BUSML 4490 Innovation, Entrepreneurship L5 Ch 7

Why do firms focus on Incremental Innovation

-Economic incentives-established companies 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 , network of firms may not change as quickly as they'd like which puts a constraint on developing new innovations

Introduction Stage (Innovation and industry life cycle)

-Need good R&D (research and development) because it is necessary to create new product category -High entry barriers- might be working with equipment not designed for new product. Dont have many employees who know how to produce the product -First mover disadvantages- Have to spend $ to educate consumers on new product category. Have to find distribution channels, and complementary assets Strategic Objective of introductory stage- Market acceptance and future growth -One way to get market acceptance- network effects

Radical Innovation

-Use new technologies to new markets -New methods and materials -Entirely new knowledge base or recombination of existing knowledge New markets, developing new products EX: SPaceX plans to offer frequent travels to mars and eventually colonize mars

Innovation and the Industry Life Cycle

1. Introduction 2. Growth 3. Shakeout 4. Maturity 5. Decline

Advantages of Platform Businesses

1. Platforms scale more efficiently then pipelines by eliminating gate-keepers 2. Platforms create new sources of value creation and supply 3. Platforms benefit from community feedback

markets-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 inventor exclusive rights for a specified period of time in exchange for public disclosure of the underlying idea.

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 Platforms can be defined along 3 dimensions: 1. A platform is business that enables value-creating interactions between external producers and consumers 2. The platforms overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency thereby enabling value creation for all participants 3. The platform provides an infrastructure for these interactions and sets governance conditions to them.

Laggards (crossing the chasm)

Enter the market during decline stage -16% of total market potential Adopt a new product only if necessary Generally dont want new technology Typically not pursued as future customer -Demand small

Early Adopters (crossing the chasm)

Enter the market during the growth stage -13.5& of total market potential Demand is driven by imagination and creativity -Not technology^ To capture these customers: -We must directly communicate products potential

Technology Enthusiast (crossing the chasm)

Enter the market during the introductory phase -2.5% of market potential Have an engineering mind Proactively pursue new technology Enjoys using beta versions Tinker with product imperfections -doesn't guarantee product will be successful this group of customers is vastly different from majority of customers

Late Majority (crossing the chasm)

Enter the market during the maturity stage -34% of total market potential Not as confident in their ability to master the technology -Wait until standards have emerged Represent the majority of the market Buy from well established firms EX An internet user in the late majority may have just joined Facebook in 2019. (My mom)

early majority (crossing the chasm)

Enter the market during the shakeout stage -34% of total market potential "What can this do for me?" -Weigh the benefits and costs carefully -rely on endorsements of others *This group is key to catching the growth wave* -*really need to capture early majority to be able to grow*

Architectural Innovation

Existing technology leveraged into new markets Known components used in a new way EG: Financial institutions

disruptive innovation

Leverages new technologies in existing markets New product/process meets existing customer needs EX: Using autonomous cars to disrupt ride sharing

Provider (platform ecosystem)

Offer the interfaces for the platform enabling its accessibility

Maturity Stage (Innovation and industry life cycle)

Only a few large firms remain -They enjoy economies of scale-bc price competition is large they need to utilize economies of scale -process innovation has reached a maximum-cant decrease price Demand: replacement or repeat purchases Market has reached maximum size -industry growth zero or negative/stagnate

idea

Presented in terms of abstract concepts or as findings derived from basic research

Platform ecosystem

The market environment in which all players participate relative to the platform. -Producers create or make available a product or service that consumers use. -The owner of that platform controls the platform IP address and controls who may participate in what ways. -The provider of the platform offers the interface for the platform, enabling its accessibility online

Shakeout Stage (Innovation and industry life cycle)

The rate of growth declines Firms begin to intensely compete -weaker firms forced out at this stage -Industry consolidation some firms will be bought out or merge -Only the strongest competitors survive Price is important competitive weapon- this is where you want to ramp up process innovation, this will allow you to decrease costs and compete on price

invention

Transformation of an idea into a new product or process or the modification and recombination of existing ones -If invention is useful, novel and non-obvious it can be patented

technology trajectory (curved line)

Used by disruptive innovator to invade market segments from the bottom up Begins as low cost solution to existing problem The rate of technological improvement increases EX: Tesla saw it as necessary to provide a better solution to attractive electric cars, they started with model 3 and continued to innovate and now are the premier player in the electric space

incremental innovation

When you use existing technologies on existing markets you wont change products and they use the same technology they used before except they're making it a little bit better -Builds on established knowledge -Steady improvement -Targets EXISTING markets and technologies *Most innovation comes from incremental innovation, product improvement over time*

Traditional linear business

a firms value chain captures internal activities a firm engages in, beginning with raw materials and ending with retailing and after-sales service and support

crossing the chasm framework

conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group -Majority of consumers want something at a lower price and is already somewhat well established. This is the problem firms face when trying to introduce a new innovation consists of -tech enthusiast (2.5%) -Early adaptors (13.5%) -Early Majoirty (34%) -Late Majority (34%) -Laggards (16%)

Innovation

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

Trade Secrets

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

how to respond to disruptive innovation

Continue to innovate -Stay ahead of the competition Disrupt yourself Launch a different, independent unit -Different business model - Identify customers basic need -Segment customers by job- what kind of jobs do they want done in this market? This will tell you how to solve the problems at the bottom level -Develop low cost ways to deliver basic functionality

Owner (Platform ecosystem)

Controls platform IP address and who can participate and in what ways

Producers (Platform Ecosystem)

Create or make product available that customers use

Decline Stage (Innovation and industry life cycle)

Demand falls rapidly -Innovation efforts stop -Strong pressure on prices Four Strategic options to pursue during decline stage: 1. Exit: bankruptcy/liquidation 2.Harvest: reduce further investments 3. Maintain: support at given level (BAD IDEA) 4. Consolidate: Buy rivals

Growth Stage (Innovation and Industry life cycle)

Demand increases rapidly -first time buyers rush to purchase because -Proof of concept has been demonstrated Product service standards emerge -a common set of features and design choices Some firms will continue to adapt a differentiation strategy -Other firms will employ cost-leadership strategy