survive increasing rivalry as firms begin to cut prices and offer more services, all in an attempt to gain more of a market that grows slowly, if at all § Maturity The industry structure morphs into an oligopoly with only a few large firms § Decline The size of the market contracts further as demand falls, often rapidly Innovation efforts along both product and process dimensions cease
Platform Ecosystem
The market environment in which all players participate relative to the platform Example: Uber
Entrepreneurship
The process by which people undertake economic risk to innovate—to create new products, processes, and sometimes new organizations
Strategic Entrepreneurship
The pursuit of innovation using tools and concepts from strategic management o We can leverage innovation for competitive advantage by applying a strategic management lens to entrepreneurship Example: Apple's continued innovation in mobile devices and user experience using AFI framework when deciding which new type of mobile device to research and develop, when to launch it
Social Entrepreneurship
The pursuit of social goals while creating a profitable business o Social entrepreneurs evaluate the performance of their venture not only by financial metrics but also by ecological and social contributions (profits, planet, and people) o They use a triple-bottom-line approach to assess performance Examples: Teach for Americas, TOMS, Wikipedia • Example: Jimmy Wales - Founder of Wikipedia • 500 million users per month - One of the first to grasp the power of an open source method - Goal: provide knowledge on very large-scale - Wikipedia supports via donations not advertising • Typifies a sense of idealism
Invention
The transformation of an idea into a new product or process, or the modification and recombination of existing ones
Network Effects
The value of a product or service for an individual user increases with the number of total users o Occur when the value of a product or service increases, often exponentially, with the number of users § If successful, network effects propel the industry to the next stage of the life cycle, the growth stage Example: The explosive growth of the iPhone is due to the fact that the Apple App Store offers the largest selection of apps to its users. The 1.5 million apps available were downloaded 75 billion times as of spring 2015. Apple argues that users have a better experience because the apps take advantage of the tight integration of hardware and software provided by the iPhone. The availability of apps, in turn, leads to network effects that increase the value of the iPhone for its users.
Trade Secret
Valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy Example: Coca-Cola recipe, Nutella recipe, Netflix algorithm